Investor · Gulf Breeze, FL · Member since 2018 · 32 posts · 19 votes
This is a serious look into my first commercial property.
I'm running numbers for a commercial medical space for sale at .144 cap rate due to a full service lease being renewed annually. NOI is projected $72,140, asking price $499K.
Building is rented by a federal government organization since 2009.
How do I estimate the cap rate a lender would cash out this property at?
I would love to think that .10 cap would be the conservative answer but I don't know if that's true. A cap of .10 would give me pretty close to no money in the deal at a 75% LTV.
Also - If someone wants to cough up enough cash to buy it out right, I'd entertain a partnership conversation.
This is a serious look into my first commercial property.
I'm running numbers for a commercial medical space for sale at .144 cap rate due to a full service lease being renewed annually. NOI is projected $72,140, asking price $499K.
Building is rented by a federal government organization since 2009.
How do I estimate the cap rate a lender would cash out this property at?
I would love to think that .10 cap would be the conservative answer but I don't know if that's true. A cap of .10 would give me pretty close to no money in the deal at a 75% LTV.
Also - If someone wants to cough up enough cash to buy it out right, I'd entertain a partnership conversation.
They will most likely do a market analysis and value at the market cap rate for that type of asset. My guess is it will be less than 10.
Maybe ask some commercial brokers and PMs in the area to get an idea of market cap. The other big underwriting decision with commercial lenders is your DSCR. I imagine this will be greater than 1.2, standard min.
No matter how rosey you spin this you gave project NOI. What is the real NOI?
Also be conservative on deals this size and use 65% LTV.
What are the lease terms?
You mentioned Refi in the subject but you are buying so I ASSUME that you want advice on your exit. Simple, if you use projected NOI at 1.4 or more DSCR with max 65% LTV that is your max number.
@Bill Horton - I haven’t purchased it yet. Strapped for cash since I just bought a residential unit.
I walked the property since my original post and there is some deferred maintenance cost (approx $60K) potentially. Needs new roof, HVAC work and termites. Current owner is haphazardly working the termite issue.
I may be looking into hard money to acquire it. My bank is a little hesitant to loan more than 75% LTC on this property with the needed repairs.
The lender will go off the appraised value. I get 10 year locks with 25 yr amt and 15-20% down on all of my deals even if it is a vacant/value add play.
@Jehon Bendokas. I would have expected a far lower cap rate for a property with a long term renter like that. I'm glad to hear you are calculating the deferred maintenance. Be careful to consider worst case for everything and try to assure your tenant will be there for a long time. And consider alt uses for the asset if they leave. After it's firmly under contract, I'd recommend taking an experienced CRE investor through it to try to help uncover everything that could go wrong. Happy Investing!