How to 'value' a 50% vacant retail center

[Sunitha Alli]

Hello

I am researching into 50% vacant retail center in a mall.  It is listed for 2.5 million and 9000 sqft.  However, it is 50% vacant with current rents around 150,000 paid by 3 tenants.   3 more spaces are vacant.

How can I arrive at a fair market value for this property?  What are the due diligence measures to take before buying this property.

I am novice investor but hoping to rent it fully in a year or so and sell it for profit.  Seeking for some advice with investment guru here.

Thank you.

[Joel Owens]

When you buy value add make sure the existing cap rate is high like 8 or more on current income.

Seller that have had troubled properties like to sell 6 cap on existing and then PUFF the upside that it will be easy and will go perfectly with no issues to stabilize. It is not this way or the seller would have done it themselves......... : )

They tend to underestimate income down time, leasing commission costs, and tenant improvement credits along with inflated expectations with rent rate lease up per sq ft.

T-mobile tends to pay above market rents so make sure it is not way above just some. Example market rent is 18 a foot and other 2 tenants pay 17 but T-Mobile pays 21. Spread of 4 a foot is okay if they have an end cap unit facing the road which tends to go for more money in a center. If there rent is back from 2008 for the down turn and they are paying 30 you have a problem. You need to then discount that income to current market rates because there is a strong chance T-mobile will renegotiate the rent when the option comes and you will have a cap rate drop.