Would You Buy This $2M Light Industrial Property? Looking for Honest Feedback

Question

I'd really appreciate some honest feedback from experienced commercial real estate investors.

I'm currently under contract on a light industrial property in Orlando FL and am in my due diligence period. Before making a final decision, I'd like to hear opinions from investors who own industrial properties.

Property details:

• Purchase Price: $2,000,000
• Approximately 11,000 SF
• Currently divided into 3 tenant spaces currently being used as body shop automotive
• Current rental income: Approximately $9,000 per month
• Leasing brokers estimate market rents at approximately $11–$15 per SF NNN, depending on the space and condition a
• Older building being sold "as is"
• Good industrial location with plenty of parking
• Currently completing the Phase I environmental inspection

My biggest concern is that the current tenants are paying well below market rent. If I purchase the property and eventually raise rents closer to market, I'm concerned some tenants may leave. On the other hand, several brokers have indicated the current rents are significantly under market.

If I move forward, my plan would likely be to keep the property as the existing three larger bays rather than trying to subdivide it into additional units.

Currenty one space 8000 sf bay and the others are 1500 sft each

My questions are:

• Would you purchase this property at $2 million?
• If you inherited tenants paying well below market, how would you approach rent increases?
• Would you keep the property as three larger bays or look at subdividing it in the future?
• Does a projected market rent of $11–$15 per SF NNN support the purchase price in your opinion?
• Is there anything about this deal that would concern you or make you walk away?
• I am not sure how hard it will be to re rent after I have never done light industrial

I'd really appreciate honest feedback from investors who have experience with industrial properties and below-market leases. Thank you in advance!

John M. · Answer

You have to run your own numbers but I will say this. Light industrial properties are in demand. Dividing the units into 1200 square foot spaces is not a bad idea as that is the most popular type of square footage for the small business owner. maybe keep one unit at 2400 square feet to have some diversification for bigger tenants. On the other hand getting zoning for automotive can be tough and if you already have that then those current tenants can certainly pay more. The only downside of auto tenants is that they take up a lot of parking, and can create a mess/hazard. Hopefully the phase 1 will come back clean.

Scott Esmail · Answer

Thank you all for the feedback and advice on my post. I really appreciate everyone taking the time to share your thoughts and experiences.

After completing my due diligence, I decided to cancel the contract because of several issues I uncovered. While it was disappointing, I believe it was the right decision.

The good news is that I'm now under contract on another property. It's not worth as much as the previous one, but I feel much more confident about it and believe it's a better fit for my long-term investment goals.

Thanks again for all the input—it definitely helped me think through the decision. I appreciate this community!

Gibran Ramia · Answer

No. Say market is really $12 a foot, that's $132k NNN, and I want an 8 cap for the specialization risk, so I'm at $1.65M before I've thought about the environmental. Body shop means solvents, paint booth, floor drains, oil separator. If there are drains in that 8,000 SF bay I want a Phase II in hand before I remove a contingency.

Tabish Masood · Answer

I may be late here, but my biggest focus would be understanding exactly why the tenants are paying below market. If they’re long-term, reliable tenants with strong payment history, there can be value in that stability even if rents are under market.

At $9,000/month, you’re currently around a 5.4% gross yield on a $2M purchase price, which seems low for an older light industrial property. If market rents of $11–$15/SF NNN are realistic, the upside could certainly justify the acquisition, but I’d want to verify that with signed comps and actual lease transactions rather than broker opinions alone.

I’d also pay close attention to:

• Remaining lease terms and renewal options
• Tenant financial strength and payment history
• Environmental findings from the Phase I, especially with auto body tenants
• Deferred maintenance and capital expenditures
• Actual leasing demand if one or more tenants vacate

Personally, I would probably keep the three larger bays initially unless local demand clearly supports smaller spaces at significantly higher rents. Before underwriting future rent increases, I’d assume at least one vacancy scenario and include downtime, leasing commissions, and tenant improvement costs.

If the property still meets your return requirements under conservative assumptions, it could be a solid opportunity. If the deal only works assuming immediate market rents with no vacancy, I’d be much more cautious.

Michael Eskenasy · Answer

At $2M, I wouldn’t make the decision based on the idea that the rents are “significantly below market,” because the numbers you posted don’t really support that yet.

You’re collecting about $108,000/year on 11,000 SF, which is roughly $9.82/SF.

If market rent is actually $11–$15/SF NNN, then stabilized base rent would be roughly:

$11/SF = $121,000/year $13/SF = $143,000/year $15/SF = $165,000/year

So at the low end of the broker range, you’re only about $13,000/year below market.

