Commercial Bldg - One AAA tenent

[propertymanager]

I have an apartment building with a cap rate of 22%.  They do exist, you just need to find them.

Mike

[LIGHTBEING]

wow, that is high

[Keith Palmer]

Light,

Mike seems to be on the money with that one.  

Do you have other prospects (tenants) for that property? Look into what the rent COULD be if you brought in multiple tenants.

How many tenants could you hold and what is the market rent for each space?

[aowilkin]

While the numbers do look good,

The lease is the major  factor that a non-conventional commercial lender will look at.  Thats if you want the property to qualify.  The  reason the numbers look so good, is because there are only 4 years left on the lease(maybe the lease is wacky also and the seller knows it).

If you want to get financing on this type of property, your loan will be co-terminus with your lease.  ie. you will have a balloon in 4 years.

The down payment you mentioned will be a problem for a lender, but you can fix it.

Good deals are made and negotiated!

my 2 sense.

[LIGHTBEING]

yeah, the having one tenant with 4 yrs remaining is making me have second thoughts.

[aowilkin]

Try this,

Open an escrow account with the down payment money.
Put an LOI out. When it gets accepted, contact the Tenant(or thier real estate department).  Guess what is next......Yup you got it ask them if

1. They would like to exercise thier option(s).  If they don't accept offer them a decrease in the escalations instead of 2% per year make it 1.5%.

2. Offer to draw up a new lease for 10-15 years with what I stated above or a decrease in rent payments.

3. Buy the dang property with a balloon due in 4.  If you can't renegotiate the terms of the contract in 4 years then you might just want to take a negotiations class or something  

my 2 sense

If you want to learn more about commercial finance or if you need financing for this let me know.

[propertymanager]

aowilkin,

It appears that you are anxious to make a loan.  While I admire your energy, your advice is very questionable in this case.  Government contracts do not work as you suggested and you can't simply ask them to extend the contract for 10-15 years.   The government has rules and laws that dictate how often contracts will be bid and the contracting officer must follow theses rules.  

Additionally, your advice to get a loan with a balloon due in 4 years is VERY RISKY!  If he followed that advice and then the government contract went to someone else, how is taking a negotiating class going to help pay the $35,000 per month that he's going to owe???   Maybe he could negotiate the a lower fee from his bankruptcy attorney!

This kind of hype is exactly why I don't deal with mortgage brokers.  I'll stick with the bank.

Mike

[Keith Palmer]

Hey Light,

Just checking up on you. You are buying a huge property (seemingly a cash cow). Take your time, look at the numbers, and make an informed decision. Again, you have to look at the history of the property. Make yourself aware of other strong potential tenants if you lose this one. This one tenant should not make or break your property. As far as financing, there are programs that offer a 30yr amortization with fixed periods from 2 to 30years.

And Mike, it seems you may have had a bad experience with mortgage brokers.   Please don't let a few individuals ruin a good relationship that you could have with a mortgage broker. The banks are great for what they can do, but there are a ton of good programs out there for investors that most banks can't and will not touch.

[aowilkin]

Actually,

Some government agencies have the authority to negotiate contracts.  It is rare, but it is worth a shot.  Most people dont have deals just drop in thier lap.  They have to create a deal.
Talk to the local government agency to find Out.

I didn't suggest taking a loan with a balloon in 4, I'm just saying its an option.

(Didnt somebody already mention that the goverment agency isn't going anywhere.......in this thread already?)

Any way, Didn't LIGHT say that they have an Option to Renew for another 5 years?

Yeah I think so,

So if they had two options to renew mike, would you still walk?

I dont' know Mike but I think I gave all the ways he could get into the deal.  I don't like to tell people why not....I tell people how they can.

Sound like you have gotten burnt, sorry for your loss but every body has gotten burnt at one time or another. Lets list the ones I've gotten burnt by......

List Them:

Title Companies(Is a title search really that hard?)
Lawyers (I wish I coulda negotiated some fee's)
Brokers (most don't know what is going on.....refi on my house too 4 months and then they kept asking for more information)
Banks (How many rules and ways do you want me to bend over backwards)
Lenders(0% intrest please...why do you need to make any money..I want it all for my self...Just gimme a coupon book and I'll pay you in 30years)
Buyers (Do you have any money to put down?)
Sellers  (10% cap.........SURE...befor we take into account our expenses)
Birds (It doesn't smell but it sure is ickey)
Dogs (I loved that dog but he just didn't know how to use the dang tree  :o )
Prospects(I'll call you back Tuesday.***Then I hear the Jeopardy song***)
Respects
No Specs

Can't---Removed from my vocab a long time ago
How can I?---Perminantellly replaced IT.

[propertymanager]

Aole,

It's not that I've been burnt, but rather that I have a lot of experience with government contracts.  The fact that the government has an option to renew is meaningless.  Even if the government had 10 options to renew, that is meaningless.  The only thing that matters is whether or not the contract has actually been renewed and what escape clauses are in the contract.  All it would take to lose this contract is someone else with a similar building  bidding a lower amount at the renewal.  My question remains, how do you expect him to pay the $35,000 per month if he loses the contract?  Commercial buildings can and OFTEN do stay vacant for MANY months or years.  So, unless LIGHTBEING has a LOT of reserves, this one decision could cause him to lose everything.  I'd call that risky.  VERY RISKY!

Mike

[aowilkin]

Fair Enough....