multi unit commercial retail/office?

Question

Hi BP,

I am not sure how to search for this topic here. 
When I search Multi unit commercial (usually its apartment or 5+ units and above)

I am new to this.
I have a unit that is in a "shopping center" ran by the owner association.
Let's just say, NEVER AGAIN!
trying to sell it ;(

I am looking into a multi unit retail/office/medical deal.

It is currently owner occupant plus 3-4 other tenant.
the owner doesn't pay rent, but pays all the utilities.
She claims the rent collected is $2000/mo Gross

I am new to this, any advise would be great!!1

how do I analysis this deal?
asking 185k tax 3500/yr. ins 900

has 15 parking space.

that is all I have for now, I haven't seen the property yet, tomorrow

thanks in advance

Jennifer Lee · Answer

His practice will be downstairs, upstairs will be the his office billing, other physician
But that is if we have to take the whole building, which is scary idea today.

Your posts has given me a lot to think about!!

And I have to renov to fit his practice added cost.
 Bridal(2nd floor) is"leaving". Its been in market for years

So it might be a due diligence thing...its address is main st. So its commercial. Was a medical office before, she claims.

Meanwhile if u know anything else I need to consider please let me know.

Oren K. · Answer

Jennifer Lee Thanks for the compliment. Your additional comments bring up other issues.

Zoning: Is the property zoned for office / retail. Even if not, it probably could be amended by the the city council but any purchase should be conditional on that.

Fire rating: Not necessarily. New construction has to generally conform to existing building codes. Pre-existing construction usually (but not always: Re-Zoning may require bring the entire structure to code) stays in place.

Upstairs!!: I don't know what kind of practice your husband has but unless there is an elevator in the building I would not put a medical practice in a place that requires stairs to get anywhere (even just for staff). The population is aging. For the 'retail' tenant, this will also be a big problem as even fully able-bodied young people simply do not like using the stairs.

Commercial like any other domain has a learning curve (and you never know it all) so keep researching and learning.

Good luck,

Oren

Jennifer Lee · Answer

Oren Karp you hit it on the NAIL!! everything you mentioned is true.
there was so much tension in the air, it was scary, with the tenant.

Biggest reason I am moving on.

It's an old victorian house, each room is tenant, I don't even know if that is ok? aren't there supposed to be fire rated wall between each tenant for commercial? but that is another post.

the area is deteriorating, but we need a space for my husband within 1.5 yr. We found the prefect place, "friend/colleague of hubby", but he is so not RE savvy. That we had to walk away.
he's space is already a medical office, actually in front of the above unit I am looking at.

It was listed for 229K, which is overpriced at it is....and was expired.
when we approached him....we thought off mkt deal.

he is retiring, currently an insurance comp loves him, so gave him a sweet TRIPLE NET deal($3,000/mo) and bought his practice.

When he put on market I don't think he understood what that meant. Now he is receiving rent, and he is looking to retire in 3 yrs.  THIS would have been prefect timing for my hubby being a new/young doc in town, to negotiate moving his practice, and they would have definitely hired another surgeon by then. if we buy now, triple net 3 yrs and potentially more if they hire a new doc to replace him. or my hubby just takes over space.

Anyways, first he didn't want to sell. then he did and asked 275!!!

when asked.... oh I bought for 
X and put in Y to renov = 229K
I want 50% of the future rent = 50K!!!

boom 275K........   hmmm yeah..no

and this is close working buddy so best to call it a day.

as for the unit, I am trying to see if the space fit our needs, as 1/2 tenant and move the little shops upstairs.
my hubbys daily business will help them.

but it's looking like we need both up and down-stairs. that is going to be tricking b.c my hubby maynot be in a good position to nego with the hospital being a new fish, important fish, but new none the less.

YOUR POST GAVE ME A LOT TO THINK ABOUT THANKS

Oren K. · Answer

Jennifer,

It seems like you are not thinking about this property as an investment but rather as an 'option' against possible future need. Two very different things.

As an investment, I would not touch it. You have a few tenants who are effectively or actually on Month-to-Month leases in a town that is 'deteriorating'. That suggests no demand and so if any of the tenants close / move out, you are stuck with empty space.

Assuming you are correct that the hospital will pay market rent for whatever space your husband takes, as an investment, will this generate a profit. If it doesn't cash flow, are there any real possibilities of  appreciation? These are investment questions that should be asking and answering.

Before buying an 'option'; what is the likelihood of the space being taken by some other long term tenant? Would no other space in town be acceptable? Can you get an option on the space until your husband figures out his needs?

To end on a positive note; from my experience, tenants do not move very easily. There is usually a compelling reason other then just rent (e.g. Need to grow / downsize, Want a better location, etc.). Rent is clearly a factor but there is a 'friction' to moving which makes tenants 'sticky' once established.

Lets say tenant that is currently renting 1,000 sq ft for $10/sq ft Gross for a total rent of $10,000. There is another space available in the next building over for $9 per sq ft which would save them 10% or $1,000. The cost of moving their stuff, getting business cards / letter heads reprinted, increased marketing so customers know where to find them now, the simple hassle of it all, etc. etc.

Also, if their business is that close to the margin that the $1K per year is the difference between profit and closing, how secure are you that they will continue to pay their rent?

Jennifer Lee · Answer

I checked it out, may walk away, I don't think 2000 is accurate.
I'm trying to figure out if we can use space, if not I'm gonna have to go back to drawing board.

Eric K. · Answer

Are you sure the gross rent is $2,000 a month?  That's the total sum the florist, antique shop, lawyer, and bridal shop are paying?

Jennifer Lee · Answer

Thx!!

I know that she said they pay little rent and can vacate if someone needs the whole building.

This building is on Main St in a small town.

My primary interest is my husband is outgrowing his space.
He may need his own medical office within a yr.
Location is ideal. It was medical prior.

The town itself maybe deteriorating but hospital is largest employer.

If the tenants were to stay while he figures that out it would be a good thing.

If he uses the space he may only need the first floor at first.

The hospital will pay rent bc he is employed by them.

I know from MLS  the larger business is listed for sale ;(

Makeup is florist, antique shop, lawyer, realtor(owner) and bridal (for sale?)

Joel Owens · Answer

BIG difference in regular retail, medical, office rentals as far as tenant demands and rent per sq ft.

Also it is important to know if this use type is in demand, neutral, or over saturated for your area??

Even if neutral or over saturated you could change the buildings use to what is in more demand or if the location is superior you will likely stay rented even if over saturated compared to less desirable locations for the tenant pool.

Do not look at CURRENT rents. Many of these have vintage loans underwritten in boom times of 2006,2007 etc. It's not what the tenants are paying now but what they will be paying.

Office for example could show the owner leases currently at 12 sq ft. Upon examination the area shows that rents are down and vacancy is up. The current tenants leases are fixing to expire and they are looking to move if the landlord doesn't give them a new lease at 8 sq ft.

Also the rent per sq ft could stay at the 12 but the tenant is asking for all these improvements to stay and have the landlord pay them. You have to know what you are stepping into and base your offer price on what your cash flow will likely be and not what is currently on the sellers books.