Deal analysis help (Office Building)

1 Reply

So I'm a long time lurker and first time poster.  I'm not sure I'm posting this in the correct forum (didn't know whether to post in commercial or deal analysis).  If I'm in the wrong place, sorry about that and please move to the appropriate location.

I've spent the last few years of my life reading (and listening to) investment audio books including many real estate books in an effort to better manage my money in the future.  Mostly I've just been dabbling in stocks, but now this opportunity came my way.

I came across a deal on a commercial property (office building) and got the numbers a few weeks back.  I'm at a point in my life where I'm able to invest (physician who recently finished fellowship and also just made a pretty good profit on a house I sold).

The asking price for the building was $2,500,000 and the final purchase price came in at $2,300,000.  Part of me feels like I'm starting off with too big of an investment too quickly.  Just wanted some advice on the building and someone else to look at the numbers.

It's a mixed office building.  The 300 and 310 units are both the same tenant - a doctor's office who also has a rehab center (the previous owner installed an elevator for them 1 year ago).

Tenant 105 signed an extension for 3 years to 2020 last month at the same rent terms (3% annual increases from the current rent).

Unit 200 is a dentist (lots of plumbing installed specifically for them).  They have 3 different offices in the area and employ about 15 dentists.

The 100 Unit is the former owner of the building who has his office in the building.  He seemed like he a ton of experience in real estate and still has quite a few other investments in the area.  He also said that he would be willing to stay longer term.  The office itself looked like it was previously used as a doctors office, and could easily be converted back to that with just the addition of a door and one wall that was knocked down in case he decides to leave.

There is an error in the expenses moving forward from Year 2 onward (they're underestimated by about $15,000 each year starting year 2).

After seeing most of the property, the place looks like it's in very well maintained.  I'm in the due diligence period and still have the opportunity to back out.  The parking lot needs to be redone (probably can be put off another year or so) - but estimates for that came in at $30k

The roof was replaced 3 years ago and has a transferable 50 year warranty on it.

Any advice on the numbers would be greatly appreciated.  Any other thoughts, information about specific things I should look for in the property.  I'm reading through due diligence for a commercial real estate investor right now, but it's such a dense book and really scaring me how little I actually know about looking for problems. 

Any ideas on how to pick out someone to do the inspection.  Loan clauses I should look out for?

I'm a complete newbie and it's causing me some sleepless nights with the size of this mortgage.

Kabir,  I could look at this.  Do you have access to copies of the Leases and the actual Operating Statements from the last few years?  Also, do you already have a term sheet with a Lender?  

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