Looking for VA financial partners

[David Sanford]

I have a deal under contract for $2.6M for two medical offices at a 10 CAP. Total value currently is $3.5M being conservative. I'm have a hard time finding a lender to lend on it because the leases expire in 2.5 years and they all want at least 5 years remaining. Therefor I'm considering going with partners on it to buy in cash. Very big tenant in place for 18 years now. 1980 build. About 20k sq ft in total between 2 buildings located in Central Virginia.

[Joel Owens]

For the roof ask if it has warranty that transfers to the new owner and ask to see the warranty requirements for maintenance and any documents that have to be signed for the transfer.

Make sure roof type that was put on has not been recalled, the contractor has not gone out of business, or the material with roof company has not gone out.

Also make sure another layer was not just added to the top. If it has too many layers the insurance companies will say not to insuring the building. In that case the whole roof has to be tore off and redone. Get core samples to see quality down to the decking. if a new layer is just on top of a bunch of crap it will fail early and be worthless.

Check parking lot for cracking. Reseal and coat depending on size can be over 100k sometimes. if you have to mill the parking lot down can go into the stratoshpere. 

If the place has elevators they can be a few hundred k each to replace. Don't put blinders on because of the owner finance. Still do a complete DD.

What I mean by 10 cap could be 7 cap is not that the market is 7 caps for what people are buying.

What I am saying is sometimes say a lease was done in 2005 on a 20k sq ft building and market rents were 25 a foot. With rental increases now the rent at 32 a foot and based on existing income it is your 10 cap as you say. The current market for that building size might now be 23 a foot as the area has changed over time from new town development to old town where action is not as strong anymore.

Now when 2 years is up tenant wants to renegotiate rent down to the 23 a foot or they leave the old building for a new building a developer completed with all the bells and whistles for close to what they are paying now. You have to not just think about value TODAY but what it will likely be in the FUTURE.

I assess current in place rents in income to what current rents are in the market and where the market is trending to offer for my price.

I can buy Walgreens with 2 years left on lease for a 10 cap but it has Dollar Tree sublease and when Walgreens no longer has to subsidize the lease I have a 6 cap for what Dollar Tree would pay on their own for that space. if I have 6 cap I might as well go buy Walgreens on the hook for 10 to 12 years. Alot of this analysis comes with decades of experience in the field.