@Rj Kro Its a hard question to evaluate without knowing a little more about the deal specifics. When evaluating industrial properties its important to consider their utility / usability for the likely tenant pool overall. For example I would want to know more about the building itself such as clear height, construction type, age of construction, is it sprinkled, how much office space? The 6 year lease is great but what happens if the tenant vacates at the end of the term? What are your prospects for re-leasing the building?
For example I would consider anything with less than 20' clear height functionally obsolete as industrial buildings are growing in height every year to accommodate new high bay distribution strategies. 24'+ is ideal. Similarly anything more than 10% office and the building may be considered "specialized" or "flex" by the tenant pool, which again handicaps you when it comes time to release.
regarding the lease itself, 6 year term is great from the perspective of a secured income stream but you need to consider where we are in the cycle. This differs market-to-market and I would defer to your local broker for accurate information but most people would tell you where in "the 7th inning stretch" at best which means there is a good chance we are in a down market in 6 years. You will have to make a decision with your broker about the true prospects of both releasing AND raising rents at the end of the term; if the market corrects and we see vacancy rates rise you may need to reduce rent just to keep the existing tenant in place. Additionally make sure you account for commissions in 6 years. Chances are, even in a renewal, your going to be paying leasing commissions of 3 - 8%. Personally I would not count the ability to push rents in 6 years, but again I dont know Ohio in detail and would defer to your agent.
Same story for the cap rate, this varies market-to-market and depends wholly on the building characteristics and credit of the tenant. You said they are a regional business with multiple locations? I would take that to mean 5-15 across multiple states; in my opinion 8-9% cap is low. Class A credit in primary locations (coastal cities, Denver, Atlanta, Chicago etc.) is going for 4-5% cap but I have seen Class A credit in secondary / tertiary submarkets around Seattle (one of the hottest industrial investment markets in the world) going for an 8% cap. Again you and your broker will know Ohio better than me but from a macro perspective my knee jerk reaction is you should push for 9-10%.
Lastly you said the building has sat for a year, major red flag in such a hot market. For this fact alone I your default has to be there is unknown hair on the deal. Has it been under contract before? If so the problem could range from unknown deferred maintenance on the property to unfavorable language in the lease; if it has not been UC in the 12 months its been listed its likely because of any of the above issues or a combination thereof. The tenant credit isnt as strong as you think coupled with a subprime location and functional obsolescence of the building.
Bit of a ramble with no definitive answer, feel free to respond or PM me more details if you want to continue the convo.
Hope this helps,
