industrial park investing

[Mike Landry]

I'm helping a friend out. He's new to rael estate investing and wants to buy an industrial park.  How would you go about analyzing an industrial investment. 

List 549,000

Advertised net income is 62,595

3 different tenants, 3 different buildings on 1.8 acres, 2 tenants have been there for 7 years and one is new in the last year. City water and sewage, 2 building have 3 phase electric.

These building look like typical older steel warehouse type.  Is there value in the property or is industrial space valued by the rents it brings in? We are going to go look at it soon. What info should I try to get from the Realtor? 

How do you run sales comps and rental rate comps on industrial stuff? It's been listed for almost a year.  Do people avoid industrial because it's not glamorous or is there a lot of risk with vacancy? 

Thanks, any advice is appreciated! 

[Bill Gulley]

Your Realtor has a vested interest in this deal, recognize that.

Since you're asking, that means you don't have the experience to be involved with your friend, nothing personal, at least as an advisor, great way to screw up a friendship getting in over your head simply because you think you can or have the gonads to get involved.

Best to have your friend go to his bank and talk to them, talk to the commercial folks and they will tell you what they will need for that property, that is where your due diligence begins. He may have no intention of obtaining financing, but go into it with that option. If there is any owner occupancy of over 50%, the SBA is another option. Lenders don't just protect themselves, they protect their borrower too.

You will need 4 folks, an engineer that does compliance work, an attorney for a legal review and possible liabilities, a CPA to look at the tenants positions and the pro forma statement. Not counting building inspections.  

Get the place appraised by an MAI appraiser (might have the bank order it so that it can be used if he does finance it). S/he will address comps, rents, traffic counts, lines of communications, market conditions, income potential, ROI and CAP rates, maintenance expected and condition, suggested inspections required as well as other aspects.

There is no way to touch on compliance and due diligence to a newbie buyer on an industrial property, this is another world and there is no way to learn everything over some contract period. So, do what wealthy people and successful business people do, surround yourself with experts when you're dealing at a half million + bucks and be careful in acting as an advisor. :)

Now, if you have a specific question, like what risks are there in having a tenant in the wholesale chemical business, or an industrial laundry or a transmission overhaul shop, post them up. Or, that the tenant there has been in business for 22 years and there for 7 years or if they are 7 years old and started out there, their industry and where they may be in their business cycle.