Need Help Evaluating Commercial Deal
In my search for a multi-family investment, I came across a commercial property (office space) that I want to analyze. Since I've been focused on MF, I haven't been sponging up knowledge about commercial RE, so I need some help please. At first glance the NOI is more than 10% of the asking price 90,000/800,000. But that only includes taxes, insurance, waste, parking lights and water/sewer. What other cap ex should I include and how much? Also, I would probably finance the due diligence...not sure what all I need to do for commercial office space or where to find out.
Also, I will probably need to raise hard money for this. When I consider, say, 8% returns, how is that calculated? Compounded annually? Also, what is typical equity spread with investors?
This could possibly be my first deal and expert advice would be appreciated.
Thanks, Terry
There's a lot that goes into underwriting an office project. You will want to be sure you understand the type of leases (full service, NNN, or something in between), zoning restrictions, remaining term, expected CapEx on releasing (for TIs and commissions), etc. Start by modeling it all to see if you can get to a satisfactory return.
As far as operating expenses, other costs to consider: janitorial, security, admin/mgmt, building repairs and maintenance.
I'm sure poking around BP you can find a bunch more of things to consider. Hopefully the above gets you started...
When you say office space is this a space ina building with other owners and an association or freestanding building?
If it is in an association what are those dues?
Other expenses: Real Estate/Contract Lawyer (best investment you will make, believe me, particularly if you are bringing partners in) and a competent CPA (ditto) familiar with Real Estate partnership complexities. Both the lawyer and CPA are key to crafting a tight and necessary Operating Agreement for the new LLC you will want to set up for your partners and yourself.
Thanks for all your replies. Greg S., the lease is a typical 1 year lease, 1500 Security Deposit...etc. It's zoned for commercial and is stabalized and several of the tenants have been there for years. My analysis shows I will get a total ROI of 9.3%. Lessee pays most of the "living" cost and plumbing and broken glass up to $200, Lessor pays water/sewer, waste removal and parking lights, plus structural cap ex...
Curtis Gabhart, there are two free standing buildings at this one address for a total of 11 units. There are no association fees.
I don't have a lot of cash to put in this investment and am looking for a creative way to raise $800,000. I am open to partnerships.