All Forum Posts by: Nikolas Engel

Good point Ronald, who is taking ownership of the property? Is title is in your name, bank on 1st position and investor firm on 2nd? That somehow sounds too risky for the investor with only a 6% yield....Anthony, can you explain that structure in your deal?

Since this is commercial MFH you would need to put 25% down. That is $143,750. If you do LTV 75% for 5.5% on 25 year term your cash flow - before the PI payment to the investors - is $518/month. You do the math but I doubt that there is sufficient cash flow left after the PI payments for both loans to make this work. But maybe there is a value-add opportunity to increase the NOI, e.g. bring rents to market level, billing back utilities, charge for parking/storage/laundry etc. On the other hand, you have zero $ in the game, each dollar cash flow is pure profit - that is excellent but needs to be in relation to the risk.

Those are my two cents, anybody else?

Thank you Ronald!

In this case, a franchise is being set up by the mother company and will be sold after some time to the franchise partner. I believe that is why they don't want to take responsibility after it has sold the business and assigned the lease. Of course, we could request that they stay on the lease as a guarantor when the lease assignment comes....

Yes, the rolling 12-month guaranty means in this case, that the rent in the next 12-months following default day are guaranteed. That could apply to any time in the ten-year lease term. 

Hi BP community  - I need to draw on your knowledge and experience again. 

I am confused about the relevance of a lease guarantee in the lease agreement. If tenant goes out of business, he still owes rent for the remaining time of the term - so what extra security does a guaranty provide and how does it play out in practical real life situations?

How important is a lease guaranty for you when negotiating a lease agreement with a retail tenant?

In our current negotiation with a tenant on a ten year retail lease agreement, tenant is offering two year guaranty and a rolling 12-month guaranty thereafter.  What do you think about that proposal and is a rolling guaranty something that is usual business practice? 

Thank you for your support! 

Thank you everybody! Great advice all around. Since there is heavy pushback on the CPI from potential tenant, I think I will go with 3% and a slightly higher PSF lease amount. 

Thank you John, that is a great point! It helps me to get a solid agreement done. I really appreciate your thoughts!

Hello to all retail space owners,

I would like to ask your advice concerning how you manage annual increase in new lease agreements during times of inflation. 

I am in negotiation with a new tenant on a 10 year lease, they only want to do 2% annual increase - we can likely land on 3% but I am not sure if that is the right decision in this changing economic environment.

1. Do you consider inflation an issue that you want to be reflected in new lease agreements? Or do you do you just stick with the usual 2-3% annual increase.

2. If you do want to reflect inflation in the lease agreement, how would you do it? Annual increase based on CPI, or just a higher percentage increase - say 5%, or ..... maybe there are more creative and flexible ways?

Thank you for your ideas, experience and support.

Nik

#1, straight to the point.

@Carl Jung

Sell the Hillsboro and keep Vancouver.

Why? Hillsboro needs more work and attention but ultimately will attract the right-minded investor. Change in tenants, putting all on at least modified gross, better NNN leases will take time and effort. However, that is exactly where the beef is. These value-add opportunities are interesting for a lot of people, don't let your broker pressure you in selling fast.

Vancouver on the other hand looks like a stable property. I assume you would have minimal owner obligations at this point. However, do examine the leases in place and try to estimate if there will be a change in tenants coming up. The bank is for sure on NNN, how are the other multi-tenants doing?

In the end, what really matters is what you want. You could also sell Vancouver to invest in value-add properties like the HIllsboro where you need to do the heavy lifting while using the HIllsboro as a test run with comparably little money at stake since you own it already. This way you could scale but you also have a full time investor's job then :-)

Dear all,

I would like to understand the underwriting process for a condo conversion project compared to financing for a usual commercial multifamily investment. Instead of making profit long term through rent, the profit would be made short term through the conversion and the sale of each individual unit. 

How would that affect the underwriting and financing?

Thank you, Nikolas