Commercial Warehouses pros and cons

[Yoni R.]

A deal fell on my lap to purchase a commercial warehouse. It was built in 2004 and also has office space in it. It’s 8,600 sqf and is two stories. They are asking $1,100,000.

Currently only one tenant occupying about 60% of the warehouse paying $9,000 a month. Tenant pays electric, water and insurance. The tenant is on a yearly renewable lease.

There is a separate entrance so the other 40% of the warehouse can be occupied by a different tenant if wanted.

HOA is $850 /month

Property taxes is $12,200 /year

It’s located in a complex of warehouses and everything looks very kept up and everything is pretty much occupied there. located near the new Amazon fulfillment center in South Florida.

The only problem is I don’t have knowledge in warehouses. I’m a multi-family investor...

What do I need to look for? What is the going cap rate on warehouses? How easy is it to find tenants? Any help will be greatly appreciated here. Thanks to all.

[Brett Peters]

@Yoni R. I am a commercial agent from the PA area and I do deal with a fair amount of industrial warehouse space. It sounds to me like the current tenant is on a NNN lease. However, the fact that they are on a yearly lease should cause some concern. In the current climate, it is not easy to get commercial leases done and if that tenant goes dark or decides to leave you could be looking at holding the space for about 6-9 months to find a new tenant. I would suggest attempting to get at minimum a 3 yr, lease signed. As for the second floor unit, is this all office or is it also warehouse with office? I can tell you from experience office leasing is extremely difficult at the moment. The most important piece of advice I can give you is to check the zoning for the parcel and see all of the possible permitted uses that you can use at the location. That way you will know whether you can convert the unit to a higher and best use in the event circumstances change.You will also want to contact a commercial agent in your area to perform a financial analysis on this. Since the property is 40% vacant you will be in the 25-30% down range and you want to make sure you are being compensated for the additional risk you are shouldering in this situation. Cap rates will vary by area but you will likely be in the 5-7% range. Make sure the cap rate you are buying is based upon current performance and not pro-forma.All in all this doesn't sound like a bad deal but due diligence is imperative as this property type is nothing like MF.