Need help making an offer

[Bob Langworthy]

I'm sure that I'm overthinking this. Here's the situation:

A friend let me know about an off-market office building owned by 6 individuals that are interested in selling. They have owned it for 15 years, are in their 80s, and don't want to deal with the challenges of leaving it to the next generation. A stated reason for their interest in selling is that two buildings just down the street from them sold in the last two months. One for $800,000 and the other for $1,100,000. Those properties were listed with commercial brokers that gave NOI showing that they sold for cap rates around 8%.

The property I'm interested in has 9 offices with one currently vacant, but they have done a poor job with keeping up with the local rental market and only have NOI of ~$25,000. "Simple!" you say. "Divide the NOI by an 8% cap rate and the building is worth $312,500."

Here's the sticky part: they paid $455,000 for the building and have put ~$80,000 in to it. They are not sophisticated investors and have dollar signs in their eyes due to the properties down the road.

My conversation has been with one owner who more-or-less represents the others. So here are my questions:

1) Should I offer what the calculator says I should offer? 

2) Try to educate them on commercial property values?

3) Should I run a pro forma and assume rent increases (6 of the 8 current leases expire this year) and base my offer on what I expect next year's NOI would be? This property is on the best street in town for professional offices and is right next to a ritzy New England liberal arts college. Rent increases would not be difficult.

4) Owner financing. How would you structure it?

Background on me: I'm an accountant. I own a 4-office building in the same town that is fully occupied.

Thanks for your help!