I am in the process of purchasing my 1st commercial Deal and I wanted to run the numbers by you all and see what you think. I do not have an inspection yet but I believe the condition of the property to be fairly good. Obviously that will affect the value and I will post once I get the inspection.
It's a 9800 SF 1 story office building in Broward county FL built in 1980. Taxes are 33k/year. Currently there are 3 tenants, the largest unit (5300SF) is also the owner of the building. All tenants are medical offices. The Largest space/current owner will actually be leaving for me to move my business into the space but for what its worth their rent is $9500/month. The other two units which are 2300SF each rent for $4500 and $5900 (this includes CAM). The tenants have 3 and 5 years left on their lease and one has a 5 yr option. The purchase price is $1.9million
What questions should I be asking and what should I be looking at?
Thanks in advance!
Daniel is it safe to assume you are buying the building separately from the business and will then be paying yourself rent from the business?
If so, and the rent for the owner occupied unit stays at $9,500/month you are looking at roughly a 10% cap, which is solid and certainly worth pursuing.
I would want to know who the tenants are? What is their credit and do the leases have personal guarantees or not? How "sticky" are the tenants? If one leaves in 3 years you will likely have leasing costs and carry costs involved in finding a new one.
What is the language surrounding their renewal rates? Most likely it reads something like "at then current market prevailing rates for similar space", which is great if they have current or above market rates but not as great if they are below. Beyond that be certain to study the leases carefully to understand who maintains the mechanical systems etc so your not caught off guard down the road.
Is your business in the medical field? Do you add value to the other tenants? Flat roof?
Thanks Taylor and Ron!
Yes I will be paying the rent from my business. I am not purchasing their business however, I am moving my existing business into that space.
I don't have leases in hand yet, we should have an offer accepted in next few days and then will get them with due diligence.
I do have a rent roll which shows the rents increasing 2.5 and 3.5% annually.
Yes, my business is in the medical field, I don't know if it adds any more value as all 3 are already medical in nature. It's a gable style roof.
This is a combination of a investment property (the two remaining tenants) and a rent replacement (you occupying over 50%). There is an investment and a business practical component here. I would split the building based upon square footage for your analysis. Is the return from the tenants in line with the market adjusted for the pro rata square footage of the purchase price? Does this space work well for your business?
The good news is that since you are going to be occupying over 51% this is considered an owner-occupied building and you have many more financing options. You may be able to get 90% financing which will increase your debt load but also magnify your return on investment.