Is this a good deal? $2M building and $100k ground lease

[Strider Wardle]

Ive found a 9000sqft commercial building in an up and coming downtown area with cap rates in the 4s. Its on great corner across the street from a starbucks in a gentrifying area. Seller wants $5.25M or to sell the building for $2M and a 50 year lease on the ground for $100k/yr, and an option to buy at $2.5M after 5 years. Ive offered the master lease with option, but he turned it down and came up with the ground lease instead. The building is currently 8 units with 1/2 of them vacant, its built as 5 large units but 2 have been split down the middle and an office has been built above another one. Ceiling height is 20’ and the building is a historic brick building with some fancy brickwork outside in an historical downtown area. Talking to the broker reveals that the seller is a stubborn old man and has turned down a $4-$7 sqft/mo offer from 7-11 because he wont give free rent or TI. Running conservative numbers I can cash flow renting space at $3 sqft/mo, current rents range from $2-3 sqft/mo. Comps for the area are $3-6 sqft/mo and with this being an excellent corner Im shooting for at least $4. Rehab costs are estimated at $100k, and I want to hold $100-200k to carry the place until its leased up. Seller is willing to finance at 10% down 5% rate 10 year term 30 year am. Current rents are $12500/mo and everyone is monthly except a kabab shop thats on a 3 year lease. The plan is to lease up the empty spaces and then start raising rents on the current tenants to market rates and then lease up to new tenants if/when they leave.

Here are my concerns:

The building is not worth $2M, but I like the idea of buying it for that because I can depreciate more. Im worried the tax assessor will call it around $500k if they really look. What I have going for me is that its a historic building on the cities historical register, so really its priceless 🤗

This is my first commercial deal and it seems too good to be true. I break even at $3/sqft with 10% vacancy, maintenance, taxes, insurance, property management, etc. If I do NNN leases then all those expenses go away except for property management. If I calculate value at a conservative 5% cap rate, using gross lease figures, Im over $6M at $3/sqft. What am I missing?