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.)
- 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
Capital improvements since 2006 (when building was purchased by current owner at substantially less than current listing price (35%)).
All of the above should allow me to calculate ROE… Or am I missing something?
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.