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]

[Derek Bell]

@Ronald Rohde

[Bernard Hickson]

Good day, Derek,

Based on what you have presented this investment appears promising, offering a strong cash-on-cash return and ample opportunities for value creation. Your conservative approach to estimating income provides a solid buffer, and the strategic location adds a layer of security. I will offer this suggestion, If you can secure long-term tenants post-leaseback and consider future value-add improvements, the property could yield even greater returns.

Also, keep a close eye on commercial real estate trends in Middle Tennessee, especially given the area’s growth. This can inform decisions on rental pricing and future development.

 

[Ronald Rohde]

I think you're not adding in closing costs to the PP, due diligence/reports/legal?

Have you gotten loans at those terms? We are not seeing nearly as generous for a 12 month leaseback, I have one right now, I either get term of LTV, but not both for a short term SLB.

Re-tenanting is your biggest risk, what does your balance sheet look like if you have to hold it vacant for 12 months? otherwise good deal if you feel good on market rents. Leases are just taking a bit longer these days (maybe less so post election, but we shall see!)

[Trevor Finn]

Hey @Derek Bell,

This sounds like a solid investment with good cash flow and upside potential! With the sale leaseback ensuring income immediately, plus your plan to generate additional NOI through the storage yard or expansion, the numbers look strong. Given the high demand for industrial space, especially near major interstates, this could be a smart move. With $141K annual passive income after expenses, you're looking at a solid return on your investment.

Based on your info - my analysis is below:
Your purchase price is $3,900,000. Your building is at a cap rate of 9.28%. The equity needed to close is $1,053,000. Your first year NOI comes out to $362,000. Your first year Net Cash Flow is $141,183.65. Your monthly payment will be $18,401.36. Your annual payment is $220,816.35. Your balance at maturity is $2,620,964.89. The DSCR is 1.639. Your first year Cash on Cash return is 13.41%. Your bank's debt yield is 12.38%.

[Gino Barbaro]

@Derek Bell

What would the after repair cap rate be with a 362,000 NOI? And what is going in cap rate?

What are you planning on doing with the property, your exit strategy> Would it be to refi or sell? 

The terms on the debt look good. Refinancing to agency may make this a great deal

Good Luck

Gino

[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.
   

[Ronald Rohde]

Quote from @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.
   

 I think its a no brainer on paper. only you know the local market, will it lease? If you can float the vacancy worst case, whats the hold up?

[Derek Bell]

@Ronald Rohde

Well, just waiting for seller to accept my offer. They are wanting 3.95m and I offered 3.8m. The deal would still pencil at 3.95m but I really don’t want to pay that. I at least want to feel like I’m getting a deal. As for leasing, I feel comfortable in that area market to get $14/sf. It wouldn’t get leased right away, but at least I have a 6 month leaseback paying $14/sf to buy me some time. And I may just try to extend the building. It’s possible, but I’m sure the city would make it more difficult than it has to be. They always do. 

[Evan Polaski]

@Derek Bell, as others noted, the releasing/retenanting is the biggest risk on any commercial deal.  

In industrial, my experience is clear heights, door count and size, loading dock access, and (probably not the case here) how perfectly level are the floors.

I would also run a price sensitivity on how far rents may be able to drop to still make this worthwhile.  Like Don noted, you know the local market better than any of us.  Recessions have a good way of making anyone's conservative assumptions look not conservative enough.  But at the end of the day, well located properties in which the owner has ample liquidity to ride out long-term cash flow negative periods, rarely lose money.  

[Trevor Finn]

Quote from @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.
   

 @Derek Bell just a few 😊 - I love money math and deal analysis amongst other things!

[Brock Mogensen]

Sounds like a solid deal!

However, worst case scenario is the warehouse sits vacant for a year after the sale-leaseback term. Have you modeled out a vacancy period post sale-leaseback term? Did you include a TI budget for the new tenant? Do you have a plan in place for the re-lease?

Short-term sale leaseback deals are a great value-add opportunity, we do lots of them. Just need to make sure to have these points buttoned up.