Need Help Evaluating Commercial Deal

[Terry Owens]

In my search for a multi-family investment, I came across a commercial property (office space) that I want to analyze. Since I've been focused on MF, I haven't been sponging up knowledge about commercial RE, so I need some help please. At first glance the NOI is more than 10% of the asking price 90,000/800,000. But that only includes taxes, insurance, waste, parking lights and water/sewer. What other cap ex should I include and how much? Also, I would probably finance the due diligence...not sure what all I need to do for commercial office space or where to find out.

Also, I will probably need to raise hard money for this.  When I consider, say, 8% returns, how is that calculated?  Compounded annually? Also, what is typical equity spread with investors?

This could possibly be my first deal and expert advice would be appreciated.

Thanks, Terry

[Greg Scharlemann]

There's a lot that goes into underwriting an office project. You will want to be sure you understand the type of leases (full service, NNN, or something in between), zoning restrictions, remaining term, expected CapEx on releasing (for TIs and commissions), etc. Start by modeling it all to see if you can get to a satisfactory return.

As far as operating expenses, other costs to consider: janitorial, security, admin/mgmt, building repairs and maintenance.

I'm sure poking around BP you can find a bunch more of things to consider. Hopefully the above gets you started...