Commercial Office Space Deal - Posted by Commercial Investor

Real Estate Investing Office
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Posted by Mark Reynolds on December 15, 2004 at 08:25:35:

Its a better than average deal but that is less importanat than that you’ve got it done. Since you have some positive after debt and a no-money down deal go ahead and do it.

My advice re the postive cash flow-- hold the money in a separate account for a year or so so that you have some cushion in case the tenant flakes out.

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Commercial Office Space Deal - Posted by Commercial Investor

Posted by Commercial Investor on December 14, 2004 at 15:34:43:

I have the opportunity to buy a brand new office condo for just under $270k with about $10k in closing costs and I already have a tenant ready to move in on a 3 year triple net lease for just under $24700 a year. I’ve already lined up private investors and loans to cover 100% of the acquisition that would currently put my debt service at $19740 a year. I calculate my cash flow to be just under $5000 a year with a GRM of 10.93 and Cap Rate of 9.15%. The office condo is right in the downtown area of a major city ($75k median income) within a mile of the town hall. Does this look like an average deal, great deal, or not so good deal? Thanks.

  1. What is the creditworthiness of your tenant? A three year lease to someone who bails out in 6 months due to business failure can be disastrous.

Tenant has been in business since 1993 and has good credit. They sell sports related equipment.

  1. What is your competetion for space…Now?

Not much. There are some very large Class A office buildings downtown right now and they house most of the governement related businesses.

  1. What will be your competetion for space in 3 years?

Not too sure. There is a lot of development going on in the area and I’m sure there will be more offices however they expect population to grow rapidly over the next decade.

  1. HOw does the price you are paying stack up? What are the amenities of the building you condo is in? Is this what you consider a good price, fair price, etc?

Price is on target with other developers ($145 to $155 a sq.ft. for shell). Amenties include the standard landscaping, parking, etc. No extras. I would consider this a fair price.

  1. If you chose to sell in 3 years, what are the prospects?

If interest rates stay the same (not likely) there may be a good market for owner-occupants but it’s a growing area and I’m sure I could get another investor to buy it even if I had to compromise on price.

  1. What is your tax situation? With a triple net lease your writeoff on the building are limited.

I own a business and already have too many write offs and not a lot of personal income. The structural depreciation alone will be around $6000 (39 year straight line) which is more than my cash flow.

  1. If all went bust, can you carry it to re-rental?

Yes. It would cost me almost $2500 a month to carry and it wouldn’t be fun, but I do have enough income to handle this burden.