All Forum Posts by: Rj Kro

Hi all, I am an investor/manager in Columbus, Ohio with a focus on industrial/flex space. Since I bought my first commercial building 6 years ago, I have seen the demand for smaller(1,000-10,000 sq ft) spaces basically explode. I don't think I've seen a decent 9-10 cap property come across my plate in 2 years. I have started looking around the periphery of Columbus(Dayton, Newark, Delaware, etc), and have found a few props that show some promise. Long shot here, but are any of you familiar with Central Ohio, specifically the Newark area? Would love to get some knowledgable feedback on where things "feel headed" around there. When I was growing up, alot of the surrounding smaller towns were to be avoided; curious how things have(or have not) changed. I know Intel is putting up a big factory in New Albany....not sure if knock on effects are expected in Nurk or not. Thanks.

Hi all, I am doing due diligence on my 5th commercial building, and am getting very close to writing an offer on it. It's 100% occupied, 3 tenants, term on leases cascades out to 2026. I feel really good about the property, term on leases, cap rate(expect to land it right around 10%), usage, etc. One of my issues here is the DTE ratio; on the property itself, I would be at a 2-to-1 ratio; it would put the entire portfolio at .13-to-1. I am hoping this sounds low, but I want to check this externally. I'm pretty debt averse, so taking a loan out period is a big step for me. Would love hear what your standing, as well as target, DTE ratios are, and if this sounds reasonable. Thanks

Hi all-got a question I'm hoping you knowledgable folks may be able to weigh in on. 

I am interested in purchasing a property to use as a workspace/garage for personal use. Thus, cap rate/cash flow/all the typical metrics one uses to value a property would be out the window. It wouldn't generate cash; it'd be a consumable good, effectively. There are two properties on the market that KIND of fit the bill, and I'd like to have more sets of ears on it. Here's the specs:

prop #1- nicer neighborhood. just under 6 acres, mostly wooded. single family house needing a total rehab/gut. zoned R. listed just shy of 200k, has sat for half a year; I'd be aiming for 100k-120k-ish. has no garage/warehouse on it; I'd need to navigate zoning, and build to suit. It's a gamble in some ways, as I don't know if I'd be able to build what I want due to zoning.

prop #2- crappy neighborhood. 1/4 acre, BUT-has a single family house, small garage, plus warehouse space that's ~2500 sq ft. zoned C. cheap. house is also a total rehab. closer to "move in ready", but honestly, the crime in the neighborhood is to the level that I don't think I'd bring my kid there now. Good chance will turn for the better in the next 10-15 years. sale price closer to 100k.

In many ways, this boils down to good location/no building  vs. good building/bad location. Carrying costs are negligible, slightly cheaper on option #1. (An X-factor is that I really don't know how to value a 6 acre wooded lot that's within the confines of the city, not way out in the boondocks).

Any thoughts either way on this? Thanks for any feedback!

Thanks much. I've used DT myself for a flea problem once, and was happy with it. I suggested it to the tenant, and she is refusing to try it. She has booked an Orkin treatment at a cost of just shy of $2k, and is asking me to pay for 50% of it. Noone who ever occupied the house had any experience with bedbugs; the current tenants moved in of course with furniture, furnishings, clothing, etc, and work in a field with close contact to humans.  I am by no means a slumlord, I pride myself of being responsive, but paying for half of the treatment just....doesnt sit right with me. I literally talked to the Orkin guy who would be doing the treatment, and asked him where they likely came from, and he said in all likelihood it was brought in on something of the current tenants. I always like to make a good faith effort as  a landlord, and I'm struggling on this one as to what a good faith effort to meet them halfway looks like in this instance. Thoughts/suggestions, please!

Hi all-got a landlord question. I rent a single family home-we actually lived in the house, up til 2.5 years ago. Had a nice family move in when we moved out, and they had no pest issues for 2 years. A new tenant moved in Jan 1 2018. The house was empty for a week or so. This week, the new tenant said they are having a bedbug issue-they of course moved all their furniture in, bought new furniture, and they work retail. As best I can tell, it seems probable that their furnishings/themselves are the source of the issue. The Orkin man they got a quote from told me that he thinks it is likely their furnishings. The tenant is asking me to pay for the treatment cost. I've never crossed this bridge as a landlord. Any thoughts?

Thanks Taylor! I appreciate it. As best I can tell, the immediate location within Columbus looks promising. Attached is the absorption numbers; the property would be considered more flex than industrial, as I'm told. A major player here just announced a $34M investment in the region(southeast columbus). It's near Rickenbacker air force, and has some major companies in the region with massive plants; Coke, Schottenstein's, a few others I'm forgetting. 

Yes, carrying costs for 2 years is not a problem. My leverage on it will be extremely minimal;  one years' income would currently cover 4 years of carrying costs, and barring something like an atom bomb, I see no reason I wouldn't go into year 7 with at least 2 years income stashed.

Since this isn't my "bread and butter" type of work, I just don't have the years under my belt of following the industrial market here. Any hunches either way would be great. If you don't mind, I'd love to

 know what you think of this chart, and how SE region falls on your eyes. Thanks!!!

