Office Building broken into Office Condos - buyer beware or potential good deal?

[Shane H.]

I've pondered this investment for 3 or so years now, in fact one of the condos was avail in 2012 and when I called to write the check/submit my purchase contract, someone had beat me by an hour or so and lost out.

Cliffs notes version - some years back a group bought several of a cities dilapidated office buildings, convinced the city to give them loans, some were in the form of specials, etc - completed a few minor upgrades to the buildings, then condo'd out the buildings and primarily sold the condo's to out of state investors.  The out of state investors ate it up even though on paper the deals didnt make sense,  Most have been foreclosed on and for some reason there are still a few lingering around where the foreclosures have not gone through yet (foreclosures that should have started in 2008 or 2009)

2 of these buildings individual investors have been able to gain complete control of -- One in fact has his for sale right now - it needs some work but is 8 or 9 stories with a parking garage for $850k if I recall.  I know the guy, not well and need to sit down and talk with him.  I'm fairly certain he has nowhere near that in the building.  Per the last article I could find on the building from April of this year when they gained control of it, vacancy rate was at 95% (when they started 3 -4 years ago vacancy rate was 40%) -- With the last floor they got back it sunk their vacancy rate back to 85%.  Im sure they will fill the last bit of space.

To get to my point, the downtown area these buildings are located in has a lot of upside - lots of new projects going on, lots of demand for downtown residential here -- office space unless it's class A is a bit harder to rent though unless you have doorside parking - (Guess us midwesterners are lazy)   I think this building is great, has a lot of history, however just has a poor marketing scheme and bad stigma with it.  The one downside is no doorside parking, however the city put in a new parking garage literally steps across the street so parking would not be an issue.

The building I've been investigating is 11 stories, has 4 or 5 owners not paying their share of electric, maintenance fees etc, and all floors have different owners except one owner owns 2 floors which happen to be for sale -- I've noticed the owner (of the 2 floors for sale) recently had posts up trying to lease the office space - (crappy ad) and I've also noticed he tried to auction the floors (sale didnt go through) and he's also had liens filed on him by the condo association for not paying his share of the bills.

My thought was to find an outside investor or do this myself (floors could be had cheap) build an alliance with the floor owners who are paying their share and wrestle control from the non conforming owners, then reform the structure of the ownership of the building where it could be sold in whole again, hence creating value.

I'm very familiar with the building and know my city backwards and forwards, connections etc - think this building has had some horrendous marketing done for the office space, (no website, brokers in town not wanting to steer clients to this building etc)   I definitely think this place could be turned around and once you pay the specials off (about $39k per floor) rents of $7-9 a sq ft (full service) would cash flow nicely - not to mention the upside one has if partnering with the other owners and changing the ownership structure.

Maintenance wise I believe one big complaint is the elevators (2 of them plus a freight elevator I believe) -- One sounds like it needs serious work.   Mechanical wise I believe each floor has new HVAC equipment, modern data connections etc.  (This should have been updated via the specials tax each owner is paying)

Have thought if you could get the electric company to install separate meters for each floor that would probably alleviate alot of the tension there.

I know this is a lengthy post - commercial is something that has always caught my eye and I've had great interest in.  Have not completed a commercial deal yet -- like I stated was close and have spent hours and hours of due diligence researching commercial.

Would appreciate any insights -- hey, maybe someone reading this would be interested in partnering with me.  Lots of risk but I believe lots of upside.