New Commercial property acquisition

[Will Kenner]

Investment Info:

Retail commercial investment investment.

Purchase price: $1,740,000
Cash invested: $452,000

Buy-and-hold investment purchase of two fully leased 4000sf commercial buildings located within a commercial development, situated along the major highway leading into town with high visibility and ample parking. Built in 2004, the buildings offer timeless architectural design with all the modern amenities and construction.

What made you interested in investing in this type of deal?

After dealing with eviction moratoriums and unfavorable landlord-tenant laws, our focus was redirected to expanding our commercial property holdings. This particular property provided a relatively higher cap-rate, competitive price/sf, is well maintained and newer construction, has full tenancy with NNN leases, and is situated in a rapidly growing area. The interior configuration of the buildings allow for flexible reconfiguration to accommodate a variety of tenant uses.

How did you find this deal and how did you negotiate it?

Negotiations of the final purchase were based on comparable price/sf and cap rate for the area, as well as anticipated deferred maintenance that was estimated during the initial property visit. After completing the due-diligence, no additional repairs or deferred maintenance was found that warranted renegotiation of the purchase price.

How did you finance this deal?

The initial offer included a partial seller-financing option, providing tax-favorable interest income for the seller. Due to seller's financial needs however, a full cash-out offer was ultimately agreed upon, and a conventional commercial loan with a 10 year term amortized over 25 years with 27% down was secured. Funds to close were provided by the equity partners in the deal and from cash accumulated from the operation of other rental properties held in the portfolio.

How did you add value to the deal?

The property is currently developed to its highest and best use with minimal value-add opportunities as the property has been well maintained and operated efficiently. Upon tenant turn-over, there is the opportunity to further divide the rentable spaces to accommodate up to a total of 8 retail tenants, increasing tenant diversification.

What was the outcome?

The deal was closed on January 11th and rental operations have been seamlessly transferred.

Lessons learned? Challenges?

Financing was initially secured with a local bank which, during underwriting, changed from a 30% to a 40% down payment requirement. With minimal time of the financing contingency, financing was transferred to a credit union that funded two prior deals. They were able to pick up where the prior bank left off, and expedite their underwriting since all inspections and appraisals were complete, and funds were already in escrow. Lessons learned - have a back up and make business relationships.