refi or sell commerical property

[Omeed Owhadian]

commercial shopping center appraised at $1.5m, and about $12/ft/year.  building is about 10500 sq ft.  so should be around $10,000 a month leased.

current mortgage balance $50k

repair estimates, roof, driveway, paint, misc $100k 

2 partners own the building 60/40

the 40% partner wants to be bought out by me. i currently have 0%

the loan officer said the new mortgage would be around $5500/month

the ownership is currently structured under a partnership.  So i was thinking to restructure the partnership and ask to become the 60% majority in exchange for managing the building.

my questions are 

1) would you cash out refi and take on this partnership?, how much would you offer the 40% partner? or advise the second partner to keep everything and become 100% owner?

2) how would you split the theoretical monthly profits?

3) or just out right sell the building?

[James Storey]

This one is somewhat tough due to the current partnership structure. If the 40% partner want to be bought out, then refinancing would definetly have enough cash out of the refinance to pay him off at a $1.5M valuation. The property is still financially viable if you truly believe you can get $12/sf NNN which puts the refinance value at an 8% CAP (going in cap rate). Assuming your new mortgage is at 75% LTV, your new loan constant would be at around 5.86% wich is about a 214 basis point spread on your going in CAP. Any left over capital after paying out the 40% partner should be put back into the building to cover TI and leasing commissions.

On the other hand, given the complexity of the partnership, it may just be easier to sell the asset. It's hard for me to give my full opinion as I don't know much about the asset and where it is located so I am going at this a bit blind.

James Storey, CCIM