Off market 100% leased Shopping Center

[Karla Torres]

Good morning! I need some help with evaluating this commercial property. This is my first commercial property and just want to have opinions from experienced investors. The property is 12,000 sqft, it is 100% leased with 3 year leases in place. Rents received for the year is $118k. Yearly expenses (utilities/repairs) $6k. My calculated Cap rate is 11% Seller is asking $1M. 

I will get a lender and finance this deal and put the required downpayment. What are your thoughts? Thank you in advance for any help!

[Rafael Mendez]

I hope this helps because as a commercial advisor it can be easy to tell clients to pull the trigger just to get a deal done. However here are some questions to consider:

Is the property self-managed?  If so do you intend on self-managing it or hiring a property manager? That will affect your bottom line. Do they have an existing relationship with a leasing agent to fill vacancies? What are the fees? Are you restricted to that agreement after the purchase?

Have you received any approval or conditions that need to be met by the lender? Do you have your interest rates and acquisition fees? This will show you what your true IRR/Cap Rate would be on this deal.

Are these credit tenants? Do they plan on renewing their lease? If the space has below-market rents are they going to stay with rental increases after their initial term is completed? If not is the area attractive to quality tenants that will pay market rents? Does this fit your investment model and strategy?

What amenities are there and are there any items of deferred maintenance that will need immediate or near-future investment?