All Forum Posts by: Jameson Sullivan

It's the same as any asset class. I work on primarily retail assets here in WA State and there is still a ton of demand. Anchored centers (particularly grocery anchored) are obviously still crushing it, but well located strip centers have actually performed extremely well through covid.

Retail is definitely changing and we are seeing a lot of medical and other "experience" retail come into these centers in the last handful of years.

All in all, I think retail real estate is the same as anything else in that well located assets are going to perform and poorly located assets will trade at a steep discount or be scraped and the use will change.

I don't know that there's enough information here to suggest what your cash offer should be. However, in my market, Tax appraised values are generally significantly less than sales price. If this is a desirable asset, back of the napkin math shows you'd need to get higher than $23 to make it pencil. Even if you paid taxable value, you'd basically be into it for what it's worth at a 6% CAP after factoring commissions and TIA.

Again, I don't have enough info to really analyze the deal and "reasonable" means different things in different markets. If you think it's a good long term play in a market where there's lots of national tenants, then make an offer and see if you can push rents to $28 with a national FF drive thru or something. SBUX has traded around here between 4.75 and 5.4% CAP rates. If you can land that deal, you're in a good position. Smaller 2 or 3 unit franchisee, not so much.

best of luck. 

@Isaa

@Isaac Schaefer and I are going to get ours up and running again in Pierce County ( Tacoma )  in the near future. Will keep everyone posted. Feel free to DM me for info as well.

I imagine it's Dollar Tree, not Dollar General (based on the cotenancy with Walmart). Is that safe to assume?

DG loves those smaller markets but I believe they carry a heavy grocery section and would likely be precluded by Walmart if there is any exclusive encumbering the parcel.

You should absolutely ask for sales figures including sales of trailing years to see what the sales trend is for the store. 

Frankly, given the size of the store itself, which i'm guesssing is in the 10 to 12k SF range, this might be a tough deal for you as your first one. I don't know your situation, but IMO, unless youre bringing substantial cash reserves, you could have a problem in 4 years. Even if the Tenant does renew, they are going to hit you up for rent reductions, and likely a TI Allowance as well. And if they don't renew, you're going to be holding an even bigger bag and have to find a new tenant which is going to cost alot of money, or worse, you'll have to demise the space and find two new tenants.

You should also review the lease in depth with your broker. Is this a NN or NNN or Absolute Net deal? If NN, what are LL responsibilities? Your 8% CAP goes down the drain really quickly if you're not extremely aware of what you are responsible for as a Landlord. a NN deal is far from mailbox money.

What type of use is it? Is it fast food, soft goods, hard goods, medical? It's really tough, if not impossible, to say what the likelihood of them renewing is as we don't know anything about the tenants sales and the market. Is there a secondary market that draws people to this area? 6,000 people surely isn't enough to sustain a Walmart so it would seems there's a larger trade area drawing people to the site. 

Do they provide sales numbers to the Landlord? Are you able to get those numbers and compare them to other stores? 

You used the term "Renew" but are you referring to a predetermined option period or has the Tenant already exercised all options and a completely new lease would need to be negotiated? All of your other questions rely heavily on the use category and specific tenant. Tough to say what a "going cap rate" is for an undisclosed tenant. 

Regarding financing, you're going to be bringing 70% in cash for the deal? You can likely get favorable terms with that type of down, however, retail lending is going to rely heavily on the tenant itself. You said it's a national, but again, use category and specific tenant matter. 

I would say, from a leasing perspective, unless you're in a downtown core type area, the retail space is harder to lease. It will likely go to a mom and pop or small franchisee if you're in a suburban market. I rarely see national, credit tenants take space of this type outside of an urban core... I would underwrite extremely conservatively for the retail space.

The Seller knows that 15 days is not enough. Tell him you need another 45 days plus 30 for extra EM OR you can close on it on time for 70% of the contract price.

You should keep trying to call the Tenants to interview them over the phone and get any paper documentation you can from the Seller or PM (Bank Statements, Sales reporting, P&L's, etc).

I'm not sure I agree that you need to adjust your price just yet, you just cant close it until we get a better picture of what the fallout is going to be here. You may be in a position to get a great deal if you keep the Seller on the hook and all of a sudden he has a vacant building.

What type of tenants are they?

I think the key is COMMUNICATION. Both in my personal stuff and with my retail Landlords, when people call and say "Hey, I'm not paying for 6 months because of this" it's very easy for us to look at them, laugh, and tell them that they, in fact, will be paying every penny.

On the contrary, if someone calls and says " Hey, this is insane, my sales(income) are X, here is what I have done so far to try to garner more money, here is a bank statement and a check for 45% of my rent this month. Can you accept this?" Then we are going to feel MUCH better about trying to help them.

The unfortunate part is that Tenant's of all kinds (some of which are Landlords TOO) smell free stuff and they start grabbing for it. A lot of times, when you push back on them a little bit, they think it's too much work and just pay the rent. 

While I agree that everyone from Lender to Tenant needs to work together in this crazy time, it should NOT be the easy button to ask the Landlord for a rent reduction. You should be able to demonstrate that you have exhausted other options before coming to the Landlord. 

I always steer newbies towards MF assets. Primarily because everyone "gets it" and generally less expensive to operate, barring an unseen massive capital expense. There is great opportunity to substantially increase net worth in commercial assets as the tenant credit strength and rent substantially changes the value of the building where as in a MF building, you could rent a room to Bill Gates and it wouldn't be worth any more than if you had rented the unit to a minimum wage employee. 

NNN deals can come in basically a NNN structure or an Absolute Net structure. Absolute net deals are what you call mailbox money. You own the building, but Tenant has all the responsibilities, essentially. NNN deals, contrary to some of the comments, DO require that you manage them, or that someone does anyways, you can simply pass your management costs on to the tenants.

Rental rates are generally SET for 10 to 20 years but not FIXED. Meaning you have planned increases, depending on the Tenant - Pharmacies have substantially smaller increases than Fast Food or Medical.

All that being said, a NNN deal is a Lease structure and only as good as the Lease that is written for it. There are Tenants and LL's that have conforming Leases, but other than that, each deal is generally negotiated individually and you might have 3 slightly different leases in the same property so before jumping into a NNN deal because someone said it's NNN, you MUST review he Lease in great detail.

Some things to look for:

1. Term Remaining

2. Current Base Rent and scheduled increases (3% annually, 5% every 5 years, 7.5%, 10%? makes a huge difference)

3. Who is responsible for HVAC Maintenance/Replacement

4. Who is responsible for structural (typically LL on MTNL)

5. Does any tenant have an out clause after some period ( a lot of times it's 5 years with a decent penalty)

6. What is your annual cap on Controllable NNN Expenses (3%, 4%, 5%? makes a huge difference, especially when you're taking a property over).

7. How much control does LL have over Assignment/Assumption of Lease?

The list could literally go on and on. I think the moral of the story is to not jump into something without knowing what you're looking at which is true across all Real Estate.

@Michele Redd If you're wholesaling something, it implies that you have created value by negotiating the deal for less than it's worth and youre going to share that value with the Buyer, presumably. First off, a hedge fund is not buying a $7 million dollar deal. Second, generally people who play in commercial understand what the value of their asset is pretty well so the chance that you have created any value for either party is unfortunately relatively slim. Obviously we have zero knowledge of the deal itself, but I have seen this same post 50 times.

All that said, if you want to sell a deal in this price range, I would suggest picking up the phone and calling everyone in your market that already owns similar assets. Chances are, though, you'll get cut out of the deal after your contract expires. What kind of feasibility period do you have?