All Forum Posts by: Joseph Parker

Is anyone aware of a place where I could find a free Commercial Lease Agreement template for an office/retail property? I will probably end up paying an attorney to do this (which I know will be recommended by everyone), but I'd like to take a look at some samples to get to know the terminology, language, etc. - and if I would be able to edit one for smaller mom & pop type tenants, maybe save some legal money!

@Tom Stine These are fairly easy to find in my area (Kokomo, Indiana). Some of the lowest cost of living in the country here, and B class buildings available, when listed, at minimum 7-8 cap. Check out Loopnet listings in Kokomo and you'll find a couple current listings.

@Henri Meli @Taylor Hazard Thank you both for our advice. While I've been involved in multifamily buildings in the past, I'm new to the commercial office/retail space, but am currently looking to purchase a smaller 5-unit property in town.

While it's currently fully occupied, I'm always thinking ahead. I've contacted local leasing agents to pick their brains about average rent/sq ft rates and also to ask what their process is in finding tenants along with associated fees. Each have stated they if they find a tenant and complete the lease, they charge 7% of annual rent. 

While I'm sure this is negotiable, I would of course rather find the tenants myself and pocket the 7%. I was just hoping to learn the best strategy for finding quality commercial tenants. Fortunately, the property is located on the busiest street in town, and I've been told that no unit has ever sat vacant for more than 5 months, all without ever going through a leasing agent/brokerage.

@Joel Owens Thanks for your input. Inspection taking place Friday morning, and will be the first dollars I will be spending on the entire process.

This will be a seller financing deal if it works out (lease option), and because of my very close relationship with the listing agent, I already know what numbers the seller would agree to in terms of purchase price, down payment, monthly payment (10 years) and balloon payment. So no lender or title agency will be involved, but simply an attorney putting it all in writing.

He's also allowing me to have an inspection completed without being under contract (just found that out and scheduled it last night), so I'm assuming my strategy at this point is to simply take the findings and notes from the inspection and come to the negotiating table with an offer, taking all of those things into consideration.

As we know, cash flow rules, and while the numbers that the seller would agree to would stand to realize nearly a 20% CoC return, just one or two of those HVAC systems needing replaced can wipe out an entire year of cash flow, so I'll never take those lightly. This is also a smaller strip center with a couple of regional tenants, and the other being "destination" type mom and pop businesses, on the busiest street in town. Therefore, the tenants do not currently pay CAM.

So there are many sites dedicated to listing all of the commercial office/retail space that is available for lease - but is there any site that allows those individuals/companies who are looking for office space to describe their needs and desired locations?

Or do they all use agents to find space for them in today's world?

@Eric Stafford , curious to know what strategy your partner took in forming a connection with the national tenants that you speak of? Did he know someone working for the company? Cold call?

That explains the next step in my journey. Currently working on a deal for a 5-unit office/retail property in my town, fully occupied as of now (with "destination" tenants which I like and fit my building - financial service, tattoo shop, barber shop, etc.) and on the busiest street in the city. I want to learn the best methods of reaching out to those higher-quality regional/national tenants to fill future vacancies. Tenants that only need 800-2000 square feet.

Do you know how he managed to gain those connections?

Making an offer this week on a 5-unit property (could be six units, currently set up as five, all occupied), consisting of two separate buildings in my town. Total square footage around 5,900.

Each building has three separate gas furnaces and A/Cs. So six total. I know that two of them have been replaced in the past five years or so, and plan to have those and the remaining four inspected if the purchase moves forward.

Being my first commercial property that is not multifamily, I'm looking for any advice or tips when it comes to checking out these major systems while under contract. Obviously, the idea of six separate systems somewhat terrifies me simply due to the cost incurred when repairing/replacing these. I understand why each unit has it's own system (each has it's own environment), but what kind of negotiating tactics has anyone found successful if/when an inspector notes that the older units are in rough condition? Do I treat it as if I were purchasing a home and ask for a price reduction/credit towards those systems if they are in poor condition?

Just thinking ahead here!

@Chris Mason Wanted to update you on this deal. I think I failed to mention this is for a 5-unit commercial office/retail space, so not residential (which doesn't matter regarding what I was asking help with). You may have realized that it was commercial when I detailed the best bank financing I've found.

Anyway, the seller came back with a counter, agreeing to all details except wanting $1,800/mo versus the $1,652 that you had graciously calculated for me (I created an amortization schedule with those two mortgages). So he didn't freak out like I/we expected! My plan is to counter back with a monthly payment in the middle of my first offer and his counter, which would only include a change to the 2nd interest-only mortgage from 2% to 2.5%, making the monthly payment close to $1,726/mo. Cash flow is king, so every little bit that I can get him to come off that $1,800 will be helpful.

Thanks again for your help on those calculations. I really appreciate it.

@Andrew Postell With this being a commercial property, and non-residential, I'm unable to get a 30 year or even 25 year fixed rate mortgage, at least from what I've found and heard from others. Best option I've had is 25 year amortized, 5.5% fixed for 10 years then refinance, with 30% down from a local credit union. Local banks have been 20 year amortized, 5.5% with rate adjustment every 5 years, 20% down. Payments on seller financing option $300-$500 less than bank financing, plus much less principal remaining after 10 years with balloon payment versus the bank loan. Believe me, I'd go the long fixed route if it was feasible! 

The seller owns this property free and clear, and was very, very turned off by any idea of seller financing at first. He wanted to sell it outright for X amount. Through the listing agent, we've at least been able to explain the benefits of seller financing to him in terms of no immediate capital gains taxes, a steady stream of income for 10 years plus the balloon payment at year 10, netting him over $58k in interest. He's now considering it. I am personally choosing to put 20% down ($80k) to get the deal to work, as that's what I would've had to put down, at minimum, with bank financing.

I did get some help yesterday from another BP member. My current offer with the numbers above would include a 10 year, 3% fixed rate loan on the $140,000, plus a 2nd (Interest-Only) loan, 10 years at 2% for the $180,000 balloon payment. It worked out perfectly when creating the amortization schedule, and banks wouldn't be able to come close to those terms.

@Chris Mason Exactly what I was looking for, I really appreciate it!

Hopefully we can get this deal signed and move forward. I've never tried the seller financing route before, but getting to know the seller's motivation to sell, what he plans to do with the money, etc. led me to this point. He'll avoid a capital gains hit and get steady income for his first ten years into retirement (he was going to just stick the lump sum in savings or a CD), so I knew this would be appealing, even at a fairly low rate.

Keeping my fingers crossed. Thanks again!