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Off Market 15 Unit Strip Mall with Restaurant - NEED GUIDANCE
Good Morning Biggerpockets!
I am fairly experienced in residential multifamily investing, done a few flips, own 10 rentals, 4 buildings. Recently through networking I was offered a off market 15 unit strip mall that has 8 retail storefront on level 1, and 6 office spaces on level 2. It also has a detached restaurant. At first I was thinking this is over my head and I was going to pass it up, but I told the seller I would run some numbers and let me know. He is selling because he wants to 1031 and needs the money for a 30 million dollar new construction project.
The numbers below are not exact but a basic estimate off the information he quickly gave me, but from a quick glance it looks like a half way decent deal.
Asking Price: $2,350,000
Retail storefronts rent: $1250-1800 monthly X 8
Office rents: $1200 monthly X 6
Restaurant: $4200 monthly
Taxes: $24,000 yearly
Gas and Electric Separated.
Town Water and Sewer.
Built in 1987
I am looking for some expert advice about how I should proceed... Do you think I should find some private money to fund the down payment? Do you think I should find a partner for the entire deal... Where I manage and they purchase or pay the down payment?
Thanks!
@Christian Ferreira
Happy to walk through the deal with you if interested. I own one retail/office center. DM me
WHat's your CFBT and C-C return?
What's the quality of the tenants and their leases are NNN?
Cost segregation on the property could generate some pretty significant cash flow.
@Sam B. Sent you a DM
@Steve Morris I am currently waiting for the seller to send me the income statement so I can get exact numbers. The leases are not NNN, the set rate includes snow removal, landscaping, water, taxes, and insurance. Tenants currently only pay Rent and Utilities (Gas + Electric) Question on NNN, what is the advantages to using a NNN lease rather then just increasing the regular lease to cover the added expenses?
- Real Estate Consultant
- Lehigh Valley PA & New York City
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@Christian Ferreira I used to work as a Controller for multiple Shopping Centers. A lot of the tenants are NNN, but they don't pay directly for the snow removal, landscaping, etc.. You have to bill them for CAM expenses. I can tell you that CAM reconciliation is probably the most difficult part of dealing with shopping centers.
"on NNN, what is the advantages to using a NNN lease rather then just increasing the regular lease to cover the added expenses?"
You've basically have all the tenants on modified gross leases since they pay base rents and utilities.
With NNN, you limit your out-of-pocket to major expenses. I guess in the real world that ModGross should be > base NNN.
However, most small customers are used to mod gross.
@Christian Ferreira now more than ever the retail tenant mix matters. look through the tenant roster for any who may be affected by online ordering (amazon effect) or by covid (any tenants with business restrictions). I know NH is faring better than MA, but in MA most restaurants and retailers have taken HUGE hits to their sales and many are trying to renegotiate leases. I'd recommend walking in to each of the tenants spaces and asking them how business is going. That'll tell you a lot more than the seller will. Good luck.
- Real Estate Consultant
- Lehigh Valley PA & New York City
- 605
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- 1,256
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Originally posted by @Courtney Duong:@Simon W. do you still have any of those CAM reconciliation spreadsheets for those shopping centers that you can share? Thanks.
No, CAM rec isn't something you just get from another person and try to make it your own. Every shopping center is different. You should invest in Yardi Voyager 7s. That's what the company was using when I was a Controller there. It basically do the bull of the work.
Originally posted by @Simon W.:Originally posted by @Courtney Duong:@Simon W. do you still have any of those CAM reconciliation spreadsheets for those shopping centers that you can share? Thanks.
No, CAM rec isn't something you just get from another person and try to make it your own. Every shopping center is different. You should invest in Yardi Voyager 7s. That's what the company was using when I was a Controller there. It basically do the bull of the work.
Ok, I will check out Yardi. Thanks.
@Jason Denoncourt
Great points. Retail and office are really different asset classes then residential that are both in flux. You really need to get clarity on the quality of the tenants and also see when their leases expire. It might be a good opportunity to partner with someone more experienced and adequate capital reserves. Although there is information missing the price does seem reasonable assuming little capex requirements and quality tenants.
A recent study of thousands of consumers said 60 degrees was about the cut off point for diners being comfortable eating outside on patio etc. of restaurants.
For warm belt states this news is not that bad as only cold typically a few months out of the year at best. For cold belt states with extended extreme winters this is bad news. You have to look carefully in those states as the viability of the tenants carryout and delivery model to hold up until COVID fades away.
I have some doctor clients and vaccines getting out is about 3 to 6 months away earliest so really getting this thin eradicated for the most part about a 9 to 12 month timeline.
I personally think right now is a great time to buy retail and a bog bounce back likely in 2024 to 2025. Corporate investment grade STNL with essential tenants is still doing great and I have clients buying those on a consistent basis. Regular retail centers with lots of mom and pop tenants is too much work for me. You get one performing one one goes out etc.
I look at WHAT IS THE YIELD? How HARD do I have to work for it? WHEN in time will it likely be achieved?
