All Forum Posts by: Chris Mason

 In Godless California the listing agents on churches are always certain to point out the flexible potential uses of the property. Office, event space, wedding venue, warehouse, etc. They usually sell for a really attractive price because investment property financing is (obviously) difficult, somewhat limiting the buyer pool to owner-operator small business owners (who in turn are typically great clients, as well). 

Indoor shopping malls as they existed in the 1990s are dying, but retail is not. It's shifting to a model of a big anchor, a Target or a Costco, and lots of little businesses in that same shopping center. 

Anyways, I think @Caleb Brown hit the nail on the head. If the trade value of an old shopping mall is less than the build cost of a new storage space or warehouse, then it doesn't make sense to build a new storage space or warehouse, just buy an old shopping center. I do see lots of self storage and warehouses going up, so my default assumption would be that the old shopping malls do NOT trade for less than build cost, but it's possible that the marketplace is not perfectly efficient. 

There would potentially be some weight issues with the 2nd+ floors of some shopping malls, depending on what the potential tenant wants to store in the upstairs unit. 

The Hilltop Mall (standard shopping mall, Macys, JC Penny, escalators, if you were alive in the 90s you know),  in Richmond CA was purchased in 2021, but the buyers aren't doing any of our brilliant peanut gallery suggestions. They are tearing it down to build a logistics facility. Given it's location not far from the ports of Richmond and Oakland, and that the Chevron oil refinery is nearby as well, some of that is likely be driving the highest and best use assessment.

I can run some numbers and share some options on the financing side if you like. No social or credit pull needed upfront. 

If you have a solid tenant lined up, like say Bigger Pockets HQ (yes, I put 2 and 2 together there, I'm sure you have too :), or some other business you  or someone you know personally runs, I think it's a no-brainer. You are buying at, or close to, the bottom of the market cycle for offices. 

The hypothetical six months to find tenants might actually be 3 years, we don't know (if it was so easy to place tenants in that building, why haven't the current owners done exactly that?!). But if you've got one or more day zero tenants to occupy all or part of the space, that could blunt the unknown in a big way. Having either tenants or a business lined up, that needs office space anyways, is the "office hack" (see what I did there? Given that this website invented the term "house hack," it's only appropriate that BP as a business pull off an "office hack" - and btw, yes, the financing is better for owner operated offices, as well) that blunts much of the risk.

We all know folks that purchased lots of SFRs in the aftermath of 2008, I also know some folks that purchased offices in the aftermath of 2008. There were 100% some rough years early on, to be certain, simply because it's hard to perfectly time the catching of a falling knife, but those that weathered the storm are sitting quite pretty today. The example that comes to mind are often are of folks that operated a dental practice, an accounting office, a bankruptcy lawyer and her staff that did quite well in the 2008 aftermath, and so on, during those first few years, taking up a portion of or all of the space.

Once you realize what a dumpster fire it is finding good financing for offices, if you need it, I'll be available. 

Quote from @Isadore Nelson:

Quote from @Chris Mason:

You are wasting your time. This property will require about 45% down to hit the 1.25 DSCR that is the median requirement for a commercial real estate loan.

If you want to be at that price point with that much for the downstroke, you need to be looking at higher risk properties with a higher cap rate. Or you need to adjust the price point down.

"45% down to hit the 1.25 DSCR"

What does this mean? Can one not get a DSCR loan with 20% down?

 If the property cashflows with 20% or (if you want good terms) 25% down, then yes it's doable. Key word there is "if." 

In the residential 1-4 unit space, efforts are earnestly underway to recreate 2008, for example by calling it a "DSCR loan" but not having any reasonable DSCR requirement. But OP is asking about a 6-unit which, to be fair, there are some residential "DSCR loans" that will dabble in the 5-10 unit space, so maybe it's out there, I can't speak to that.

You're constrained by capital. You're already at 90% LTV so a HELOC will likely not be viable. Just gotta go to work and earn more money. Real estate is capital intensive.

If you want a double digit interest rate, that's easily enough done. I just had one of those partner lenders give me a hard time because I *did* provide tax returns as part of the credit package, and he didn't *want* to see them.

If you want appealing financing, however, the bottom line is you need to get right with the IRS. There's no "creative" about it, you need to give Uncle Sam his fully accurate pound of flesh if you want to borrow money under good terms. 

If you need a good small business friendly accountant in Tennessee, reach out to me and I'll connect you to one.

 If all you are looking at is 5% annual rent increases, that's not actually enough to get that 11% bridge lender on board. Lenders that would do that already went out of business, and/or stopped offering it, in 2022/2023.

To get the 11% lender on board, you'd needing to be looking at a property with vastly more significant upside than a standard ho-hum annual 5% rent increase.

A 30% vacant mismanaged apartment building would be an example of where the 11% lender would step in, and ACTUALLY make it to the finish line.

What you are looking at right now is someone that's going to garner 20 applications with the hopes of finding 1 or 2, with enough upside, to actually fund. And this is CRE, so it's cutthroat, it's no one's problem but your own if you lose an earnest money deposit.

You are wasting your time. This property will require about 45% down to hit the 1.25 DSCR that is the median requirement for a commercial real estate loan.

If you want to be at that price point with that much for the downstroke, you need to be looking at higher risk properties with a higher cap rate. Or you need to adjust the price point down.

 Cheers, it's ballpark like algebra.

You can't easily solve this:

a + b + c + d + e = f

But you can easily solve this:

44 + b + 23 + 13 + 48 = 155

And, once you have solved that, you will likely be able to solve one with 2 unknowns, and work from there. But you can't just start with 6 unknowns.