[gpark1234]

Hello, I was offered this opportunity and I think it may be a good deal.

Retail Center : 5600 sq ft (NNN) Triple Net
2 National Tenants - Radio Shack and Sherwin Willaims

Price: $700,000
Down Payment: $106,485
Gross Income: $77,503
Expenses: $12,979
NOI: $64,524
Loan Payments: $37,871
Pre Tax Cash Flow: $25,653
Principle Reduction: $9,890

Summary:

Positives:

- The bank is willing to finance with only 15% down and 4.5% interest rate and no balloon.

- There will be no personal guarantees (non recourse)

- Radio shack is paying 2,000 a month less then what they should be and if they go out of business or leave when their term ends in 2016 then the Income will go up by 24k once the new tenant is found

- Anchored by the largest/busiest grocery store in a town with a population of 25,000.

Negatives:

- Sherwin Williams lease is up in 3 years, but they have been there for over 30 years.

- If Sherwin or Radio shack leaves then there will be TI money needed to redo space.

- Lastly, the expenses are without a management fee, and vacancy reserve so with that included it may be a lower NOI. Also there is no snow removal accounted for. From my understanding, the tenant pays for everything else.

Please advise as this is my first commercial deal.

Thank you very much.

[John_Corey]

GPark,

Re-run the NOI calculation and put in the numbers that are missing based on your initial analysis. Then capitalize the NOI and see what you think the property is worth. If you do this, share the numbers on here so we have the latest version.

[tandyjames]

I am new to this game... but were did you find a bank that will agree to 85% LTV along with 4.5% (and non-recourse)? Is this common, or is there some other special situation with you and this lender?

Thanks - T.J.

[John_Corey]

Originally Posted by tandyjames

I am new to this game... but were did you find a bank that will agree to 85% LTV along with 4.5% (and non-recourse)? Is this common, or is there some other special situation with you and this lender?

Thanks - T.J.

A great question. 85% non recourse is a big ask.

[lswadhardy]

Some other things to consider other then just the numbers. I worked for a major national tenant and know what they are looking for. If you are worried about Radio Shack/Sherman vacating at lease expiration, you want to make sure your retail center can be re-leased.

How is access to the shopping center? Easy to come in and out? Is it at a signalized intersection? Is their monument or pole signage connected to the property? How is visibility from the street? Does the city have any parking restrictions? Call the city and inquire and see if you could get a food tenant in based on the parking available. (Restaurant use takes up the most parking.)

A lot of parking+good visibility+Signage+ good access= good retail shopping center.

And I think tenant should pay for snow under a NNN lease... Although I live in So. California and haven't had to deal with that.

[midlifeman]

Not a bad NOI of 9.2% but it's probably because the lease term is short...Pause

Here are the questions to ask:
Is the parking lot full in the shopping center?
Is the landscaping nice or are their weeds growing in the parking lot?
Are there reserved spaces for your particular tenants?
Are all tenant spaces occupied on the entire property? (other vacant stores is a bad sign)
Why is the seller selling?
How many cars a day pass by the shopping center?
Do both leases expire around the same time?
Is there an association that may or may not have restrictions on new tenants you are allowed to bring in?
Is there an association fee that pays the cost of common ground maintenance?

I'm sure the lease will help you answer some of these questions. In addition to the above questions. My big question is does the place have a vibe! Is there a sense of place in the community or is it like many retail strips that are dated and dying on the vine if you will.

[djc225]

what bank offered terms like this?

anyone know of other banks that will be similarly aggressive?

[JeremyCyrierCCIM]

The length of term on the leases is your biggest risk factor. You need to make sure that you have adequate reserves to carry the space and provide TI incentives before deciding on what you would pay for the deal.