All Forum Posts by: Rick Jones

Hi All,

I am tooling up to start a direct mail campaign and have been pricing out various yellow letters and postcards.  I have checked out a few sites using 2500 postcards as a bench mark.  

All of the prices have been in the ($200-700)/2500 range but the www.printbrook.com will print them for $90.  Has anyone checked them out?  Am I missing something?

Thank you for your time

Rick

@Roger Doe @Joel Owens @Mike Giudici @Greg V. @Account Closed I wanted to follow up to this post and let everyone know what happened.  I followed the advice of many posters here and really dug into the elevator modernization costs, office comps in the area and cost of property management.

As the information came in this deal quickly became a no go.

Elevator modernization costs:  $80-300K

Type B office space in the area is around 80% occupancy with low $/sqft

Property managers were quoting 8-10% of gross plus labor 

So I am will definitely not be purchasing this property but I enjoyed the due diligence process and I will keep my eyes open for the next opportunity.

Thanks again everyone

Rick

@Account Closed The way you mention comps makes it sound like this information could be readily obtained from local brokers.  Is that what you are implying?  I apologize I am not familiar with commercial real estate.

@Roger Doe I agree!  I am up to my eyes in due diligence action items and lacking time.  I am slowly trying to close the loop on all of my concerns and using this forum to make sure that I do not miss anything major.

I am going to rely heavily on the consultation of property managers who have better insights into the local office market.  There is a city owned parking garage directly adjacent to the building.  A large turn off to prospective tenants is the area is somewhat depressed and the non working elevator.  

I am not using the 80% occupancy as a large of an indicator that I usually would.  The owner,while a lawyer, is not very savvy in my humble opinion.  His law office is in this building and it does not contain a single computer, (stacks of manila folders).  I evaluating this deal based on my own aggressive style and the knowledge that I would employ a professional property manager to run and lease up the place.

I need more information regarding the elevator.  As mentioned above I am working with a few elevator firms and need to supplement it with my own research into ADA codes.  Good point about the taxes.  I looked into this and saw no issues to cause concern.  I will request the bank deposits.  I have a feeling that the seller may balk at this or want a formal offer first before giving all this information.  I would have to verify them before purchasing the building.

Your last words resonate with me well.  That is exactly my attitude.  I have the money to invest and my goals are to move into larger commercial investments.  I want to hurry up and get the bad decisions out of the way so I can start making the good ones.

@Joel Owens We have beaten the elevator to death and hopefully I will have some more information to share soon.  Thanks for the creative mitigation strategy.  Once I have a handle on the costs of the elevator I can start to consider how I might structure it into the deal to still make it work.

To everyone who has commented thank you very much for your time.  I really appreciate the discussion.

Rick

@Greg V. The elevator situation is most likely the keystone of this entire deal.  I spent considerable time contacting every firm who is licensed by my state to repair/service/install elevators.  A few of them have responded and plan on visiting the building and helping me asses the situation.  I am looking to get some coding guidance and cost options from them.

@Mike Giudici 

1)  I am requesting the existing leases at my next meeting with the seller.

2)  I don't think so and that if fine.

3)  Excellent question.  Joel also brought this up and the seller mentioned that some of the tenants are in arrears.  In addition to requesting the bank statements to confirm occupancy I need to request how many of them are late.

4)  They are definitely high for the current income. 

5)  I am not sure how to get this information with the exception of knocking on every office building door.  I am trying to work with local property managers who hopefully have better insights into the local office market.

6)  As stated above I have a number of licensed elevator firms who I will work with to understand the best course of action.

7)  The rest of the building looks great in my humble opinion.  I am a mechanical engineer myself and I viewed the boiler, AC and roof and all were in great shape.  The building has been cared for and is nearly immaculate.  The elevator seems to have gotten old and the owner was tired of making small fixes to keep it running.

Hi All,

Thank you for all the responses.  As you can imagine I have been scrambling to gather information.  Hopefully tonight I will have some time to sit down and answer everyone who was kind enough to leave a reply.

Thanks again

Rick

Hi Joel, 

Thanks for the speedy reply.

I am not familiar with the local office space market at all unfortunately.  That is a real blind spot in this deal for me.  To mitigate it I need to speak with at least 3 property managers/leasing agents to confirm the current atmosphere and bring myself up to speed.  If I was a superior investor I would go a knocking, property to property, on the same street, and find out from those property managers/landlords/leasing agents.

Excellent point about the lease history.  I need to ask this question and verify the documents as a part of the purchase agreement.  My own personal thoughts are that the place is on a much shorter interval of lease up.  Many of the top tenants are probably no more than fly by not operations.  

I will hammer out the elevator issue and make sure to get it in writing and notarized.  This needs to be an absolute certainty moving forward.  Thanks for the reminder.  If the elevator needed to be complete I don't think it would necessarily sink this deal.  I would try to negotiate the price down and provide repair capital.

Thanks again,

Rick

Hi Everyone,

I have a potential deal on my hands. I am trying to be detail oriented in my due diligence so that I can make a informed decision. I currently own a 3 and 4 family house but would like to make a transition to commercial real estate. Please take a look and provide, comments, suggestions, insults and recommendations. Any discussion and comments here will help me form my final decision. Also please let me know if I left out any important information.

The deal is as follows:

$410,000 purchase price with 5% down seller financing, (interest rate as yet undetermined)

Most current, supplied rent roll from the seller has a stated income of ~ $9,200 per month @ 80% vacancy. The boiler was converted to natural gas last year and the A/C is 5 years old.

It is a 5 story office building with about 25k sqft located in a depressed downtown district. The surrounding streets are nowhere near war zone but could be better. The going office space rate per my research appears to be in the $10/sqft/yr range. Several of the tenants are lawyers, marketing firms and real estate agents. Many of the units are small suites with some larger 3 room suites. The building has obviously been cared for as it has a full time janitor who cleans the bathrooms, halls and other common areas. The building is nearly 100 years old and has many unique features like granite entryway, brass railings, mahogany window sills and fireplaces in offices.

The elevator does NOT work. Seller supplied a quote to bring it into operation for $80K. The place has operated without an elevator for about 2 years. Other issues with the elevator is that it is a small, (old style) elevator that would not meet code today. I still need to talk to the city and understand if it would be grandfathered in.

Many tenants only pay $200 per month, especially on the upper floors. The bottom floor is a retail store. There is a cell phone tower on the roof who contributes $1000. The seller is a lawyer who has a office in the building and wishes to stay. He reason for selling is that he is older, (70s and is tired of managing the place)

Just an update to this,

I placed an offer of 150k with additional stipulations, (exterior painting, evict slob tenant, broom clean slob tenants unit). Seller countered with 165K, I counter-counter with 155k then we settled on 157.

Contract signed and due diligence is in process including thorough home inspection.

Rick

Hi Will,

I read through this thread and am amazed that a situation like this can happen.

Isn't title insurance supposed to protect you from situations like this? I would think the entity that performed the title search would be liable for this?

Just my thoughts.

Rick