Office investing

[Jimmy H.]

Haven't been able to find any threads dedicated to offices and i'm sure some of you have experience investing in them. I am interested in commercial RE - even though the talking heads have said "commercial is the next shoe to drop" I don't think the residential shoe has fully dropped for that matter.

I am interested in a class B office space just off the main artery (road) in town. It is on a corner lot, plenty of parking, three story - no office condo crap they've been developing. Office rental rates in my town are $10/sqft for the loweliest dinkiest spot you can find and $17+ for Class A new construction. The problem is obivously that small business is hurting, so even some Class space downtown is edging down below $15 towards $12 in order to fill vacancies. My thought is that I could get $12/sgft for this spot and even being super conservative in my estimates, I could take $10/sqft and still cash flow.

Building is three stories with about 4 suites per floor (can be divded up different ways), and a total of 25,000+ sqft of rentable space. asking price is $2,100,000 and it undoubtedly needs sprucing up and painting, etc. but not in bad shape - just a bit of cosmetics. I'm looking at around $10,000 per month debt service on a 30 year am and $12,000 debt service on a 20 year am. even at a conervative $10/sqft my revenue is over $20,000 per month, and probably close to $10,000 cahs flow after debt service (hoping i can get a 30 year am). It is currently 100% occupied.

For you experienced investors out there, what am I missing, deal or no deal?

[Don Konipol]

You're missing all the operating expenses that go with owning an office building. These are almost never NNN properties (where tenants pay all costs). nor are they retail centers with CAM charges back to the tenant.

Your square foot rent figure is on a gross basis for office space. So as the building owner you will pay for the following expense items (and probably many more): common area utilities, management fees, accounting fees, legal fees, evictions, vacancy loss, insurance both hazard and liability, leasing fees, advertising fees, property taxes, governmental license fees, maintenance and repair, depreciation, janitorial, supplies (like for bathrooms, kitchen areas, mats, rugs, etc.), telephone, signage, tenant buildouts, free rent incentives. All usually absorbs about 50% of income.