Bidding on a multitenant retail 5 storefrons, land value too high

[Atul Mohlajee]

Bidding on a multitenant 5 store fronts building in Chicago (Built up area 6375 sq ft, total land area is 9750 sq ft) .  Received sales package from seller's realtor.  Asking price is $80/sq feet for the building while land value is listed at $56/square foot.  Is that normal/correct?  Land value seems too high in commercial while land value is at a very low percentage in residential in comparison to building on the land.

Please respond.  Putting a bid soon.

[Brian Ploszay]

I am from Chicago, so I have a lot to say about this.

I don't know where this property is.  But

1.   The land underlying most of the properties on the Southside of Chicago is not worth much.  It is the improvements (the building) that brings the value.  

2.   You are not developing this land, so the land value is not so meaningful.   If the structure is destroyed, you will be insured.  You will never develop this land.

3.   Focus on valuing the building.   First, find 3 sold and on the market comparables.   That will make you feel comfortable with the price.   Second, create a financial spreadsheet.  The broker may have one in the package, but usually those are too rosy.   While under contract, get the best inspector possible and demand credits or price adjustements for any major capital improvements needed or deficiencies that will cost you money.

4.   Last, you said it was a mixed use, so there is a commercial component.  You have to value the commercial differently in Chicago.  Unless it is in a prime location, the commercial spaces are drags on the investment.  They take much longer to rent, the tenants may not be stable, etc...

PM me if you want to talk about this.