I have been involved with the management of commercial property for over 15 years, but little experience with “creating the purchase deal.”
I’m looking at purchasing an office park that went back to the bank. It is currently 30% vacant due to poor management which ultimately put it in foreclosure.
Current income - $153,552
Vacancy 7,093 @ $10/SF $70,930.
Gross potential income - $224,482
I’ve been told this is a triple net leased project, but have yet to see the leases. Knowing the former owner, my guess is that the Landlord is responsible for structural and capital improvements and the tenants pay for the rest. I’m not sure yet who pays for the management fees… Landlord or Tenant.
It is listed with a brokerage company @ $1,600,000.
I have about $100,000 to put into the deal.
Can someone tell me the best way to approach financing this deal? Is it possible with only $100,000?
Thanks for your help.
Posted by ray@lcorn on August 21, 2002 at 13:11:38:
With $100T and 15 years of property management experience you are a tailor made customer for a bank owned property.
I’d be thinking in terms of a deal structured as a management contract with an option to buy, including an agreement to finance once the operation reaches a pre-agreed debt service ratio, say 1.1- 1.2 after mgmt. fee. That gives you a chance to get the operation to where it will support the debt, it gives the bank competent and competitive management services with a vested interest in success, and improves the quality of the asset for both of you. I would not offer to put any cash into the deal until you own it.
Much will depend on how you approach the bank. My approach would be to the highest ranking officer I could get an appointment with comfortably. At the very least I would want to start with the senior VP of commercial lending. Don’t start with a loan officer, that’s a sure way to get bogged down in the machine of bank bureaucracy.
Prepare a profile of your qualifications, background and financial status. Include a synopsis of a possible business plan for the building, but leave out details that could be considered trade secrets or proprietary contacts. Then get a lunch with whomever you have identified as the bank contact. Do NOT take the profile and plan with you. Talk about your background, your plans for the future and this particular deal in general terms of it fitting your long range plan. Do not give the impression that this deal is the only deal on your radar. I would mention that you may be able to move some accounts for properties you already manage(if that is so), or talk about setting up new accounts. The idea is to think in terms of a relationship, rather than just a one-off deal. You might also mention that you have done some preliminary work on the deal and would share it with him if he would be interested in talking further. If you manage the conversation in this way, the VP is going to ask to see the plan, and you are on your way to getting the deal done on your terms.
Do you get my drift here? You need to position yourself to play from your strengths. You can solve the bank’s problem (30% vacancy, depressed asset value) by providing a service, and also supply an exit plan with very acceptable terms (some cash, much experience, long-term relationship).
I may be too late for that plan on this property. They have already hired a management company and listed it with a broker -which is how I found out about it.
I now have a partner that is looking at it with me which will provide the necessary funds for any shortfall. I am aware that there are a number of other parties looking at the property since it is an attractive opportunity.
I loved your ideas, though and I’m going to work on being prepared to approach banks on other properties that come up in the future using your ideas.
I just found this website by accident. I hope to continue learning much more in the future. Thank you very much.