Calculating Retail Rents in a Mixed Use Commercial Unit

[Dominic Lucarelli]

Hello fellow BP members!

I've been in discussions with an owner of a Mixed Use Commercial Unit (3 small storefronts, 2 apartments upstairs) in White Oak, PA. I'm very interested in it (either as a buy or NNN lease), but the numbers don't seem to add up. So here's where I'm at:

Asking Price: $100,000

2 bed apt: $550

Studio: $300

Storefront Left: $350

Storefront Middle: empty

Storefront Right: The owner's business (Post Office)

I've been in contact with a commercial lender. Unless the owner's business pays the lion's share of his mortgage, the financials don't make any sense. The lender worked out a quick pro forma with me: a deal needs 1.25 debt coverage to qualify. I intend to offer $60k for the property, but rents/leases at these levels can't support that loan either. The lender says that level of income can support a loan (25% down, 5% interest, 10 yr term) an offer of $40k

**The owner intends to sell the business along with the building.**

With that being said, I think that I can improve this building and business. The studio apt rent is about $100 under market. I currently work for the USPS and I know that I can drive more business through the cash registers.

Sorry for the very long intro, but my question is: how does one compute a fair rent for the storefront/retail space? I feel that $350/$400 for a storefront is too low for the location and amount of traffic that passes by. Or am I missing something?

Thanks BP for raising my REI IQ!