Hi Folks - hoping for a a little help to get my thoughts straight. Here are the basics.
I currently occupy 11,800 sqft of a 20,000 sqft building. The building houses a strength and conditioning facility (gym) that I own with partners. We want to remain in the building b/c it suits our business need perfectly. The owner wants to sell.
I pay rent (obvious) of about $8/yr (3% annual increase) + $3.50 for CAM (lease through 8/19, but extending through 8/22 before any sale). Our neighbor pays about $11.61 and it jumps $0.40/year
NOI on the building is about $160,000/yr including revenues from the other tenant. This also includes expenses from a 3rd party management company that does EVERYTHING.
We are going to be somewhere between CAP8/9 when the appraisal comes back. That puts me between $1.78/2M for cost.
I'm thinking about getting a local lender + SBA to cover 90% of the loan amount. This gets me a down payment of roughly 180-200K + costs. I need to occupy 60% of leaseable space for this.. not a problem. There is a basement, outbuilding, etc.. that more than get me there.
There is also a 6 acre parcel next to the property with easements for access roads and a connection to a new street (good news for my business AND for the building). This will be sold at the same time but as a different transaction (i.e. not attached to SBA loan above). This will probably go for 50-75K/acre.
So my questions are... where do I start? What questions should I be asking. I'm not planning on coming up with any of the down payments on my own.. I'll be seeking investors for that.. either from my gym business or from the outside. When I do that.. how can I think about structuring that? Equity partners in the LLC's that own the building or the land? Debt holders? The owner of the building is willing to hold an IO note as a second (if we can or can't go SBA) for some of the money if we would like. How might that impact the loan?
I honestly don't even know what to ask... so any thoughts about what I should be asking are great as well.
I would start with a local lawyer and the lender. The lawyer will advise on the investor structure for the new investments. The lender will advise on the LTV and due diligence needed to apply. Lawyer costs money, but lender will appreciate your commitment to the loan closing (which is when he gets paid).
@Jeff Licciardi couple thoughts here based on what you've posted so far:
My gut reaction to the number that you're talking about for a 20K square foot building that's fully leased and being sold privately seems rather high. I'm assuming this is an industrial/warehouse style building (if its prime retail that's a different story), so I can't imagine that selling for an 8 cap in our market, let alone a 9 cap (especially because you as the purchaser are already paying for CAM).
If you're looking to finance with a lender and get SBA to cover 90%, bear in mind that almost every lender is going to require some equity left. They might allow a second note from the seller, but I doubt they'll allow you to have a 100%+ LTV.
Since the purchaser of the property probably needs at least some equity in the purchase, you're more than likely going to be looking at raising private equity. I'd ask the lender you're working with whether they'll allow outside investors to put money in when there's an SBA loan in place. Otherwise, you might need to raise the equity in a separate entity, provide a guaranteed rate of return, and then eventually buy them out when you have the capital to do so. It wouldn't be feasible to have any private investors hold debt, because you're already leveraging the property quite heavily. Your best bet is giving them equity and a rate of return.
Let me know if you're looking for any connections to local attorneys or lenders. Happy to put you in touch.
Nice to see someone local chime in. Thank you.
The building is going to get an official appraisal so I'll have a better idea of value, price, CAP rate then. The seller said it will be based off of the NOI. Hopefully the price comes down. :)
I have one introduction to a local bank.. happy to speak with others. Appreciate the help.