Deal Analysis - Multi-tenant Office Building - C-Class

3 Replies

Hi BP Community,

Thanks ahead of time for your input. Would love to hear your thoughts on the following Multi-Tenant Office Space Deal that recently fell out of contract. It’s a C-Class Multi-Tenant Building located in a low population city, which makes me concerned about volatility.

Based on my underwriting and the seller's firm price, this deal will trade at a 7.6%. Based on input from a Lender it should be trading at a 8-9% cap..

Again, thanks for your input!

Location: Mid-South

Class: C

Units: 20 Office units; 200-400 sqft

Building Interior Space: 6,600 sqft

Tenant Mix: Consultants, Counselors, CPAs, Lawyer, RE Agent

Occupancy: 85%

Characteristics: Slab, Metal siding, concrete parking lot, 2 floors, 3/4 renovated

CapEx: Roof 3 years, 2/4 HVACs replaced, no major upfront fixes based on inspection report

City Population: 16k

County Population: 86k; average 0.93% annual growth over the last 10 years

County Unemployment Rate: 2.3%

Job Growth: Not able to find current Data, can’t verify how Covid affected.

For me this would be way too small of a market to be interesting. We always look for value add potential, and in such a small market there is probably limited demand for office space & little room to push rents.

If the seller is firm at an unreasonable price, then see if you can find better terms. Or let someone else overpay! It's better to walk away from a bad deal and move on to the next one, than to do a bad deal at all.

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