All Forum Posts by: Jonathan Hayek

@Andrew Tripp Great thoughts - thank you. Basically, I'm told there is a "glut" of office space available right now and I should be prepared for it to take 12 months to fill. So having big reserves will be important. Market rate for B class office space is $15-16/ ft. 

This other building is perhaps more intriguing to me. Could be a single tenant NNN. It would take about $30k to modernize bathrooms, replace carpet, and update lighting. My angle would be to offer a few months of free rent, one year below market rent ($12/ ft) and then gradually step it up market rate ($16/ ft). It would be a huge risk, but a huge reward. Purchase at $650k vacant, get a NNN lease, and sell in 3-5 years for $1.2m+. The issue is how long it would take to get a tenant. Who knows.

I get that deals are hard to come by these days, but I know there are plenty of people having success. Over the last year, I've put quite a bit of time and money into marketing and have had very limited success. I'm curious what methods you're finding success with these days. I've done quite a bit of direct mail, newspaper ads, radio, and TV. Nothing has been particularly effective. 

There could be tons of reasons why my methods aren't working - bad lists, bad letter, bad message, wrong time of day, targeting the wrong demographic, too small of a market, etc... 

Relationships and connections are the best way to get deals. Other than that, what's working for you? 

@Rebecca Calbert Sounds like a really unique property! If I had it, I'd be tempted to turn it into multifamily! I'm curious what market the property is in? I ask because of the regional differences in COVID hysteria. I could be wrong, but I don't know that some of those value adds would be valued as much in my market. It would certainly be nice to have private restrooms and break rooms for every office but that's also lost space that could otherwise be generating income. 

@Bonnie Griffin Kaake Great ideas. Thank you. 

@Russell Brazil Tell me more about your deal. What's going to be your strategy with it? 

@Joe Splitrock Fantastic insight. I am very detached from how large companies are pivoting right now, so any info in that area is much appreciated. I assume most companies are moving more towards work from home, but will still need some office space. This is why I'm looking at smaller spaces. I wouldn't consider buying 100,000 sq ft for those reasons. But it seems like there could be opportunity with 10,000 sq ft or less for the types of situations you explained. I've also considered splitting spaces into more of a co-working space setup. 

I totally get that there is risk in this asset class right now. However, in five years, what are we going to be looking back on saying, "I wish I would have bought more of that!"? Multi family? Probably, but it's so hard to find a decent deal in multi. Offices can't just vanish so I'm trying to gather as much info as possible to get into areas where others are not right now. 

@Ronald Rohde Makes complete sense. 

What do you think of this: I looked at another vacant commercial property that could be a candidate for a NNN lease. Seller wants to finance it. My agent said to make an offer contingent on finding a tenant. So, get under contract, look for a tenant, then execute contract once a lease has been signed. Seems low risk to me if the seller agrees. I'm told the building has been vacant for years because the seller has lots of properties and just doesn't care much about this one.

@Ronald Rohde It might be possible. But where's the value add there? At my point in my career, I'm not interested in buying a 6 cap and just sitting on it. I need to add value to build wealth faster. 

@Ronald Rohde Great points, thank you. I cannot afford mostly occupied buildings. That's why I'm looking at mostly vacant and adding value by placing tenants. There are some motivated sellers, some offering seller financing. Thanks for the tip about buildings with gross leases being difficult to sell. Definitely a factor. 

@Doug Spence Yes, leasing the space to several smaller tenants is probably the way forward for many office spaces. I think it'll be unlikely in my market to find a single tenant for 10,000 sq ft of space in a reasonable amount of time. 

I am waiting to talk to my lender until I get full financials from the seller. There is a chance my local lender here will lend on it. They funded my first deal ever when nobody else would and have taken chances on me. I think I've returned the favor of being a good borrower for them and have built my reputation. This lender will lend to an LLC, so no issue there. I am also considering ways to bypass the bank by raising funds along with some seller financing.

@Jeff Stein@Will Kenner@Jade S.

Thank you all for the helpful and insightful comments. I went for a second look yesterday with my agent and the listing broker, who is also the seller and got some more information. My agent is very knowledgable about the commercial space and I have a great deal of trust in him. He described the building as B- quality with very few A quality properties in town. The location is top notch. 

The building was fully occupied pre-covid with a single tenant but that tenant vacated. The seller has put a few single tenants in there now, and it's probably 10% occupied. It seems like the seller is hoping to get an owner occupant cash buyer. Both the seller and my agent voiced the same concerns as you all about getting financing on a mostly vacant building and me only having experience in multi family and none in the commercial space. I do have a few investors that have lent to me in the past. The seller has a loan but is also willing to carry part of the purchase. I'd estimate she owes something in the $380-$400k range. It was purchased 6 years ago for $540k. 

My agent believes they came to a list price by square footage. The seller had basically no financial info at the showing, so we've requested it. Thanks for the tip about the elevator costs. 

Most likely, this building will end up being filled with gross leases. With multiple tenants, I'm told it would just be too complicated to do anything else. 

My agent said expect it to take 12-18 months (conservatively) to fully occupy the building. It is taking longer to lease really large spaces but spaces in the 500-2500 sq ft range (like this space) is tending to get leased more quickly. 

I totally understand the NOI driving the value of the property. The vacancy is why it hasn't sold and why I see opportunity in it. It's a deal that experienced investors probably wouldn't mess with but could be a learning experience for me. Having plenty of cash reserves would definitely be a priority, knowing it could be 18 months before it cash flows.

As for the market, it's across the street from the county government complex and a few blocks from the state capitol complex. The military base improvements are expected to be a huge driver for the town. Not many large employers in town. It's a small town but is growing. 

@Bennet Sebastian Great ideas and questions. I have a local bank that I use for all of my multi, so I have a good relationship with them. Hadn't thought about vacancy being a barrier because it's not an issue with them when I buy multi family. But it could be an issue with office space. I will certainly inquire about seller financing!