How red is this red flag and why do I still want this deal?

[Marylynn B.]

Hey everyone! I am under contract for a NNN with a government entity in Houston TX. It has an 8.5% cap rate and they just signed a 5 year lease.

I am having the oddest experience. The tenants have not held up their end of the NNN and upon a property inspector's visit, it appears as if this is sorely needed. For some reason we cannot reach the manager on the premises and are now dealing with the facilities manager for the region. Being a US government entity, it is a safe investment for 5 years but why on earth is it not being maintained? How can I enforce that they get it up to code and continue-if I complete this purchase.

Other properties rented by the US government have been well taken care of, I have never experienced not being able to reach the manager.  If this cannot be enforced before my purchase-God knows it will not happen during my ownership.  Even if they continue to renew for another 20 years the building may only be worth the land it is on.

Appreciate any thoughts on this one!!! I so badly wanted this one to work I am having a hard time letting it go!

[Dale Shin]

In this case I would send a certified letter (return receipt) or FedEx to the person above the regional manager.  In the letter you can state your difficulty in reaching the property manager and list whatever deferred maintenance items the tenant should be taking care of per the lease.  That should get the attention of someone high up to get some heads rolling.

if it doesn't I would send another letter so the same higher up stating the actions you will take that will be billed back (plus any administrative surcharge) to the tenant for not performing per the lease.