Need Advice On A Retail Bulding I Am Buying
Hello Everyone.
I am currently about to make an offer on a 2 unit 25 year old commercial building in a good downtown location but smaller town. The one tenant is Subway Sandwiches and the other is a small mom and pop wedding store.
I have come from a student residential rental background where there is usually more cashflow. I know there is less cashflow in a retail set up like this and I understand the plus of having a good tenant like subway in there. The cap rate is pretty low (around 8%) but the building is quite new, good name brand tenant, good location and lots of land to add another 2-4 units down the road.
Here are the numbers:
Asking price: 250k
Mr. sub
1600 sq feet
$8/foot
$1666.00 - month
triple net lease
Just starting a 5 year lease at the same rate $8/sq foot for all 5 years. No option to renew at the same rate.
Wedding shop:
900 sq feet
$8/foot
$600 - month
Triple net lease
one year left in their 2 year lease. 2 year option to renew at the same $8/sq foot
What do you guys think? What would you pay for it? The owner is pushing for close to full asking 
Thank you so much for your advice!
Sorry my monthly amount for mr sub was off
It should be:
Mr. sub
1600 sq feet
$8/foot
$1066.00 - month
That should clear up the cap rate
try to get them to take a 2nd, such that your 1st is 65% and you should get good financing.
Yes I might try that, what is a typical rate for a small private second?
given where interest rate are, note much..
Try to understand what his needs are from a cash now v. later, taxes, etc. what money is worth to you...
e.g. if you can get money at 5%, why pay more than that?
Hi guys,
Thanks so much for the advice.
I will give you an update as things have changed a bit.
First of all, they will not budge off $240,000 (asking $250k)
Second there might be some environmental issues with the soil because of an old gas station from the 40’s that might have had a leak.
Third, we have now found out that the driveway from the main road is not on the sale property and they had a 15 year right of way that is up in a couple of months. I would have to make the offer contingent upon them renewing the right of way for another 30 years at least. I don’t know why it wasn’t made permanent in the beginning.
The numbers aren’t the best and I am starting to get a bad feeling about this property.
I think I will keep looking and find something with a higher cap rate and something that I can increase the value/rents in.
Thanks so much for the help guys.
A seller that is raising their price in this market? Is he from planet earth? If your not interested in the deal, please send me a pm. I might be interested depending on the area.
Willy.... I would have to go back at them with a $3250/month price AND a 90-day out clause in my favor. Then see where that leads.
They are in charge now, but if you renegotiate their lease.... make it favorable to YOU when the economy turns.
[addsig]
get a copy of the lease and check it out..
also, is it a corporate lease or franchise
Ask them how much money that they are losing in this economy. If their revenues are down 29% then a rent adjustment to $2500 might make sense, however I would meet them 1/2 way with a longer out clause to see if they bite.
or get that data from an independent source... some nation marketing form or industry association
So how good is the location? Is $2500 current rent value?
Try to make the rent reduction only 1 year of the 10 year term.
Start looking for a new tenant, see what the market will bear.
I would suggest that you give them a temporary rent deduction, say one year. At the end of the year if the economy improves, then they pay you back.
Since they basically have a Month to Month lease, you really dont have much bargining power.
Incorporating a 3 month move-out notice in a 10 yr commercial lease was a very very bad and costly legal move. I hope you fired your lawyer.
Try and meet them at $3000 and maybe throw some business at them next time u rent a car!
I just read a number of articles in the Colorado Real Estate Journal about commercial real estate for 2009. (Colorado is faring better than other parts of the country.)
Their take on it is that renters are hurting and concessions may need to be taken and that a priority is keeping the property leased. They also suggest it is important to keep the property competitive-
Ask them how much money that they are losing in this economy. If their revenues are down 29% then a rent adjustment to $2500 might make sense, however I would meet them 1/2 way with a longer out clause to see if they bite.