Posted by JTS on September 12, 2006 at 09:33:14:
I hadn’t thought of the enviromental impact on the property and who’ll be holding the bag if there are problems.
I also question the real motivation of the sellers…this property seems like it would be easy to keep. I will be questioning the sellers on this as well.
Thanks!
What am I missing, Ray? Anyone? - Posted by JTS
Posted by JTS on September 11, 2006 at 17:15:21:
This deal seems like a no-brainer but it is my first commercial deal (I became a full time investor earlier this year via sfr & small apt. rentals & rehabs). The owners were about to list it with an agent, but have said they’ll give me two weeks to put something together (family friends).
A national tire & lube business that was built-to-suit about twenty years ago. Here are the details
Price:686k
Rent:71,500 per year
True NNN.
The building is in good shape.
Lease is to be renewed next year and rent to go to 83k per year.
The market is in the midwest and has about 100k for population. The business has two locations in this market. Traffic count is about 15-17k cars per day. The property is located about a mile or two from the booming area of town on a major road.
I know the lease must be renewed for this to work…not sure how I’m going to get that done. My real question is; What are the downfalls of owning a NNN tire & lube joint? What do I need to be sure and ask & look for, specific to this type of property? Is there a reason this is screaming deal and it really isn’t? I have some homework to do.
Thanks in advance!
Jeff
Re: What am I missing, Ray? Anyone? - Posted by SteveD(TX)
Posted by SteveD(TX) on September 12, 2006 at 16:09:06:
This is a special use building not easily converted into alternative uses. You should have an understanding for the demand for this type of space locally if it goes vacant. As I understand it, the current tenant has an option to renew next year. Of course, you need the lease to be guaranteed renewable to make it work. If it were me, and if you can work it legally and ethically, signing the tenant to a new lease, even if it’s at the current rate or lower rate than their renewal option is better than the prospect of a vacant building. You might look into that option. Good luck.
Re: What am I missing, Ray? Anyone? - Posted by Michael le
Posted by Michael le on September 11, 2006 at 17:34:00:
By far I’m no expert but the obvious downsite to a tire & lube joint is if they don’t renew you’re left with a building that can only be rented to another tire & lube joint. Also, I would check into the financials of the business. Just having two locations wouldn’t be enough. Is it the same company that has been there all twenty-years? Same owners or have they been bought out in the past? Reason why?
I’m sure there are a lot more things you need to research. Those are just the simples one my simple mind can come up with.
Good luck.
Re: What am I missing, Ray? Anyone? - Posted by JTS
Posted by JTS on September 11, 2006 at 18:56:44:
The same company has been in this location since the building was built. It is a national company that has locations in the hundreds. They are very solid as far as I know, right now…and I will verify.
I don’t know if I can string out a closing until I have a signed lease…or at least a solid indication that they will sign. The owners want to move out of town, so I don’t know if they will take an option.
Any ideas on what an option would be worth if the owners would consider one?
Thanks,
Jeff
Re: What am I missing, Ray? Anyone? - Posted by Killer Joe
Posted by Killer Joe on September 12, 2006 at 09:04:36:
JTS,
Just some thoughts…
Moving out of town does not foster a strong motivation for selling a NNN property. Management intensive properties, yes. See if there is an additional force driving their decision to unload this property. That may help you determine their cash needs and help you structure the deal.
You will need to find out the costs for a Phase One and Phase Two environmental study on the property. I have looked into two different properties that were stores/gas stations and I could not buy either one without these studies taking place. They are expensive, and remediation costs are high if defects are uncovered. Long term use of this building by the current leasee has no doubt impacted the property as environmental concerns have changed drastically over the last twenty years. HTH
KJ