Rochester, NY · Member since 2017 · 24 posts · 8 votes
Hey everybody, I'm looking into a Commercial property right now that has a
-12 unit apartment building
-parking lot with 50-60 spots
-4 garages
-a church that can hold 350 people
-a small school w/ cafeteria
-an office building attached to school
-1 vacant duplex
-1 vacant single family home
I believe the apartment building right is fully rented. But everything else vacant.
However my real question is what are some things I need to know/questions I need to ask before I know if this is a good deal. I have a couple people I know would be interested in investing but before J start raising capital wanted to know whether this is a good deal or not. I plan to meet with the broker soon but want to be as prepared as possible so I dont sound like an idiot.
They're asking for $1.2M, I'm not sure of the current cap rate. Over 49000 sq ft.
I've never done a deal on a commercial property before so I'm trying to get as much education as I can. Please help, Thanks
Appraiser · Richmond, VA · Member since 2017 · 48 posts · 41 votes
6y
As the others have said, a lot more information is needed to actually help you. Everything I say in this post is theoretical and not an opinion of value or my opinion of the highest and best use of the property. I am only trying to give you a window into the thought process of an appraiser who appraising a property like this.
This sounds like an interesting property and would be a very challenging appraisal. It sounds like it was built by the previous church user as like a campus of sorts. Are these buildings all located on one single tax parcel? If not, can the property be subdivided? Does your market support redevelopment? Is the property being market as a redevelopment deal?
Absent any other information, an appraiser would not use the income approach on a property like this in its current condition and as a single parcel. Coming up with a cap rate and an income and expense pro forma for such a non standard property would not produce a reliable indication of market value. This entire discussion comes down to the highest and best use of the property. What use is legally permissible, physically possible, financially feasible, and maximally productive. If redevelopment for a different use is the highest and best use, you should already have an idea of what can go there, how much it will cost for you to construct your proposed development, navigate the red tape of your city, stabilize your proposed property, and the maximum you should pay for the property in its current condition padding in a profit margin for yourself.
Real Estate Broker · Portland, OR · Member since 2019 · 16 posts · 4 votes
6y
Hey Jacob,
As Greg mentioned, it's hard to determine if it's a good deal without a lot more information. It sounds like you are a beginning investor and my opinion is that hand this off to a partner that has experience, get a finder's fee and/or equity and try to learn from them. I doubt you will find quality investors if you don't even have a way to evaluate the asset. My two cents.
Appraiser · Richmond, VA · Member since 2017 · 48 posts · 41 votes
6y
As the others have said, a lot more information is needed to actually help you. Everything I say in this post is theoretical and not an opinion of value or my opinion of the highest and best use of the property. I am only trying to give you a window into the thought process of an appraiser who appraising a property like this.
This sounds like an interesting property and would be a very challenging appraisal. It sounds like it was built by the previous church user as like a campus of sorts. Are these buildings all located on one single tax parcel? If not, can the property be subdivided? Does your market support redevelopment? Is the property being market as a redevelopment deal?
Absent any other information, an appraiser would not use the income approach on a property like this in its current condition and as a single parcel. Coming up with a cap rate and an income and expense pro forma for such a non standard property would not produce a reliable indication of market value. This entire discussion comes down to the highest and best use of the property. What use is legally permissible, physically possible, financially feasible, and maximally productive. If redevelopment for a different use is the highest and best use, you should already have an idea of what can go there, how much it will cost for you to construct your proposed development, navigate the red tape of your city, stabilize your proposed property, and the maximum you should pay for the property in its current condition padding in a profit margin for yourself.
Without having the experience on working on a such deal, you may be setting yourself up for a failure. Consider bringing it to an experienced investor for a small fraction of a deal or wholesale it.