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Commercial Property Experts, school me please.

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Commercial Property Experts, school me please.

Old 02-01-2015, 06:22 PM
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Default Commercial Property Experts, school me please.

Long story short......
Worked for a family owned company that was bought out by a large corporation. The family owned company leased 2 property's and sold the rest to the large corporation. One of the leases runs out next year. I have an opportunity to purchase the property from the family that owns it.
It's a typical story of a large corporation that has hired many managers that don't know or understand the business and in turn revenue at the location I'm looking at purchasing is 50% of what it used to be. I feel confident that the lease will not be renewed as this corporation has been closing its slower locations.
Fortunately for me i have 27 years experience in this business and have worked in every aspect of it.
Unfortunately i don't have experience buying commercial property.
If i buy the property now ( Before the lease runs out) it will be an investor type loan and i will have to put much more money down. This eats at my cash flow if i need to run the business next year.
Anyone have any tips for buying commercial property and conserve cash at the same time?
The family that owns it has already expressed they would rather sell than lease again.
The family owes 0 on the building.The building is worth 1.6m.
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Old 02-01-2015, 06:24 PM
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triplenet will be here shortly, I think this is up his alley...
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Old 02-01-2015, 06:29 PM
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Since the family owns the building outright, perhaps they would be interested in providing owner financing. Based upon your description, it sounds like you are on good terms with the family, maybe they might even be rooting for you if you take over the business as you mentioned. It would be worth having a discussion.
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Old 02-01-2015, 06:30 PM
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Approach the sellers about holding a second.
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Old 02-01-2015, 06:40 PM
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Perhaps, Maybe partial owner financing. Trying to weigh multiple options. My best estimate as of now would make the current rent around 5k a month more than the loan payment. Depends on how much out of pocket $$ is needed.


QUOTE=PXMAN;7522384]Since the family owns the building outright, perhaps they would be interested in providing owner financing. Based upon your description, it sounds like you are on good terms with the family, maybe they might even be rooting for you if you take over the business as you mentioned. It would be worth having a discussion.[/QUOTE]
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Old 02-02-2015, 03:57 AM
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Lease with option to buy .... least amount of upfront cash would be needed by you which seems to be your concern ....
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Old 02-02-2015, 04:39 AM
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I own multi tenant commercial property with no debt for the last twenty years. Even so, my biggest concern is to weather any storm that comes along. How long can you go without a tenant(s)? How old is the roof, how much is your insurance. Sometimes you have to be more than 50% leased to have them insure you without tripling your premiums. There are so many questions that are personal to you such as how big are your cash reserves etc. I'm not sure you want to put out all that information on a public forum, but all of this is a major consideration. I wouldn't want to finance with a bank being the first lienholder. If I financed everything, then I would need 30 to 50 per cent down. You can pm me if you like. Good luck and be careful. We still aren't out of the woods on this situation with our economy.
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Old 02-02-2015, 04:54 AM
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Owner financing is the way I would go.
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Old 02-02-2015, 05:21 AM
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Originally Posted by kennyboy View Post
I wouldn't want to finance with a bank being the first lienholder.

You may not, but plenty will.
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Old 02-02-2015, 05:33 AM
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SBA might help, along with owner financing.. would you need all the space and land, could you lease some of it after purchase? Would you be able to lease part of the property for a cell tower or billboard
Any other ways to produce income in addition to its primary intended use,,
Best of luck
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Old 02-02-2015, 05:57 AM
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Its my intent to be the tenant and rebuild the business if the lease doesn't get renewed.



Originally Posted by kennyboy View Post
I own multi tenant commercial property with no debt for the last twenty years. Even so, my biggest concern is to weather any storm that comes along. How long can you go without a tenant(s)? How old is the roof, how much is your insurance. Sometimes you have to be more than 50% leased to have them insure you without tripling your premiums. There are so many questions that are personal to you such as how big are your cash reserves etc. I'm not sure you want to put out all that information on a public forum, but all of this is a major consideration. I wouldn't want to finance with a bank being the first lienholder. If I financed everything, then I would need 30 to 50 per cent down. You can pm me if you like. Good luck and be careful. We still aren't out of the woods on this situation with our economy.
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Old 02-02-2015, 05:59 AM
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There are a few out buildings, small, with lease potential.


