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Originally Posted by Vegas69
Thanks, Erik!
I'd be seriously looking at your local market and making a firm decision on whether it's time to "Take your money and run". If the decision is no, you should be ready to ride out the next low cycle. I know commercial leases can run through cycles, but if that business was to fold, you could be left with a vacancy.
I'm on the residential side, but I have some commercial knowledge here. What seemed to happen with the last cycle was that tenants migrated into newer, nicer spaces for a similar outlay. That left many of the older buildings with vacancies.
Going back into debt or getting back into the market is EASY. Those liabilities and opportunities are plentiful. Timing dictates the latter...
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Todd, I wish it were that easy, but it's a Walgreens store and it's in TX. The loans for these types of properties are kind of like bonds to the investors (lenders) in that they want all the return they signed up for at the outset. This means there's a significant pre-payment penalty, called a defeasance penalty. So, it rarely pays to sell (or refinance) early. The penalty on this property 4 years out from loan maturity was around $600K!! That's the price for getting a fixed rate loan vs. an adjustable rate. In the meantime, Walgreens is about as solid a tenant as you can get, it's a 75 year lease and unless this 100+ yr old company goes out of business it's guaranteed and it's NNN so there's nothing to do except make sure the money is in the bank every month. Oh, and we still get to depreciate the building and contents, even if Walgreens buys new ones!
Quote:
Originally Posted by ironworks
Todd - Do you mind sharing some of the key factors your talking about in the real estate market. I'm looking at purchasing a the building we currently occupy and have found the open lease space ratio to be getting higher but not alot for sale just yet. But I'm wondering if this is the time. I think things are gonna go on sale and I seem to keep hearing that the sky i falling and alot of smart guys are prepping for market correction. CASH is KING. Just trying to learn all I can.
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Todd gave you some good advice. Some of the bigger firms that would know what your building is worth are CB Richard Ellis, Marcus & Millichap, and Hendricks & Partners. All should have offices in your area and any of them would be happy to give you an opinion of value and tell you all you want to know about your local market. In your situation though I don't think I would have them handle the purchase/sale. I'm assuming that you know the current owner (you're making lease payments to them right?) so there's no need for them to do so and their contracts are great at protecting them but don't do much for you or the seller so you really need a lawyer to review the contract anyway, and they get a healthy commission, mainly for putting buyer and seller together and it sounds like you might already have that part handled. I would highly suggest if you want to buy it that you just find an experienced commercial real estate lawyer draw up a contract and have the seller's lawyer review it and negotiate that way. You'll be much more protected that way too.
You probably know this already but I would also add that if you can swing it to own the building the tax benefits can be considerable, you have the business LLC (or however it's structured) lease it from another LLC (or similar entity), both of which are you. You'd basically just move money from one bank account to another and deduct a lot from your income taxes along the way. How the rich get richer! I wouldn't suggest you have one entity own both the business and the real property, but I'm not a lawyer and Calif is especially unique in it's laws for most of this kind of stuff so do your homework. Good luck!