Purchase commercial with tenant

[Chase Olson]

I’m lucky enough to have the chance to purchase a commercial property ( office) in Oregon. The current tenant is a well know business that I would love to have stay. Issue is they are paying less than half market rent for the area. They have been in the building for over a year. Price from the seller is fair, but the only way it works is if I double the rent or slash the sale price. 
I know I’m not the first one with this issue. What’s your experience with this

[Bjorn Ahlblad]

My experience with that situation is to go find a deal that works, that one does not. All the best!

[Mohammed Rahman]

Hey @Chase Olson, in this scenario you weren't lucky enough to have the opportunity to purchase the property. More likely than not, others have moved away from this deal because of the existing lease the current tenant has. Most commercial leases start out at around 5 years with the option for the tenants to renew or have first right of refusal. 

If the owner isn't going to be open to slashing the price, you might consider a buy out of the existing lease from the tenant and then renegotiating on another separate lease. Either way it'll cost you, or the seller. Good luck! 

[Russ Kitzberger]

Direct Cap rate analysis won't work for your scenario.  When you have uneven cash flows like a large rent increase or major one time expense, you need to use a discounted cash flow analysis. Then you can isolate the interim value (in your case detriment) amount during the discounted lease term.

[Ronald Rohde]

Cut the sales price, don't assume you can get the tenant to market.