That’s not enough upside for me to justify a $2M purchase by itself.

The much bigger issue is the 8,000 SF tenant.

That tenant represents roughly 73% of your rentable area. If you push rents and lose them, this stops being a “below-market rent” opportunity and becomes an 8,000 SF lease-up project.

Before closing, I’d want to know exactly:

What does an 8,000 SF automotive/light-industrial bay actually lease for in this specific submarket?

How long are comparable spaces sitting vacant?

What tenant improvements or concessions are required?

What is the leasing commission?

Can the 8,000 SF space physically and economically be divided if necessary?

What uses are permitted by zoning?

And what are the current tenants’ lease expirations, options, increases, deposits and credit quality?

I would also take the environmental work extremely seriously. Three automotive/body-shop users in an older building is exactly where I would not treat the Phase I as a box-checking exercise. If it recommends a Phase II, I’d want that resolved before my diligence period expires.

Then there’s the building itself: roof, electrical capacity, HVAC, plumbing, drainage, paving, structural condition, fire/life safety and deferred maintenance. “As is” at $2M means those numbers belong in the acquisition model, not in a future surprise column.

Personally, I wouldn’t raise anyone’s rent immediately just because a broker says market is higher.

I’d first determine the replacement economics.

If increasing one tenant from $10 to $13/SF creates another $20K of annual NOI but losing them costs you nine months of vacancy, commissions, TI and carrying costs, the “rent increase” can destroy several years of the additional income.

The way I’d underwrite this is:

Current case → tenants stay at existing rents

Moderate case → rents gradually move toward $11–$13

Downside case → 8,000 SF tenant leaves and you have to re-lease it

Then ask whether the deal still works at $2M in the downside case.

That would determine my answer.

Based solely on what you posted, I wouldn’t walk away yet, but I also wouldn’t convince myself I’m buying a dramatically under-rented property.

Right now it looks more like you’re paying $2M for a property with moderate rent upside and substantial tenant-concentration, building-condition and environmental risk.

I’d want those risks priced into the deal before I closed.

Claudia Rodriguez · Answer

There are a few things I’d want to dig into before deciding whether $2M makes sense.

The biggest one for me would be separating the property’s current performance from its potential performance. At $9,000/month, you have about $108K in current annual rent. I wouldn’t underwrite the purchase assuming you’ll immediately achieve the $11–$15/SF NNN rents until you understand the existing leases, expiration dates, renewal options and what it would realistically cost to replace those tenants.

I’d also want the leasing brokers to provide actual comparable leases supporting that $11–$15 range—not just an opinion of market rent. With an 8,000 SF space representing such a large percentage of the building, losing that tenant could have a very different impact than losing one of the 1,500 SF tenants.

The Phase I would be very important to me as well given the automotive/body-shop use. I’d pay close attention to anything that could trigger additional environmental investigation.

I’d also look closely at the condition of the roof, HVAC, electrical, plumbing, parking/paving and any deferred maintenance since you're buying an older building as-is. Those expenses can change the economics quickly.

Personally, I wouldn’t subdivide just for the sake of creating more units unless the local leasing data clearly supports it. The current configuration may actually be an advantage if there is good demand for larger industrial space.

Before the due diligence period expires, I’d want to know: What does the deal look like at current rents? What does it look like if the 8,000 SF tenant leaves? How long are comparable industrial spaces actually sitting vacant? And what capital would you need to get a vacant space ready for the next tenant?

If the deal still makes sense under a conservative version of those numbers, I’d feel much better about the upside from eventually bringing rents closer to market.

Alberto Rivera · Answer

@Scott Esmail From the construction side, I'd spend some extra time understanding the property's deferred maintenance and immediate capital needs before getting too comfortable with the rent upside. Roof, structure, MEPs, paving, and environmental findings can change the economics of an older industrial property pretty quickly.

If those items check out, it sounds like you may have multiple ways to create value beyond simply adjusting rents. Curious to see what the industrial investors here think.

Caleb Brown · Answer

Way to go with being active. Is the other one you have under contract industrial?

Vijay Friedman · Answer

@Scott EsmailIt sounds like you're asking the right questions during due diligence. I'd focus on verifying that the projected market rents are supported by recent industrial lease comps and understanding the rollover schedule before making assumptions about future NOI. If the rent growth is realistic and the tenant risk is manageable, the upside could be compelling. Best of luck with the remainder of your due diligence.

Would You Buy This $2M Light Industrial Property? Looking for Honest Feedback

Would You Buy This $2M Light Industrial Property? Looking for Honest Feedback

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