Posted by speednxs on March 10, 2006 at 20:51:38:
If the price of a commercial building is proportional to NOI (PRICE = NOI/CAP), the high vacancy rate (low income) should make the selling price quite low. I presume there is lots of deferred maintenance, which also lowers the price. Only pay for what the place is worth today. Don’t pay a dime for what you could turn it into. That is your profit.
If you buy it, lowering the vacancy rate makes it more valuable. Doing the deferred maintenance is going to require capital. Do you have it?
If the seller is motivated, he should allow you to talk to the present management company and tenants.
Listen, listen, listen to what they have to say. Your best bet is to do better property managment yourself until the property is turned around. The typical downward spiral is a lack of money to fix up places, which leads to bad renters and low rents. This leads to a lack of money to fix up the place. You are going to have to spend some money to break this downward spiral.
How about painting and carpeting some of the vacancies and allowing the tenants with the best rental history to swap into them. Think that will generate some positive buzz? After some demand builds up you might even bump the rent levels back to where they belong.
There is risk and lot’s of work to do here, if a deal even exists. It may not. If you can’t do better than the current property management, skip on it.