Hey guys, first off, THANK you. Your thoughts are incredibly helpful! Kudos to the knowledge pool here.

Taylor-sorry if I portrayed 2 stories; I didn't mean to say he didn't want to sell PERIOD-he put it on the market-I meant to say that I was told he "is fine if it doesn't sell"; I took this to mean that at less than X below list price, he'll just keep the prop. I have no idea what X is.

My only real question I have on this property is this: if/when the lease expires, what is the probability that I either A) couldn't sell the prop(even at a haircut), or B) couldn't re-lease within 12-24 months. Is this a question you guys encounter on investments, and if so, how do you get as close to a solid answer as possible? Does it just come down to vetting the usage+location thoroughly? My agents are very helpful, but they seem to be reticent to weigh in on their opinions regarding this location. They LIKE the location, but I get the feeling I'm up against that invisible "you gotta make that decision" line with them, if that makes sense. :) Thanks again!

Thanks guys! Super helpful thoughts here. Glad to know I'm sniffing around in the right place!

A bit more details: Ronald, if "cash on cash" refers to this essentially being a play for ROI on capital, then yes, you are right. It would do some balancing in the context of my portfolio, to some degree; I've got a NNN lease expiring in Feb 2018, so this would provide some laddering of vacancy risk, of sorts. My other commercial prop is auto related; this is a different industry.

Taylor: a bit more about the prop: it is technically 16' clear height, but that is for the drive thru wall-the actual roof hieght is 24'. Block construction, sprinklers throughout, office space is ~7%. My agent said that the upside in regards to competition is that it'd be virtually impossible for someone to build a similar building for the same price now. Oh, I forgot to mention-the building is constructed symmetrically; at one point it was 2 12,000 sq ft units. It'd be pretty simple to convert back to 2 units in the future, if desired. You sound like you know a fair amount about industrial properties; how do the specs on this building sound to you? Do you have thoughts on the long term desirability of industrial buildings in this class?

The buyer purchased in April 2015 for $33.87/sq ft. He's trying to sell for $39.5/sq ft 2 years later. the narrative I'm told is that he wants to move back to California, and wants the liquidity for a project there. Generally, 12 months on the market would be a red flag for me. What if it's sat on the market cause the seller really just wants to have his cake and eat it too? (And what if I'm rationalizing away a red flag! :)

Cap rate: yes, I'd like to be in the 9-10% range, but what I'm seeing around here for ~10% cap rate props is shorter lease terms. This one is by no means a "home run" obviously, cause it'd be gone by now if so, but what i'm wondering is this: what if the right purchase price could make this an 8/10? How long am I willing to wait around for a home run deal? A year? 

 At some point, you gotta play with the properties that are on the market, obviously. That's my ultimate question I need answered-do I want to wait around for a possibly better prop to come on the market, and run the risk of losing a shot of trying to put a good deal together on this? Or am I ok with that?

Thanks for all the thoughts folks!

Greetings all. Long time reader, first time poster in this forum. I ran this by the "general" forum, but wanted to put this over here to maybe get a different set of eyes on it...I'm considering a possible industrial property that's for sale. I wanted to get some feedback on this deal. The specs:

-24,000+ sq ft industrial space on about 1 1/2 acres. The property itself is in good condition; new roof 3 yrs ago, 3 phase elec, solid HVAC, 16ft drive thru, 2 roll ups, 2 docks. needs no current upgrades(technically, everything except roof, structure and parking lot is tenants responsibility).

-triple net lease. 6 yrs left on current lease.

-tenant has a solid reputation. multiple locations throughout the midwest. i like the business, i like the long term prospects for the industry.

-depending on sale price, cap rate will be in the 8.8%-9.3% range(rent increases each year). Tenant paying under FMV; my agent thinks this could draw rent to equal 10-11% cap rate in 2024. It will probably sell in the $3.50-3.85/sq ft range.

CONS:

- the location is not a bad neighborhood per se, but it is a solidly industrial neighborhood. There are two buildings for sale in close proximity; one with tenants, one without. I can't say with complete confidence that I could put a tenant in it in 2024 if need be.

-It's sat on the market for almost a year. Either there's been offers and the seller doesn't wanna play ball, or there's something on this property I'm missing, cause good commercial deals don't sit very long right now in my market. I was told by the seller's agent that the seller "doesn't care if he sells it or not", because it's a solid earner and zero maintenance.

Any thoughts, one way or the other? Anything I'm not considering? Thanks.

Thanks Jess. Those are great thoughts there on due diligence. I'm gonna try to pull as much of the financials on the business as I can; what I do know looks good. $58M in annual sales, good growth, industry has good long term prospects. I do not know if this is a renewal period. I had a talk today with one of my commercial guys; there's some blind spots in my knowledge base of the location. It's got some strong prospects, but it's also got a possibility of competing product coming on the market, in theory. It's not "landlocked". But the upside is that per square foot, it'd be almost impossible for someone to build for cheaper, so this prop has that going for it. In my market, there's a lot of vacancies in office. I don't see much proper retail for sale now, at least with a tenant. I frankly don't think I have the stones to purchase a vacant prop and put a retail tenant in it; I'm looking for something turnkey, at least now.