Buying retail strip while a tenant

[Andrew White]

I own a medical office in a retail strip in West Michigan. My landlord recently asked if I'd be interested in purchasing the strip from him as he recently moved out of town and is looking to offload. Currently isn't on the market but he is willing to talk about selling. The strip is at full occupancy (7 tenants) one of which is one of my practices. 

The building is new (2016) and is a great location. I own residential properties but no commercial. What questions should I be thinking about/asking when looking into this? Is it appropriate to ask for copies of all the current leases and for any record of delinquency/rent checks bouncing with current tenants? 

The conversation started because I inquired about the longevity of my neighbors as we are outgrowing our current space. So my practice would end up being a capstone tenant for the plaza. Looking for advice on where to start when inquiring about details so I can run numbers. 

[Joel Owens]

You can't trust the seller. You need to verify on your own.

You really need a commercial retail broker or at the least a commercial retail attorney helping you with this.

If you occupy 50% or more of the total space than likely can get an SBA loan. If not then there are regular retail commercial lenders for strip centers. All lenders are NOT created equal.

A PRO commercial lending bank could have for instance 30% down, 4.15 interest rate fixed for 10 years with a 30 year amortization. Conversely a bank where commercial lending is only a small part of their portfolio could have 5 year fixed with a 5% interest rate with 35 to 40% down and a 20 year amortization.

You have to not only think about the center as being an end user business in the space but what the value will be in the future if you should ever decide to sell to a buyer that is not operating a practice there. When I evaluate for my clients nationally even STNL single tenant there are many things to look out for. When you get into a retail center there can be hundreds of items to review. A lot typically  depends on how well the property management used kept records and interacted with the tenants. Also how landlord friendly the leases were when the development was built. As a tenant you likely love tenant friendly but when you become the landlord can see it from a totally different perspective.

Since you say the location is excellent the long term dirt value over time seems like it might grow in value.

The cash flow stream has to do with how many years left are remaining on the primary lease term and if the tenants are national, regional, mom and pop in nature. There could be special association fees as well as part of a larger development. Have to look at CAM caps and controllable versus non-controllable expenses and if the CAM caps are cumulative or non-cumulative in nature.

Lot's of things to go through. Would not do this on your own if it's your first time.