Check out deal analysis

[Derek Bell]

23k warehouse on 3.9 acres in one of middle TN fastest growing cities. 1 mile from major interstate. 

Purchase price: $3,800,000.  Due Diligence: 90 days   Close: 30 days   Earnest money: 1%
Sale lease back that will take effect at closing. $26,800 a month for 6 months NNN.

I can easily grade, gravel, and fence off the rear 2 acres for outside storage that would easily bring in an extra 4k a month. Or, even better, add about 15k sf to the existing warehouse. The existing warehouse would rent for $14/sf nnn. 

Let's look at the worst case scenario. $14/sf nnn on 23k sf warehouse plus the added lay down yard = $362,000 NOI annually

Cost of the yard will only be around 100k. So, all in @ 3,900,000. 

$3,900,000 with 25% cash down, that I would provide without any other investors. Bank loan of $2,925,000 at 5.75% with 25 year am. 

Annual P&I would be $220,812. Annual NOI would be $362,000. Annual passive at $141,188

Thoughts?

[Derek Bell]

@Trevor Finn yes, numbers look just about on point. Looks like you have done this a few times. :)

@Ronald Rohde yes, I can get a 5.75 -6% with my local bank. I use them for most everything. They will do a 75% LTV. And yes, biggest risk is letting it sit for 12 months. But, I can still pay the note even if it sits empty after the sale leaseback.

@Gino Barbaro going in cap rate will be 8.5%. After I add the outdoor storage lot I would be around 9.5%. It wouldn’t cost much of anything for my guys to grade gravel and fence the lot. What I really want to do is add 15k sf to the existing warehouse. I normally just do new construction on these pemb, so I have never done an actual modification of an existing pemb to increase the square feet. It’s more risk because no way I could have it leased before my 6 month leaseback is expired. But if I went that route I would add 15k sf to the existing warehouse, making it a total of 38k sf with office/warehouse. I would then try to find an owner/user that would want to buy it at around $225/sf. That’s the long “hail Mary” scenario. It’s a long shot, but if I did so I would have a cost basis of around 5.1m and sell for 8.5m. Take proceeds and 1031. 

My easiest and safest bet would be to just build the outside storage lot. I can easily do this while my leaseback tenant is still in the building. I would have the storage lot completed and have 6 months to find a new tenant. I would shoot for 368k NOI nnn on the new tenant. Would most likely hold long term in this scenario and refi if it made sense.