Will Lease Improve Value?
I looked at a 25 unit office building today. The building has a lease in place with a regionally recognized lawyers firm, about 6K a month, with 36 months remaining on the lease. The firm's business recently tripled due to a state tort reform ruling and subsequently the firm had to move out of the building into a larger one, so the building is not occupied.
The building appraised for 420K two years ago prior to the law firm moving in.
The owner wants 420K for the building without transfering the lease, or 510K with the lease staying on the building.
What I need to know is this, how much of a difference will the lease play into the value of the building during an appraisal, if any at all?
Thanks
the Law Firm has moved. The building is empty. Appraisals are based on the here and now. The tenant still has to pay on the remainder of the lease. $72,000 per annum is attractive for three years. Examine that lease with great care. Law firms are really into breaking leases, lets face it all that idle bunch of employees what else do they have to do. Or, please forgive me, what else are they qualified to do? How long has the law firm been gone? Does a member of the firm own the building?
My offers would reflect the vacant price and figure the return on purchase price for the period remaining on the lease. You consider it, I doubt a properly qualified appraiser will consider it. He will look at present rental market and how many vacancies close by. the prior lease may have been created in a time of shortage of office space etc. etc.
My bid would be (lst bid) below empty asking price. Are you going to occupy? some, all, a tiny little office?
These are all considerations. Any deferred maintenance? Does the hold over lease terminate if property is occupied? Check that lease. Check with the law firm. Anything you should know?
Sorry for the hesitant attitude its, just, well when law firms vacate they usualy if it is a good deal have it tied up. Some of the biggys sponsor small firms in a different specialty and then sometimes they use them as training grounds. Have all the new Litigators work elsewhere until having taken their lumps they are ready for the first team. Stuff like that.
I hope it works out well, but buying into a 25 unit empty ex law building is not for me. Unless, of course I had a couple of small firms to move in at a higher rent due to the smaller spaces.
I leave it in your good hands.
Lucius very seriously
Do you have a tenant in mind?
Lucius <IMG SRC="images/forum/smilies/icon_cool.gif"> [ Edited by Lufos on Date 02/09/2004 ]
Lucious;
Thanks for the advise. I was told that the lease would survive the sale of the property. I was thinking that if I purchased with the lease in place, then I could use the income to support the payment until I had sufficient tenants to sub lease. I would then offer the law firm some sort of buy-out or discount to end the lease. Not really sure if something like that would work.
But to answer you other question, I have two smaller local attorneys and a couple of other individuals that account for about 10 of the units being leased, add the two I plan on using and that takes care of the first floor.
Since all of the offices or indoors, I plan on setting up a centralized telephone system with extensions and voicmail, and an receptionist/operator for all of the occupants. The lease would include office space, telephones, receptionist, and electricity. I would charge extra for fax and copier usage, also daily UPS pick up and delivery. How does that sound.
I despartly think there is a demand for that service in my area. That doesn't say anything about your area but with some market research you can find out.
The lease should survive the transfer of the property. It does in Iowa anyway. I don't see how the owner thinks he can ask more with the lease... It isn't like the previous owner can collect rent on your property!
So I guess it is safe to assume that the lease in place will have no bearing on the value of the property and should not be a selling point for the seller.
Thanks
Actually even the tenants inthe building have no issue on the appraisal itself. The tenants help out on the comparable rent scedule of the appraisal. The value of the building is based on similar buildings in the area. The commercial market in the area. And if the area is building up instead of selling out. The worst thing is a building in a depressed area.
Lori
[addsig]