All Forum Posts by: Jacob Cytrynbaum

@Bennet Sebastian Please update us if you find a solution other than bringing folks down below 20%. I sure haven't found a way to do it but would love to hear if you do. 

@Mike Celli, I exclusively rent medical offices. Many doctors and physician groups do not own their own space, particularly these days. It is common for a doctor to execute a sale-leaseback when they are ready to retire. If their practice is large enough to continue without them and replace the retiring doc, that can be a great source of value. I'm working on one such deal right now that (if it works out) will be good value even in this hot market. 

Currently the trend is for Hospitals to move their services into their own real estate. I'd be wary of renting to a hospital group without a good long-term lease or in a place with 0 land to develop.

I would really recommend talking to the docs who work there. Try to ask as many open-ended questions as you can. If there's a broker involved, this gets harder, but at least do it during diligence. How is business? Do the docs like each other? Why the big transition? I've found if you ask questions like that and then step back and let people talk, you can learn a lot about the value of a building.

What is your goal with this building? Based on your numbers, it's looking like around a $7 million purchase. That seems like a large plunge to take into a new market with little experience or data. I agree with @Bennet Sebastian that if you sell with three years left, you'll take a big haircut. 

So I'd suggest either pump and dump, or plan to hold until you can renew all leases for a 10-year and then sell. If you can get 10 year NNN or NN, you can sell for 7cap or better, so even if the income is the same as today to bring it back to market, you'd have a way better multiple.

@Moina Snyder, I grew up in that wonderful town and still have a network there. I'd be happy to link you up with a handful of people in the area, both in the physician community and out. Feel free to shoot me a message if you'd like to connect on it further!

@Christian, nice job on this! Do you have a sense of what the NOI will be once fully leased?

Glad I checked this forum! I'd love to hop on this bandwagon as well.

I'll throw in my 2 cents.
As folks have mentioned, commercial brings in a whole set of new variables and options to choose from. NNN cap rates will, as stated in different posts, vary from 4.5% to 8.5%+. The difference depends on the details of the lease: escalators, length, responsibilities, etc., tenant strength, and location.

If you want to find best pricing, I would advise figuring out if there are any regional submarkets or industry submarkets that you have a relative advantage in because of your knowledge. You'll be better able to find below-market pricing if you do. Especially working with a broker, you want to make sure you are looking within a niche that you can actually evaluate, as opposed to entirely relying on the broker to find you a good deal (as mentioned by others, this can be challenging).

Another option is to find partners with relevant expertise or a syndicator and work with them. If you buy a building at a 5% cap, your return is going to be...incredibly low, even with 0 expenses on an absolute NNN lease and spiffy loan terms. With a syndicator on a low-risk property, you should be able to hit at least high single-digits cash on cash and IRR in the teens. More if you work as a partnership, but then you are doing more work and likely taking recourse on a loan.

It sounds like you have the real estate acumen and perhaps capital to drive a project, so find a friend who really understands/is connected in some industry/region (say, medical office buildings) and work together.

@Bharath Siddarth, two ways come to mind. Some combination of the two will hopefully work. 

1. Connect with a commercial real estate agent or two in the area. Chat with them about the property, location, and your vision for it. They should have a sense of who is renting and what demand looks like. They will want to help you rent it out for the commission they would get and so should be helpful. Keep in mind, just because you talk to them to learn about the market does NOT mean you need to work with them.

2. Talk to people in the local physician community. Ask everyone you can. I can't tell if you are just now moving to Laurel or have lived there for some time, so your connections may be limited in the medical community. Still, if you can track down people within and outside of the university system to talk to, that may be helpful. In my experience, there should be a few entrepreneurial Docs in a given area. They might own the urgent cares or a bunch of offices or a surgery center, etc. If you can figure out who they are, they should have a good pulse on what's going on in town. 

Many specialties (as you likely know) are being consumed into large multi-specialty groups, but even those like to rent small spaces sometimes. In 5500sqft, I would especially connect with these folks: Dental that won't directly compete with you, Derm, psychiatry/counseling, podiatry, maybe optometry?, hearing/speech therapy, Allergist, lung/sleep/asthma perhaps, small primary care,...the list goes on. The fewer tenants, the easier your life will be.

Hope this helps. You also don't have to take on medical tenants, it will just be nice if you can do so. 

@Bharath Siddarth, I don't know your local market, but if you think the medical scene is primarily dominated by the university system without many other providers, it may be very hard to get any docs in your building. On the other hand, if there is a large contingent of providers who are not affiliated with the university, they will enjoy your slightly lower rents and being close to the large medical buildings. Is your sense that there is enough demand to fill the university space and yours as well?

Thank you all for the comments--very helpful. I'll be sure to reach out to you all when it makes sense.