All Forum Posts by: Henri Meli

@Prasad J. . Thanks and great question in regards to filling office space. Here is what I learned.

1. When you said property management, I assumed you actually mean leasing management. I have a leasing agent, who has access to national databases of businesses looking for space. he can reach out to them.

2. Leasing agents get paid commissions based on the total value of the lease. Most of them will try to get home run leases (leases that run the longest) because those will pay them the highest commissions.  

3. My philosophy is to fill the space first, then I'll worry about getting the longer term lease later. This strategy has drawbacks. Banks don't like these short term leases and they don't see it as value. For me, it is cash for rainy days and for CAPEX. Furthermore, once I get businesses in, I do whatever I can to get them to sign longer term leases.

4. Be very pro-active with your leasing agent. But, do lots of legwork yourself to get the space leased. Check with leasing agents constantly and make sure they are investigating every avenue possible to fill the space. Be active in meetups, business associations, chambers of commerce,...etc and advertise your space. Leverage social media, ... etc to advertise your empty space.  Make sure to know new businesses coming to town or opening up and let them know about the space available. Make sure you know tenants who have leases expiring in other offices so that you can market to them. Know about business that are looking to expand, if you have plenty of space to accommodate them. Network. Network. Network. Be willing to offer concessions to bring new tenants in. Be creative when formulating your leases agreements, so that you can recoup your concession money early in the lease. When a business visits your space and ends up not signing a lease, make sure to know why. Understand how you could have made them an offer they can't refuse, ... etc. 

The point I'm trying to make with 4. is that, if you live in a dynamic market, there is no reason why your office space should be empty for 1+ year. Obviously this depends on your market/submarket as well. 

Always remember these numbers. At an 8 CAP, $1,000 of additional NOI is $12,500 of new value you added to your building. $10,000 is $125,000 of new value.

@Nesha Lopez . Thanks. I worked with a local bank. Rates were pretty good a couple of years ago. They have now gone up, but you can still get decent rates (not as good as previously). My bank is only located in the state. So, if you are in NC I can give you their name.

@Lester Schmitt Have you given up on the asset? 

If I were in your shoes, I would continue to do research on this property. I would look at the following:

1. Is the high vacancy rate typical for the area? How long does a similar property stay empty?

2. What are comparable properties rent for in that market? Why is this one not renting?

3. What are expected rates, once the property is stabilized?

Let's run the numbers in reverse. Let's say you investigation shows that you can indeed rent for $700/unit after upgrade with a 10% vacancy rate.

That would mean $700 x 12 x 10 = $84000. At 10% vacancy, you get a GRI of $75,600.

Assuming you manage the place @ 50% of income (typical), you will have an NOI of $37,800. At a 7.5 CAP, that is $500k of exit value of the building.

If those assumptions are correct, then the question you need to ask yourself is: how much are you willing to pay to exit at $500k in 2-3 years? Obviously you need to factor in CAPex, cost to bring in new tenants,  ( those could be rolled into a loan.), cost of money, sweat equity, ... etc.  And of course, you need to perform due diligence on the asset to make sure there are no structural issues or obvious issues that will require higher capex (roof, Hvac, Plumbing, ... etc).

If you were to pay asking price, you could still come up on top with good profit. At $5k per unit Capex, that's $50k and if you were to pay asking price, you would still come out $150k in 2-3 years investments. Is this worth your while?

Hope this helps provide a different perspective. 
 

@Christian Funicelli Thanks for the comment and great question. Honestly, I didn't look closely at those numbers, because I have lived in this area for 15+ years. Raleigh/Durham is one of the faster growing areas in the South East. I have owned residential here for over 15 year and have seen the value of those assets explode. I know every single corner of this market. I know every street, every road, ... etc. I have driven it dozens of time ... I know all the planned projects for the next 5-10 years in this market. There is plenty of websites where you can find this information for this market. let me know if you need a reference . Not sure I can post it here. 

@Marlina Eckel . Thanks for the comment. I hope I have answered all the questions. If any more, please ask away.

Thanks @Chris Cecil , @Patrik Kusek , Yes, these situations do exist. I feel fortunate to actually say that I have experienced it first hand. 

@Michael L Sakey . Thanks for the comment. I believe the key is to continue to educate yourself, surround yourself with investors and take action. 

@Ketan Kuruwa . If you plan on growing, yes, commercial should be your next stop. Good luck. 

@Jared Stasch There is definitely a case to be made for it. I agree. 

Thanks @Account Closed . Financing your first Commercial is tricky. Nobody trusts you. Everyone is skeptical. 

I walked into almost every commercial lender I remember in Raleigh/Durham with a business plan ... many never even called me back, as they promised. It is their loss, not mine.

But, that's what it takes.