Office/Retail Building: Pre-offer steps & questions

Hi all,

My dad, sister and I are in the market for some commercial real estate in Hawaii. We are targeting something in the $500-$750k range (which we can purchase on all cash basis). Our goal is to invest our equity for the long-term with a reasonable ROE (6% excluding inflation).

We have come across one very interesting property that is located in a prime area outside of Honolulu. It has a mix of office and retail space.

I would appreciate some advice on what pre-offer steps I should take to evaluate this opportunity. I have laid out some key points below, but would be grateful if you could add any steps / questions that I have missed. (Just to be clear, these are the steps for a preliminary evaluation to determine whether this is a good investment and what an appropriate offer would be. This is not meant to be a post-offer due diligence checklist, something available elsewhere on this forum.)

  1. Rent Roll for 2010, 2011 and 2012 (term of leases, lease amounts, deposits, payment history, vacancies)

2A) Operating Expenses for 2010, 2011 and 2012 (e.g. utilities; cleaning / maintenance; insurance; property taxes; advertising; management, if any)

2B) CAM currently assessed on tenants

  1. Capital improvements since 2006 (when building was purchased by current owner at substantially less than current listing price (35%)).

  2. All of the above should allow me to calculate ROE… Or am I missing something?

  3. As the building in question is quite old (i.e. nearly a century), I am also concerned that it may have some flaw or deficiency. I would like to smoke out potential issues prior to the actual due diligence process. As such, could you recommend any questions that I could ask pre-offer… I am chiefly thinking of engineering, regulatory, and environmental issues.

Thanks in advance for any insights.

H. Immo