Price Reduction From Vacant Lot Loss (Advice Please)

[Amos Smith]

I'm in the process of acquiring a 100 space park, the park has 60% occupancy. Purely based on the park income, the NOI @7.5 cap show a valuation of $1.0M, because of the land, POH and pads for expansion I offered $1.2M for it. My plan is to fill the 40 vacant pads to get to 100% occupancy, at which point the park should worth $4M. So that comes out to be $40K per home in the end.

But during the DD, I've found instead of 40 vacant pads, only 35 vacant pads are usable, so there is a loss of 5 spaces for me.

What is a FAIR way (to both sides) of reducing the purchase price to account for the missing 5 vacant pads? Because of the missing pads, instead of getting to $4M, I could only get to $3.8M at the end of the project (loss of $200K). I don't want to ask for an unreasonable reduction because I might loose the deal, but I also don't want to be short changed.

Love to hear what y'all think.

[Roger D Jones]

So let me free think here.  

At the end of the day you are buying a 95 space park with a 75k NOI and a 6.25 CAP for 1.2 million. You say you are 'overpaying' in a sense for the POHs, land and empty lots of 200k. The POH income is in the front half of the deal, vacant land is included in the vacant lots. So in essence you are paying an extra 5k for each empty lot. Take five off that premium and your at 1.175 million. 25k less. You could try that but I can see the seller not being interested in a big price reduction due lost potential earnings on something he has not done or you have not done yet.