What's should the numbers look like?

[Matthew Ladner]

I am in the market for multifamily properties, but my agent sent a commercial property and the numbers seem pretty decent in my eyes. The asking price is 1 million for around 9,780 sq ft. It has 9 units that are all occupied with business and does a gross operating income of $120,000. The operating expenses are around 25k, so looking around 95k net income. For only 9 units that seemed like a good deal to me, but I am not aware of the risks with commercial property along with if those are good numbers. Thanks for any help.

[Joel Owens]

Check:

1. If rents are above,below,above market for retail ( if above from vintage leases and some tenants leave you could have income drop upon releasing at current market rates).

2. Check if tenants disclose sales? Very important for mom and pop local tenants.

3. Do mom and pop tenants per the lease have to provide ongoing personal and business financials? Again important as you are trying to assess risk to the income stream of the property.  

4. Is there market vacancy taken out? There needs to be.

5. Is there deferred maintenance with the parking lot, roof, signage etc. Even if NNN leases the tenants cannot pay that all at once for reimbursements.

6. Will property taxes rise based on the sales price?

7. Are the leases staggered or do they come up at various times?

8. Is a road expansion widening planned in front of the center? Long term they are beneficial but short term access to the center for 12 to 18 months can be reduced and the tenants sales drop. National tenants can usually handle a temporary dip but mom and pop tenants can't.

Is access good to the site? Is there a median, u-turn, only one in and out point,etc. that makes getting in and out hard for a consumer and a hassle?

9. Are sight lines good for the center? Is the center up on a hill,down in a hole, or on a nice level lot with great drainage where visibility is good from the road?

10. What is the daily traffic counts from the department of transportation? Is the road increasing  in count,flat, or declining ( dying corridor and growth is moving elsewhere?

This is just the basics. There is over a hundred things to look at with retail centers. make sure you have NNN leases and not gross leases.