Multi tenant office building deal?

[Mark A.]

Please check my numbers. This is for a nice looking 11,000 sqft multi tenant office building that I drive past every day. It has been for sale for a while and after I saw the price drop I contacted the owner asking if he'd be interested in owner financing my down payment. To my surprise, he was open to the idea. He said he is just hoping to sell because he had accelerated the depreciation on the building and was ready to move on. He will doing a 1031 exchange to a larger property but was agreeable to doing a ~15% carry back. Everything below are my actual numbers, run from the property rent roll, P&L, and discussion with the bank. I had initially assumed the Property Management would be higher than 5% but the current owner is managing it through his property management company and would like to continue managing it so he offered 5%. Roof, windows, and parking lot are all ~10 years old. 

What say you? Do you like the deal? Any concerns or red flags?

Purchase ~$1.1M

Down payment $50k (4.5%)

Seller Carry $170k (15.5%). PRIME + 1.5% (currently = 5%), 25yr am, 5 year balloon.

Bank Finance remaining ~$880k (80%) @ 4.5% fixed, 25yr am, 5 year balloon. 25 points. 2% prepayment penalty.

INCOME: ~$13,500/mo (@85% occupied) = $162k/yr. This vacancy rate & income has been fairly stable x past 5 years.

EXPENSES (including prorata taxes, insurance, utilities, snow removal, regularly scheduled maintenance, and saving for CapEx): $60k/yr

Property Management: 5% gross rent = ~$8000

Operating Expense (w/ Property Management) = 68k / 160k = 42%

→ Debt Service (as above) = $72k

NOI = income - expenses = $162k - 68k = ~$94k

Cash Flow (NOI - Debt Service) = ~$22k

CoC return = $22k / 50k = 44%

Cap Rate (after factoring in property management) 8.5%