All Forum Posts by: Strider Wardle

Ive found a 9000sqft commercial building in an up and coming downtown area with cap rates in the 4s. Its on great corner across the street from a starbucks in a gentrifying area. Seller wants $5.25M or to sell the building for $2M and a 50 year lease on the ground for $100k/yr, and an option to buy at $2.5M after 5 years. Ive offered the master lease with option, but he turned it down and came up with the ground lease instead. The building is currently 8 units with 1/2 of them vacant, its built as 5 large units but 2 have been split down the middle and an office has been built above another one. Ceiling height is 20’ and the building is a historic brick building with some fancy brickwork outside in an historical downtown area. Talking to the broker reveals that the seller is a stubborn old man and has turned down a $4-$7 sqft/mo offer from 7-11 because he wont give free rent or TI. Running conservative numbers I can cash flow renting space at $3 sqft/mo, current rents range from $2-3 sqft/mo. Comps for the area are $3-6 sqft/mo and with this being an excellent corner Im shooting for at least $4. Rehab costs are estimated at $100k, and I want to hold $100-200k to carry the place until its leased up. Seller is willing to finance at 10% down 5% rate 10 year term 30 year am. Current rents are $12500/mo and everyone is monthly except a kabab shop thats on a 3 year lease. The plan is to lease up the empty spaces and then start raising rents on the current tenants to market rates and then lease up to new tenants if/when they leave.

Here are my concerns:

The building is not worth $2M, but I like the idea of buying it for that because I can depreciate more. Im worried the tax assessor will call it around $500k if they really look. What I have going for me is that its a historic building on the cities historical register, so really its priceless 🤗

This is my first commercial deal and it seems too good to be true. I break even at $3/sqft with 10% vacancy, maintenance, taxes, insurance, property management, etc. If I do NNN leases then all those expenses go away except for property management. If I calculate value at a conservative 5% cap rate, using gross lease figures, Im over $6M at $3/sqft. What am I missing?

I will definitely seek advice from attorneys and my CPA. Im just trying to get an idea of the master lease norms for my area so I can begin a dialogue with the seller and work my numbers. This is not information to make an official offer just a letter of intent to test the waters so to speak.

Im trying to send out a letter of intent for a master lease and option to buy on a commercial property in Orange County, but Im not sure of what are the master lease norms for my area. Is the option fee usually a percentage of the purchase price? How many years of lease is typical? Does the leasee usually pay the taxes on the property or does that stay the seller/leasors responsibility? What else am I missing? Anyone with experience in the OC or greater SoCal area would be nice to hear from.

The property is 1/2 vacant and the vacant units are trying to be rented for 50% over current market rents and 60% over what the month to month retail tenants are paying. Its on a corner across from a starbucks so its a great location, just poorly managed. This is my first dive into commercial retail real estate, but I currently own commercial residential nearby. My original plan was to 1031 exchange into retail/reataurant/strip center type property, but I cant leverage up like I want to with a lender when the new property is 1/2 vacant and the tenants it does have are month to month.

My plan is to offer a MLO for X number of years paying the landlord the current rents, plus a bonus to entice them to deal and a purchase price calculated at a 6% cap rate based on what I think are current market rents at $24/sqft/year. I would let a large lease broker find my tenants and lease it up for me and put some money into renovations and deferred maintenance. Im almost certain I couldnt 1031 exchange into a master lease option, but I can cash out refi for operating capital and then 1031 when the option comes due if it makes sense at that time.

What do you folks think? Any opinions or criticisms are welcomed and appreciated.