Hello everyone, I have a unique opportunity and have never dealt with anything along these lines so here goes:
My law firm owns a very nice space in a fairly large office building. The first 5 floors are parking and the top 6 floors are commercial office space. There are some vacancies (est. 10%) in the building but it's in a fairly good area for businesses. An owner down the hall recently underwent foreclosure and lost their office space but still owns 15 parking spaces free and clear. They have offered them to us as a bundle. We could use a few more for our office but don't need that many. Currently spaces rent for around $100/mo. and taxes run about $100/yr. How should I be looking at this in terms of valuation? Anyone ever done anything like this?
Is there a need for these parking spaces? Is there parking lot always full or is it mostly empty?
how it title held? are these office condominiums? I would underwrite as $1,200/year minus expenses and give it a high cap rate based on speculative appreciation risk.
$100/month x 12 months = $1,200
Less taxes of $100, or $1,100 per year is the value.
Cap rates of solid, long term leased properties are around 5%, or a value of $22,000, per space, which is way too high. A cap rate of 50%, would be $2,200.
But, these are parking spaces, which can only be used by the people working in the building, so that is a huge discount, in my humble opinion. I would start at reimbursement for this year's profits, $300, and then add next years too. Maybe a total of $1,500/ea, or so. Thoughts?
Be very sure those parking spaces were not foreclosed as well. They are usually tied to units. Review the legal description(s) of the deed(s) of trust which were foreclosed carefully.
Forgot to mention... if foreclosing lender sought and obtained a deficiency judgment, the parking spaces are likely not free and clear. Research.
@Tom Gimer We are in the process of getting all the paperwork now. I will be researching everything about the current status of the spaces. Supposedly they were not addressed in the foreclosure but they may still be connected to the property. I will post back when I get that info.
I'm with @Tom Gimer On this one. The lender likely got a mortgage "on everything included in the initial purchase". You'd have to review not only the original mtg document, but how the parking spaces may or may not (likely were) have been included/referenced to the units in the condo doc.s. Unlikely the bank would have missed these in the initial mtg. Just because they were not specifically mentioned in the foreclosure suit doesn't mean they were not included.
our city transportation department does studies of which areas have parking shortages and which don't (on-street) and overall inventory - might be good to see if you have anything of that sort you can look at.
Of course it depends on demands nearby and how easy they are to get in and out of. And things like day rate vs monthly rate business and how easy that is to do. I'd probably not go for this because you'd have to learn a whole new very niche business but that's just me.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.