Need help evaluating a purchase offer in Miami

7 Replies

Hoping to get some advice on valuing a commercial/indurstrial property and an offer that was received.

A friend owns a lot in Miami 33147 area. He operates a car repair and sales business there. He received an offer from a developer to purchase the property with 90 day inspection period and another 240 day for permits + 3 30 day extensions.

The offer came through a guy who came by the property to see if they wanted to sell and then brought a buyer a few weeks later. It's not currently listed on the market. The buyer is a big developer that intends to convert the lot into a gas station.

I am trying to figure out if the terms of waiting for the permits to come through are standard or if the buyer is trying to put the risk on the seller while tying up the property? 

How can I evaluate if the price offered is close to property value? Hard to find comps in the area, since it's a big lot with some structures and a small office, but I am guessing most of the value is in the land itself. Can someone recommend a local broker who knows the area and can give some ideas?

Does it make sense to list with a broker to get the best offer if he ends up wanting to sell?

If they want to tie up the property for such a long time, you can ask for an "option payment" so they pay you a fee for locking up the property, then if they purchase, that amount of money goes towards the purchase price.  If the seller is looking to sell, they should probably also get a Broker's valuation. Most gas stations in my area get converted into other uses, not the other way around. That area must be unique.

For a project that size that is a very long time.

A gas station for the national brands is usually Quick Trip or Racetrac. They like 2 acre type properties on corners and put in about 16 gas pumps.

I am a retail developer so typically what happens is a developer puts in their land costs to acquire, and then about 100 a foot to build, legal costs, loan construction costs, and interior improvements requested by tenant. Can be 20 to 50 a foot.

Then a developer looks at what cap rate they can sell it for on the market once the lease is in place. Those usually sell around 4 to 6 million new at a 5 to 6 cap rate.

Would not let the developer tie up the land for that long for that small of a project. If it was a large mixed use type project then yes it can take years but not a single STNL gas station. If you do let them tie up the property you should have a gradual pain point.

For example 90 days and 50,000 earnest money of which thereafter 20,000 becomes non-refundable. If extension is needed then another 10k non-refundable etc. What you are doing is holding their feet to the fire to close on the property and not get complacent. You are making more and more earnest money non-refundable so that if it is not going to work for them they will back out but if it is progressing they will keep putting in the money. If they have a ton of time they might focus on other projects and come back around to yours when the capital is more available so you do not want to give them that option.

If they do not want to put up a bunch of money then you can put in a "right to continued marketing clause". This means if another offer comes along that will give non-refundable earnest money, higher price, or a shorter timeline to close etc. then you can kick out their offer.

No legal advice given.         

Thank you both for your input!

The gradual pain point makes a lot of sense and was what we were thinking as well.

@Joel Owens Any advice on a resource to find sold comps? I saw a couple similar properties listed for sale on loopnet, but hard to determine value from those as I do not know if they end up selling for way under or have a very long DOM period. Is there an entity that keeps track of these indicators for commercial or land asset types?

You just get used to knowing the comps when you look at 500 to 1000 flyers a week across the country on what stuff is listed for and what is sells for with STNL properties.

What a developer pays for land is based on it's highest and best use. Your friend being a car lot would need to check the soil to make sure they do not have environmental contamination.  

Joel,

Can I message you the location in case you happen to know the area and can give me a ballpark value?

Are you saying that what a developer would pay based on the best use would be better than putting it on the market? I believe buyer specified they plan on doing phase 1 and 2 to check the soil.

Sure send me the info.

Generally a phase one is ordered first and then a phase 2 if something is found.

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