Posted by JC on May 21, 2006 at 24:49:45:
How do one find an “accurate” cap rate and comps, ask many realtors and compare results?
RAY ALCORN PLEASE! 1st Shopping Plaza purchase - Posted by Ron
Posted by Ron on May 20, 2006 at 20:54:16:
HI ,
I am is thinking about purchasing a shopping plaza in MICHIGAN. The building is only one year old. 8 units.
The down payment is a bit high I think. Can you please give me some advice on how this deal looks to you and how you would structure an offer/deal in (terms,down payment,etc)
Your proffessional advice would be highly appreciated.
Thank you,
Ron Ristovski
Year: 2006
Scheduled Gross Income: $167,351
Vacancy: $9,668
Reimbursement: $26,001
Effective Gross Income: $183,684
Operating Expenses: $45,783
Total Expenses: $45,783
Net Operating Income: $137,940
Debt Service: $93,862
Other Capital Costs: $1,557
Pre-Tax Cash Flow: $42,482
Debt & Equity Information
Debt Type: Proposed
Interest Rate: 6.50%
Amortized Over: 30
Due In: 10
Annual Debt Service: $93,682
Down Payment: $412,500
Property Use Type: Investment
Primary Type: Shopping Center
Strip Center
GLA: 10,380 SF
Lot Size: 1.47 Acres
Occupancy: 100.00%
Price: $1,650,000
Price/SF: $158.96
Cap Rate: 8.36%
Cash On Cash: 10.30%
Year Built: 2005
Net Lease Investment: Yes
Date Last Verified: 5/18/2006
Re: 1st Shopping Plaza purchase - Posted by John Bell
Posted by John Bell on May 29, 2006 at 15:53:58:
Michigan is losing jobs & population & has a high rate of residential foreclosures. These factors will affect retail vacancies. All this is due to it being a pro-union state IMO, so not likely to turn around soon. I think you need a higher cap rate and lower price per sf to justify investing in this environment. It seems like your deal has all downside and no upside. I would demand a 12% cap rate or 20% cash on cash return to consider Michigan.
Re: 1st Shopping Plaza purchase - Posted by ray@lcorn
Posted by ray@lcorn on May 25, 2006 at 11:44:42:
Ron,
Looks like a typical retail deal, though the finance terms may not be available at that rate.
As Bill pointed out below, the tenant mix means a lot, locals being worth less than nationals as a rule. I suspect that since the cap rate is above 8% this is the case.
The downside of buying a 100% occupied center is the upside is limited to scheduled increases. Personally I prefer deals with a little hair on them in order to goose the returns, but that’s just me. On your first deal a safer approach is in order.
But you may be able to structure the deal differently than proposed by the broker. (I assume that’s who did the numbers?) Check out this article about deriving your own cap rate based on loan terms and your return requirements: http://www.creonline.com/articles/art-216.html
Much depends on the seller’s motivation and the type of finance terms you have available. And the financing will be directly related to the tenant mix, lease terms and general market conditions. To understand those factors you’ll need to read the leases word for word; analyze the market and potential new competitive supply; and develop banking relationships that give you access to higher leverage without creating more risk.
ray
p.s. Any idea why the expense reimbursement figure (CAM fees) is only 57% of the total expenses?
1st Shopping Plaza purchase - Posted by Ron
Posted by Ron on May 24, 2006 at 10:51:42:
Help from anyone?
RAY ALCORN PLEASE! 1st Shopping Plaza purchase - Posted by Bill Taylor
Posted by Bill Taylor on May 20, 2006 at 21:42:36:
I am not Ray but one thing that you might need to know is the CAP rate for your area and how it compares to other similiar complexes to yours. This looks to be a pretty interesting deal in todays market, this is similiar to one I did in Sept. Is the area growing or is it going downhill. I wold think the area must be growing if they built someothing new in the last year. You would have to decide if this is something that works for you. Are the tenants national or mostly local? If local are the tenants giving personal guarentees and if so are those personal guarentees worth anything to beging with? How did you go about finding this, on Loopnet?