All Forum Posts by: Damon D.

Generally it's not ideal and I again generally would view it in less than a positive light. That said there could be other factor positive factors to offset the negatives, like if the locals understand and accept the rear parking as just part of shopping here. Also, access, visibility, signage for the center and parking will be especially important to help. Also, in comparing this retail center to the others, if the demos are much stronger for the rear parking location and most retailers prefer this market to others, and there were limited other options, this could/would help offset the negative impact of the rear parking. For the most part, you would be looking at local retailers to occupy the rear parking center. Most national chains don't like it. That said, if there are no other options in the market and they really want/need to be there, then they will figure out a way to make it work. Unfortunately without knowing your market, it's difficult to give more definitive answers. Hope that helps.

Mary Joe,

You hit the nail on the head as to one of the main risks of what happens when a NNN tenant leaves a single tenant property. From personal experience, I can tell you that what happens next isn't always pretty - which I will get to in a moment.

If you are considering a single tenant NNN leased investment you have to evaluate thoroughly the market, the location, the building, the lease, and the credit strength of the tenant - all are important and should line up.

In 2009, I represented a property investor that owned a 35,000 SF free-standing Circuit City, and when CC closed their doors, my partner and I were tasked with securing a replacement tenant. This was a prime location at the entrance to a major mall in the market - however, the market conditions in 2009, the size of the building, and the fact that this was an older prototype building all worked against us. Regarding the prototype, the building itself was older and long and narrow, so for retailers in the same SF range, the building just didn't fit into their prototype design - especially in a down market where there wasn't much expansion happening and retailers could pick and choose the best vacant CC buildings. Today the building has been carved up to two smaller retailers on the front and a large Chinese buffet in the middle section. The back portion of the building is still vacant. This is an extreme example, as most investors starting in single tenant NNN leased investments probably won't be buying 30,000+ SF single tenant buildings, however, it does highlight the importance of always thinking about what if the tenant leaves? Will my building be in demand? Will I be able to replace the tenant with a similar credit tenant?

Here are two articles which sum up better and in more detail anything I could write on the subject:

The Risks and Benefits of Triple Net (NNN) Properties
http://www.creonline.com/risks-and-benefits-of-triple-net-properties.html

Triple Net Leases: Pro's and Con's
http://www.berkeleyinvestment.com/Newsletters/Newsletter%20March03.pdf

Also, here are some brokerage companies that specialize in the sale of NNN lease investments to give you an idea of what's out there:
http://calkain.com/
http://www.stanjohnsonco.com/
http://www.colliersnnn.com/

Lastly, Net Lease Advisor (which is associated with Calkain) is a great resource for credit information on the retail net lease market. Here is the website: http://netleaseadvisor.com/

Good luck!

Damon

p.s. - Sorry, I couldn't figure out how to make the "link" button work for the websites, so you will need to copy and paste.

Callum,
You could actually be referring to private equity real estate rather than a REIT. I have worked with both large Reits and private equity real estate (PERE) as a broker, from what I know REITS are more institutional in their structure and in the properties they invest in, and are SEC regulated, whereas , PERE can be smaller, more nimble, and operate a little more "off the grid" so to speak relative to REITS. Similar in fashion to mutual funds versus hedge funds.
Also, REITs tend to be more liquid, whereas PERE typically require you to park your money with them for a period of time, often 10 years.

Here's a few links which may be helpful:
http://en.wikipedia.org/wiki/Private_equity_real_estate
http://www.wallstreetoasis.com/forums/real-estate-pe-vs-reit
http://www.cpexecutive.com/newsletters/capitalmarkets-newsletter/reitscolumn/reits-versus-real-estate-private-equity-funds-who-wins/

Damon

Thomas,
I understand the need for money, and as an investor you go with the best options you have. My main first/main point is that you are borrowing money from yourself, and not someone else. It's a very important distinction which your original post did not state, and that many new investors may not have realized. Also, another point to make is that most 401k loans have a 5 year loan term so that jacks up the monthly payment versus if you had a loan term of say 25 years.

On the deal you did two years ago for 54,900. How do you have the 401k loan payment accounted for in the cash flow?

Damon

Thomas,

I wanted to comment on one point you made, and hopefully this is helpful to all. Tread carefully when taking 401k loans. First to clarify what you wrote, 401k loans are loans not AGAINST your 401k, but rather FROM your 401k. Also, there is some risk with taking a 401k loan. For example, if you take a 401k loan and you lose your job, that loan often gets converted to a withdrawl which now becomes subject to taxes AND early withdrawl penalties. Another thing to think about, when you pay your loan back (aka pay yourself back) through payroll deductions, the interest portion of the repayment is subject to double taxation - you are paying the interest back into the 401k with after tax dollars, and then when you begin making withdrawls that interest is subject again to taxation.

Like anything way the risks/benefits, but know what you're really getting.

Damon

Many NJ cre investors make money by investing across the state line in PA, either in the Philly or Lehigh Valley markets. RE taxes in PA are considerably lower than Jersey.

Carlos and Jeff - Thanks for your reply.

Jeff,

This isn't for the types of properties that would normally go into the MLS. Also, I don't know about your MLS but ours is limited in the detail it provides for investment properties - pretty much Income, Expenses, NOI and then # of units and rents for each unit.

This is really for my own purposes. I created an excel based deal analyzer spreadsheet and was double checking my formulas when this question popped into my head.

Thanks
Damon

-------------------------
Jeff wrote:
"Damon, see you are a broker. It all depends on what you are using this for. If it is for a listing that goes into some kind of MLS you just want to follow the format that is customary to your locale.

If for your own personal use use whatever you like.

Your accountant can have a version they like.

It will also depend on the type of RE you are talking about. Large complexes will require different formats than a residential small MLS system."

When calculating the operating expense ratio for a property, do you leave the vacancy & credit loss allowances as part of the income when you calculate the ER, or do you first back out the vacancy & credit loss allowance from the income side and then add these items to the expense side before calculating the ER?

Here's what I mean by way of two scenarios:

[b][u]Scenario #1

[/b]INCOME
Gross Scheduled Income $100,000
less Vacancy Allowance -$5,000
less Credit Loss Allowance -$5,000
Expected Gross Income $90,000

[b]EXPENSES
Total $40,000

Operating Expense Ratio = 44%

[/b][/u]Scenario #2

INCOME $100,000
EXPENSES $40,000 + $5,000 + $5,000 = $50,000
Operating Expense Ratio = 50%

Thanks!