Originally Posted by kevnhl25 View Post
SBA might help, along with owner financing.. would you need all the space and land, could you lease some of it after purchase? Would you be able to lease part of the property for a cell tower or billboard
Any other ways to produce income in addition to its primary intended use,,
Best of luck
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Old 02-02-2015, 06:26 AM
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Originally Posted by LongIslandFisherman View Post
Lease with option to buy .... least amount of upfront cash would be needed by you which seems to be your concern ....
Now that I understand that you would be taking on two ventures as business owner and landlord, I would also go with lease option above. There is just too much information that is needed for both purchases to advise. I also was in the same position of owner of a business and landlord to that business and others, but the other rents alone supported the total overhead. I am not sure what income is being produced, so again good luck and pm if desired.
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Old 02-02-2015, 12:12 PM
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Originally Posted by ChesapeakeBay View Post
Long story short......
Worked for a family owned company that was bought out by a large corporation. The family owned company leased 2 property's and sold the rest to the large corporation. One of the leases runs out next year. I have an opportunity to purchase the property from the family that owns it.
It's a typical story of a large corporation that has hired many managers that don't know or understand the business and in turn revenue at the location I'm looking at purchasing is 50% of what it used to be. I feel confident that the lease will not be renewed as this corporation has been closing its slower locations.
Fortunately for me i have 27 years experience in this business and have worked in every aspect of it.
Unfortunately i don't have experience buying commercial property.
If i buy the property now ( Before the lease runs out) it will be an investor type loan and i will have to put much more money down. This eats at my cash flow if i need to run the business next year.
Anyone have any tips for buying commercial property and conserve cash at the same time?
The family that owns it has already expressed they would rather sell than lease again.
The family owes 0 on the building.The building is worth 1.6m.
Lets start at the beginning ....

Who says the property is worth 1.6M - you or the seller?

LTV's on commercial deals are in 65% range ...

Where are you getting the other 35% to put down ?

How do you intend to pay the mortgage and operating expenses once the current tenant vacates ?

What happens if it takes you several years to ramp up the new business....

If you purchase, and the tenant doesn't vacate - whats your ROI @ sellers price ?

BTW - SBA loans are for business investment - not real estate transactions .... may work once the tenant vacates

and lease with option to buy ?? ehhh ... you should see the terms first assuming Seller is willing ..

Assuming you get a proper valuation - maybe the seller is willing to hold 100% of the deal @ a reasonable interest rate ?

Just a few questions to ponder before diving into a deal ...

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Old 02-02-2015, 12:30 PM
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As a commercial banker, I finance commercial real estate often for clients. Some good points above...PM if you want to know how the banks will treat this request.

I'm with the suggestions to either lease or lease to own down the road. Not knowing what type of business it is, I can't opine on you opening up in this location if corporate shuts it down. If there are no other buyers interested in the property, I'd wait until corporate shuts that location down. Then see what the family is willing to sell the empty building for...won't be $1.6MM. How many sq. ft. we talking? Warhouse? Office? Location? Lots of variables.
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Old 02-02-2015, 01:30 PM
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Originally Posted by atcfris View Post
triplenet will be here shortly, I think this is up his alley...
Originally Posted by triplenet View Post
Lets start at the beginning ....

Who says the property is worth 1.6M - you or the seller?

LTV's on commercial deals are in 65% range ...

Where are you getting the other 35% to put down ?

How do you intend to pay the mortgage and operating expenses once the current tenant vacates ?

What happens if it takes you several years to ramp up the new business....

If you purchase, and the tenant doesn't vacate - whats your ROI @ sellers price ?

BTW - SBA loans are for business investment - not real estate transactions .... may work once the tenant vacates

and lease with option to buy ?? ehhh ... you should see the terms first assuming Seller is willing ..

Assuming you get a proper valuation - maybe the seller is willing to hold 100% of the deal @ a reasonable interest rate ?

Just a few questions to ponder before diving into a deal ...
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Old 02-02-2015, 02:00 PM
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NNN hit most of the salient points.....

Without the benefit of understanding your long-term objective, buying commercial RE as an investment and conserving cash often don't go hand-in-hand esp if there is near-term rollover.

Buying commercial RE is risky and it can be very capital intensive.

That said, 10 yr money is very attractive right now. It's a great time to buy and put leverage on property.

65 to 75% LTV range is about the max. Think about how you are going to put up the other 25 to 35%. There is mezz financing out there, but it can be expensive.

The agencies typically like to see DSCR of 1.25 or better, this ratio will influence your LTV. There might be different requirements for a small loan like this though.

With rollover risk in the near term, I would be surprised if the agencies will even talk to you unless you are well capitalized.

This is a relatively small investment from a GAV stand point. Do not rule out private money vs say agency financing.

Last edited by Fish'nFool; 02-02-2015 at 03:03 PM.
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