All Forum Posts by: David Miller

Adams Howell is a good choice. I would also recommend Jon Anderson with City of Oaks Law in Raleigh.

Donovan Warren Do you want to be an active partner involved in management/control of the asset or a passive investor? A JV suggests the former.

Saving on the land acquisition costs (especially in very expensive markets) and getting the benefit of deducting lease payments are two reasons a ground lease can be attractive to a tenant. That said, the cost of a ground leasing property can be higher in the long term, tenants can have less flexibility over the development, use, and operation of the property due to lease restrictions and, to the extent the leasehold interest is used as a financing tool, it’s value and marketability diminishes over time as the lease term approaches its end. In some cases, a landlord may insist on a ground lease (for reasons like avoiding a taxable gain on sale or maintaining control of the land and the use of the property).

Brit - What are the mixed uses?  Sounds like there may be storage facility (you mentioned storage rules).  What type of debt financing are you looking to secure?  

If the seller wants you to pay a price based on a NOI generated by full occupancy then the seller needs to lease up the property so that you get what you pay for. But asking you to pay the seller for the cash flow that you plan to create (and that the seller has failed to create for whatever reason) is silly.

Hire an attorney who does commercial lease. Unlike residential leases which often contain a litany of statutory requirements and consumer protection provisions, almost everything is negotiable in commercial leases and you have to fend for yourself. Hiring competent counsel is a good ROI.

@Allen Motakef I have a client who is a syndication sponsor that has bought ~550 units in the last ~2 years in B & C class 50-200 unit MF apartments for approximately 7.5 to 8.25 cap rates but not in Raleigh or Durham.  They have some common characteristics: off market; sellers who have held the properties for 15+ years and want to exit; secondary and tertiary markets (like High Point, Reidsville and Statesville) that are close to Greensboro, Charlotte and/or Raleigh/Durham MSAs; immediate value add opportunities due to undermarket rents and delayed capex and underperforming property management; and my client's surety of closing.  It takes a lot of work to locate the properties, but the returns are attractive.

If the seller can swing it, they might do a reverse 1031 exchange and purchase the replacement property first and then sell the relinquished property to you. This route requires the seller to procure capital sources other than the equity the seller has in their property. Your purchase contract would need to be tailored to allow for this deal structure but it is a structure that may work.

Definitely retain a lawyer to draft the PSA (purchase and sale agreement) to acquire the property. That document should require the seller to deliver due diligence documents like the current lease, rent roll, security deposit info, past financials (ie 2-3 prior years operating expenses, trailing 12 months, etc) and other property related info. Joel Owens is correct on legal fees for a commercial real estate attorney worth their salt. Zoning is something you can probably answer before making an offer. Your purchase price is based on a lot of factors but at a minimum get an educated guess on the projected NOI and then apply the prevailing cap rate for that type of asset and see where you land on price. Even if you occupy part of the space, I presume you will setup a separate entity to own the real estate and then your business entity can pay rent to that entity, so factor that rent into the NOI calculation. As far as cap rates go and market terms for this type of acquisition, a broker would be helpful. On your debt financing, a community bank may be a good option. Reach out to multiple lenders to get a sense of what terms you can get.

You can identify 3 replacement properties regardless of their value. You can purchase any, all or none of them. If you want to identify more than 3 properties, the aggregate value of those potential replacement properties cannot exceed 200% of the FMV of the relinquished property (ie the property you sell). Going one step further, you can identify more than three properties with a total value that is more than 200% of the value of the relinquished property if you acquire at least 95% of the value of the properties that you identified as replacement property. Investors Title Exchange Corporation in Chapel Hill, a sister company to Investors Title Insurance Company, is a great option. Ask for Carol Hayden. She is one of the most knowledgeable 1031 gurus in North Carolina.