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Bharath Raj
  • Investor
  • Houston, TX
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Offering on medical office with vacancy

Bharath Raj
  • Investor
  • Houston, TX
Posted Oct 29 2020, 08:57

I am about to place an offer on a medical building in the Houston area with 55% vacancy. The remaining 45% has strong tenants with long leases. The landlord has indicated a willingness to consider an offer based on actuals @8% cap. While underwriting the deal, how would you account for the vacant space? The income is $0, but there are significant NNN expenses to the buyer until it can leased up. I am of the view that I just adjust up the vacancy factor by a percentage (5%) over market vacancy, while ignoring the cost of NNN to the buyer until lease up. Is that reasonable, or is there a more standardized way of doing this?

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