Help! Never done a commercial deal? DEAL was OFFERED?!?!?!

Commercial Real Estate Investing
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Help! Never done a commercial deal? DEAL was OFFERED?!?!?!

Tyler Shoaf
Investor · IN KY, UT · Member since 2022 · 10 posts · 5 votes

What do I need to know questions to ask things to calculate and look for? All even more foreign than single family home investing. Had an offer as BP says make sure everyone knows what you do had a commercial deal come to me today.... and It sounds good but IDK a think about commercial 

The Deal
Its a doctors office one of 3 building in the complex

What about commercial ? Might have a deal coming up in the next 60 days that's in the 550 to 600k its triple net property so all maintenance gets billed back to tenants as well as taxes and insurance and its a doctors office it will have a return of 6.5 to 7%
38k in landscaping went in parking lot will be seal coated and stripped within the next 3 weeks and also will have a brand new lease New lease will be a 3 year term with 3 additional lease year options and will be a 10% rent bump at each option And we can manage it all for you for 7% of gross and that fee gets billed to tenant so it doesn't cost you a dime Solid all brick building and tenant just did a 100k remodel 2 years ago

Have a connection with a local commercial lender in that area that could set me up with a loan?

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Account Closed
PA · Member since 2010 · 339 posts · 168 votes
4y

Important things to look at: 

How many years are remaining on the lease, it's really expensive when a commercial tenant leaves. It can take a couple years to find a new tenant and when you do, there will be TI (tenant improvement) costs.

Does the rest of the complex seem to be on an upward trajectory? or are other tenants in the complex likely to be leaving?

How old is the doctor. Doctors can shut down the practice when they retire. Or they can sell the practice which does not mean the new operator will stay in the same place.

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  • Account Closed
    PA · Member since 2010 · 339 posts · 168 votes
    4y

    Important things to look at: 

    How many years are remaining on the lease, it's really expensive when a commercial tenant leaves. It can take a couple years to find a new tenant and when you do, there will be TI (tenant improvement) costs.

    Does the rest of the complex seem to be on an upward trajectory? or are other tenants in the complex likely to be leaving?

    How old is the doctor. Doctors can shut down the practice when they retire. Or they can sell the practice which does not mean the new operator will stay in the same place.

    2Reply
  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    4y

    Sounds like an OK deal, those office condos are very hard to sell. I see them listed all the time.

    I'm leery of 7% gross management fee, market would be closer to 3-6% on a NNN...

    1Reply
  • Tyler Shoaf
    OP
    Investor · IN KY, UT · Member since 2022 · 10 posts · 5 votes
    4y
    Quote from @Account Closed:

    Important things to look at: 

    How many years are remaining on the lease, it's really expensive when a commercial tenant leaves. It can take a couple years to find a new tenant and when you do, there will be TI (tenant improvement) costs.

    Does the rest of the complex seem to be on an upward trajectory? or are other tenants in the complex likely to be leaving?

    How old is the doctor. Doctors can shut down the practice when they retire. Or they can sell the practice which does not mean the new operator will stay in the same place.


     They just signed a 3year the whole area is good new businesses in the last few years in all the buildings and updated structures. not sure on the age of the doctor thatis a great idea and research that should be done!   thanks for your thoughts 

    0Reply
  • Tyler Shoaf
    OP
    Investor · IN KY, UT · Member since 2022 · 10 posts · 5 votes
    4y
    Quote from @Ronald Rohde:

    Sounds like an OK deal, those office condos are very hard to sell. I see them listed all the time.

    I'm leery of 7% gross management fee, market would be closer to 3-6% on a NNN...

    Its 3 separate brick structures that share a central parking lot to give you an idea of the lay out off one of the main streets in that town. Ok thanks for the heads up on the fee, but how do you calculate or decide on the right fee fare for all? any thing I should learn or look into? 
    0Reply
  • John M.
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes
    4y

    Are all 3 buildings occupied at 100 percent?  That will give you an idea of the demand in the area. Dig further into this mgmt fee… what is it they actually do for you. 

    0Reply
  • Account Closed
    PA · Member since 2010 · 339 posts · 168 votes
    4y

    Who owns the parking lot? Is it written in the deed or somewhere that it is shared by the other owners? Is there some sort of owners agreement that outlines the maintenance and upkeep of the common areas? I could imagine it would be set up as some sort of  annual association fee that is put into escrow to pay for repairs and maintenance, landscaping, snow removal... Even the sewer line may be shared. I have no experience it this kind of project so there's a good chance you can ignore all this.

    1Reply
  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    4y
    Quote from @Tyler Shoaf:
    Quote from @Ronald Rohde:

    Sounds like an OK deal, those office condos are very hard to sell. I see them listed all the time.

    I'm leery of 7% gross management fee, market would be closer to 3-6% on a NNN...

    Its 3 separate brick structures that share a central parking lot to give you an idea of the lay out off one of the main streets in that town. Ok thanks for the heads up on the fee, but how do you calculate or decide on the right fee fare for all? any thing I should learn or look into? 

     Fees should be based on amount of work, incentives, etc.

    What do they need to do for a NNN lease? pay insurance and property taxes once a year? Send an ACH once a month?

    1Reply
  • Tyler Shoaf
    OP
    Investor · IN KY, UT · Member since 2022 · 10 posts · 5 votes
    4y
    Quote from @Account Closed:

    Who owns the parking lot? Is it written in the deed or somewhere that it is shared by the other owners? Is there some sort of owners agreement that outlines the maintenance and upkeep of the common areas? I could imagine it would be set up as some sort of  annual association fee that is put into escrow to pay for repairs and maintenance, landscaping, snow removal... Even the sewer line may be shared. I have no experience it this kind of project so there's a good chance you can ignore all this.


     all great questions thanks! ill be meeting with them to talk about all the comments and ideas this conversation has brought to mind! 

    0Reply
  • Mark H. Porter
    Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
    4y
    Quote from @Ronald Rohde:

    Sounds like an OK deal, those office condos are very hard to sell. I see them listed all the time.

    I'm leery of 7% gross management fee, market would be closer to 3-6% on a NNN...

    Yup, I’m with Ronald on this last part.  I pay 4% on a new purchase because the CAM hasn’t been reconciled in 5 years and needs to be brought in order.  I pay 3% on another strip mall I bought the same day as it was all in order with no options coming due for three years.
    1Reply
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