All Forum Posts by: Eric Odum

Florida and Texas are the top two "no income tax" states.  A significant portion of our investor base are from high income tax states.  

Why are you interested in franchise and not parent corp deals? For higher CAP's?

I am not sure about Kansas, but the construction costs in Florida would make it tough to make sense financially.  The franchise needs to pay rent as it would normally in a separately owned center or your real estate investment is just subsidizing your business investment.  Make them both stand the investment test alone....or make sure that the combined return is fair (who knows!  Maybe the location is so good that sales compensate). Those two franchises tend to gravitate towards C+ to B, 3rd generation properties for a reason.  The rent is lower and they are appealing to a client that is more cost conscious.  With construction costs the way they are right now, rent ask rates have to be  much higher than similar (much older) properties.  

If you can have it make sense, by all means, go for it, but just don't fall in to the trap of sinking capital in to real estate and earning little to nothing on it b/c it is subsidizing the business. Save your capital for investing in additional franchise locations, after you get up and running or search for a real estate deal that provides you a fair return.  

Having said that, I am working with a multi-store chain right now that just overpaid for a parcel....is paying through the teeth for construction. He doesn't care. I could not find a tenant to replace his concept, if something happened, at the rent he needs to pay the overhead. But, The projected sales in the location made the opportunity cost for waiting for an ideal location in the area too high. His payback on the buildout was longer, but the 15 year projected ROI more than made up for the cost. In my experience, however, this is highly unusual.

...in its simplest form, you just divvy up the water bill 10 ways....watch water usage drop.  Its a no-brainer, imo.  You just have to get the old tenants on board....and massage the message, so you don't lose your good tenants.  If they think it will drop the overall costs of living at the property, they will participate.  

We have one 2 story retail/office we manage now and have had others in the past.  We are in Tampa, but I can't believe the tenant profile varies much bw the Tampa Bay area and the Marco market.  Having an elevator makes a big deal in terms of vacancy. 

The second floor is always a challenge. If it has an elevator, I assume maximum potential occupancy is 75% of the available SF. If it doesn't have an elevator, I would assume 50% of the 2nd floor SF is maximum potential occupancy. There is no real estate book that tells you this. It has just been my experience in dealing with these types of 2 story centers. Unless you are in a very dense, high traffic, preferably walking area, the 2nd floor will have functional obsolescence. If you eliminate that additional square footage in the underwriting process, I think you have a better idea of functional SF to do your calculations. I am not sure trying to find a comparable CAP rate when a significant part of the building will not be sustainably leased will give you an accurate picture. If you don't like my rule of thumb elimination of space, ask the owner for 5 years of rent role. He probably had to provide that info to the bank. That will give you a little better picture of the turn and vacancy rates.

I will also add, that most of your problem tenants will be on the second floor....a lot of start up, mom and pop's...they come, they go...frequently without notice and leave you high and dry.  Your more solid tenants want to be on the first floor, particularly in retirement areas like Marco.  Your turn rate on the second floor will be significantly higher than the first floor.  

I am curious @Quy Huynh...are you using a local Tampa bank?  

Adding to @Joel Owens' comments.....and each investment on its own.  Check cashing stores and high end coffee shops serve different demographic markets. Both can be great investments for landlords.  

There is little homogeneity to commercial real estate when you leave the NNN single tenant arena...and even then, markets in the single tenant arena vary wildly. As a result, such a website would be difficult. Nothing is going to beat pulling comps and kicking the dirt to find threads of consistency that would allow some arrival at value.

Also should not look past what lease rates you can get if the tenant moves out.  I will use Starbucks as an example.  They have at times, hundreds of dollars of improvements over the market and pay more than the market rents, as a result. If they move, the improvements have limited value to the market and replacement tenant.  Joel is right.  The risk is fairly low if the sales are there.  But, look out if the store is below average.  I could tell you some horror stories about some SBUX stores I was involved with in TN and AR.  

Environmental risk is considerably higher too.....failed tenants frequently leave behind nasty messes.