@John McKee @Ronald Rohde @Joel Owens
Hey guys, thank you so much for chiming in!
Here's some more info:
Property:
2 buildings. One built in 2019 and other completed 2021. Has 2 drive thrus spaces.
Tenants (all are local/regional businesses, some brand new operators)
1.Donut Franchise (new franchisee)(Drive thru)
2. Nail Salon
3. Cafe
4. Pizza
5. Wireless phone store
6. Liquor store
7. Organic Peanut Store
8. Dentist
9. Iced Tea shop (drive thru)
10. Barber shop
Rents:
Rents seem a little higher than other buildings I've seen. This one is leased between $18.00 - $22sq ft and other buildings I've seen that are similar in size but older are renting for $16-$18sq ft. This one however has a superior location at the intersection and growing newer part of town.
Cap Rate:
The 7.25% was underwritten with no vacancy. With 5% vacancy (not 5% of GLA, but 5% of income reduction for the year assuming 6 months to release the space to new tenant). With this 5% vacancy cap rate falls to 6.9%.
Area: There are anchor tenants (Best Buy, Target, Costco, etc.) that are in two/three "big" retail centers that are all about 5 minutes away from the retail center I'm interested in. At the intersection of the retail center there's a big apartment complex that just went up and a couple gas stations. It doesn't seem like there are any new retail centers being developed but I need to verify this through the city planning.
Goals:
A 10 year hold for property. If I can conservatively cashflow $50k a year for 10 years that's $500k. I'll payoff the loan about $800-900k in 10 years. And if all goes well and property/rent appreciates I can sell for $800k-$1m more. Total cash return should be about $2.1m-$2.4m plus my $1m-$1.1m I'll put into the deal. Goal would be to 1031 it into a bigger property. Who knows what CAP rates will be then though!
