Sketchy leases please analyze!:(

[Kevin Lopes]

ATLANTA experts please chime in on this.

Bank initially approved my offer to buy a 6yo, modern, nice, heavy traffic, 8000sf foreclosed strip mall in Clayton County, GA for $475K cash. Rent roll show NNN leases with 1 unit empty, 3 units renting $875 monthly, 2 units renting for $400 monthly. I hope to eventually convert all units to $1000 monthly for a decent 12% cap rate.

My attorney said there's a provision in the lease stating 'the leasehold estate would survive the foreclosure', meaning the new owner must honor these $400 monthly leases until 2020!!! I told the bank any investor would expect a potential 10%-12% cap rate for such property in the 'ghetto'; and these $400 leases make this minimal return unattainable. I requested a $75K reduction and the bank said 'no.'

I'm ready to back out but my agent said I still have a week to think about it. What do you think? Are these sketchy $400 leases even legal? Next time I open a business, I pay $20K cash under the table to an underwater owner to sign a 20yr $400 monthly lease; whoever buys the property get stuck with the lease?