All Forum Posts by: Mark Dante

There is a property in my hometown owned by a non-profit that has been for sale for several years.  I made an offer on the property and was awaiting a response.  The realtor calls me to tell me that...surprise...another offer was just made by another non-profit but at a much lower price.   Closing date is the same.  Neither offer has financing contingency.  The seller is mulling over whether to sell to a for-profit company (me) or a non-profit for half the price.    As a steward of other peoples donations, does a non-profit have any duty to accept the higher offer?   I'd offer more, but I don't think price is the motivating factor.  Any suggestions?!

Couple of thoughts
1.  Profits can be increased by either (a.) raising rents and/or (b.) lowering management costs.  If you intend to lower management costs, I'd look at properties that are managed full-time where you can replace that management with a kiosk.  Even then, you'll still want to hire a call-service.  
2.  I think you'll have a hard time finding facilities with enough extra land where you can expand by 33%. Most facilities would have expanded by now if there was demand.
3.  If you are looking for places that you can expand, you will be looking at facilities with individual drive-up buildings.  Institutional investors prefer multi-story facilities.  Further, they want large facilities (100,000 square feet+).  Assuming you can find a facility (full-time managed, 30,000 square feet with an additional acre+ suitable to build in an area where demand hasn't been satisfied), I think your exit strategy would be to find a private investor.  In particular, I'd call the competition in the area and see if they'd be interested in buying you out.  

When it comes to self-storage, which no-doubt can be a great investment, I'd suggest you buy and hold.  Self-storage can do well during a recession as well as a growing market.  And if you are feeling ambitious, look at a conversion.  

I wouldn't necessarily call the guy a shmuck for putting down 25% 
1.  His bid with a higher % down is what allowed him to win,
2.  Perhaps he had 1031 exchange funds that he had to invest,
3.  Perhaps he doesn't feel comfortable financing,
4.  Perhaps he borrowed that downpayment from another source,
5.  Perhaps he intends to hold the property for the long term.

Joel - My concern with a NNN restaurant is that once the lease is up, the landlord is left with a building that is distinctly a Taco Bell or distinctly a Burger King, etc.. Conversely, with a nondescript office it would seem to have more use. As an example, we have a former KFC building. When the lease with KFC expired, it sat empty for a few years before a family-owned restaurant took over. Do your investors show any reservations regarding restaurant leases?

Thanks for the responses.  My question is more along of the lines of "how does DG determine what rent they will pay?".   I suppose it could be boiled down further:  How does ANY national tenant that is having a property built by the landlord as a build-to-suit determine rent? 

I think Joel's response that DG demand to know the cost is what I was most looking for.  

Cost to build aside, I have a hard time justifying the return (and I could personally use the building after 15 years).  

On another note, I spoke with somebody at DollarTree on another property we have.  Their returns seem even lower.  I was told they were looking at just under $10/square foot for a 7-year term.  And this is for a build-to-suit.

Thanks for all the responses.

p.s. When one googles 'cost to build a dollar general', the first 3 or 4 results indicate $250,000. I spoke with a local developer who has done a few and he told me, generally speaking, $75/square foot.  And he said he'd never deal with them again!  

Has anybody here done a build-to-suit for Dollar General?  I own a commercial property in a semi-rural area.  Although I'm not gung-ho on Dollar General (or any dollar store for that matter) as a tenant, my site's location would make sense for me.  (Should they leave after 15 years, I have use for the building.)  

It is my understanding that DG  has their own preferred builders.  Given the cap rates I've seen on these DG's, it seems the margins are pretty thin.  When it comes to negotiating, I'm sure DG  has a pretty good idea of what it will cost to build.  Further, since I'm assuming they'd require a preferred builder do the project, I'm guessing the builder would inform them of the exact cost.  

DG seems to stick to 15 year terms with increases of 10% every 5 years.  Further, I've read that DG's cost as low as $250,000 to build and the average store is about 9,000 square feet.  (That's $27/square foot, which seems extremely low.  I understand they tend to go cheap, but $27??.)  For arguments sake, let's say it would run $450,000.  And let's say I put a value of $200,000 on the land (including site work).  So the entire project  value is $650,000.  Based on the 7% cap rates I'm seeing on new DG's that are being sold by developers,  am I looking at rents of about $45,000/year (for the 1st 5 years, at least) or $3750/month.  If I were to finance 100% of the building ($450,000) at 5.25% for 15 years, I'm looking at a payment of $43,404/year or $3617/month.  Do these #'s sound about right?

So when negotiating, would DG say (a.) we are using a preferred building, (b.) the cost will be $X, (c.) the land is valued at $Y, and therefore, we are willing to pay a corresponding return to you of 7%?  By the same token, would it make sense for me to say that I am expecting a return on land of 9% or 10% so the land portion of payments ought to be higher?

In summary, I am trying to determine what I can expect from them.  

thanks in advance

Not to go off-track, but I can't imagine owning a property with 4 other partners.  Heck...I can't think of 4 other people I know well enough to trust as investment partners.  

Kim - Sorry for the delay in responding.  Haven't been on BiggerPockets in a few days.  In any event, the old roof was indeed removed.  

My first inclination would be to sell the property so as to avoid partners (your cousins) .  Now being family, you may not want to do that.  

My second inclination (given the condition/age), would be to sell the property.  Since it was inherited, I do not know how capital gains works in that situation, but there is the possibility of doing a 1031 exchange.  

The problem with self-storage is that 10,000 is not very big considering this would be a conversion.  You would be using alot of space for hallways and I suspect you'd be lucky to get 6,000 square feet of storage out of it.  There is, however, the possibility of going up.  It would be costly (commercial elevator alone would be pricey.  But it may not be too pricey for a large company that does this frequently.  So you may want to reach out to somebody like Uncle Bob's, let them know your property/situation and see if they'd be interested in buying the property.  

We just had a new roof put on a 70,000 square foot building.   Total cost was approx. $315,000 (or $4.5/square foot).  We used a local roofing company which was an authorized contractor for a large manufacturer of roof membrane.  The name of the manufacturer is Durolast.  (If you go to their site and enter in your zipcode, they will provide you with local authorized contractors in your area.)  I don't know much about roofs, but their price was also inline with 3 other bids we received.