Buy Property

CONSIDERING TO BUY A PROPERTY vs. LEASE FOR YOUR BUSINESS? If you’re considering to own the space your business operates from, have you identified how financial benefits can lower your cost of occupancy? Imagine the lift to your P&L… Financial planning is as important as preparing the building for use. The goal is keeping space costs known, predictable and low while adding property value to the value of your business.

The physical and financial aspects of the buy can be plugged into transaction software that changes with scenario models. A comparative quantitative analysis helps to reveal your cost of occupancy. The final transaction model will serve as a guide to negotiate the closing terms of the buy as well as drive the project management of the build.

I’ll show you how a mortgage, tax, utility and economic development benefits will help lower your acquisition, development and operating costs of the property. We’ll review each scenario to the extent you need to create options to focus on. Our review of options will include how we’ll respond if the seller (and other players) cannot meet your transaction or development needs.

Five (5) Key Factors affect a property purchase:

  1. Physical building and location. What kind of building and layout does your business need? Where should it be located?
  2. Development. Does the building need retrofitting, rehab or is land development your best option?
  3. Financing (including IDA financing). Your credit status will dictate the lending terms you can secure.
  4. Economic Development benefits from utilities, job creation, construction. Location of the business, employees relocated, new hires and how you power/light your property will all help identify the economic development benefits available to you to lower your cost of occupancy.
  5. Tax benefits (mortgage interest, depreciation, property tax abatements, effective tax rate). Property tax abatements, plus tax deductions for interest will be factored into the transaction to show its financial effects on your cost of occupancy.

Considering to buy a property requires quantitative and qualitative analysis. I discuss the report with you in layman’s terms to make a choice giving a predictable outcome. The financial and physical outcome of acquiring commercial real estate requires some degree of predictability to focus on operating and improving the performance of your business. This consulting service is available for an hourly fee or is included in the commission fee [I’m paid by the seller of the property].

If you agree that this analysis service would be useful to you, please click “Request A Consultation” link in the upper right of the screen. Enter “Acquisition Modeling” in the subject line; please include your name, email address and telephone number in the message body; I reply within 24 hours. Thanks for reading and listening. ###

How to Hire Me

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-After substantive conversation, if you choose to hire me, the principal of your firm signs an “Exclusive Right to Represent Agreement” from me that designates me to handle your firm’s real estate needs, regardless of how the space is identified.  I also offer analysis or consulting services through your service providers (i.e. CPAs or Attorneys) through a Consulting Agreement.

-My commission /fee  is borne by the landlord/seller you buy space from or at an hourly rate that we agree to, paid by your firm.

-I can work by sole transaction, by multiple transactions with a strategic goal, provide strategic planning advice or as project consultant.

-Rate: Without commission, $50/hr for the first 3 projects (prove service), then usual rate of $225/hr.

-Four hour minimum for initial project review ($50 rate), paid upon submittal of the review.

-I prefer clients to furnish me their accurate financial data after I sign an NDA (which I can provide).  This helps to budget real estate into your finances.

-In consulting assignments, I can present results you approve to parties of the transaction as needed, at the hourly rate.

Highly Successful Helping Businesses Grow

Real Estate Investment Valuation: Few Comps

If your property is located a bit off the beaten path and sale comps are few, how do you value your investment for loan or sale? Don’t guesstimate by market conditions; capitalize Net Operating Income (NOI). Here’s how:

ADD

Rent. Every space has a rent value, there are enough properties near yours competing for tenants that offer rent comps. Identify the accurate rent value of your space (adjust rents for plans to rezone a part of your property. For example, converting unfinished storage space into workspace supported by adequate parking and/or elevators.)

Land Value. If your building has substantially more land than building, with air rights for more than 3-4 floors, add land value to identify the property’s market value. How? All land can be rented. Land is typically 22% of the market value of a property; land rent is capped at 10%. (This rate assumes all public utilities are installed to develop the land.) For land with air rights of more than 3-4 floors, air rights are a commodity, market conditions dictate value; demand with low supply drives up value; add land and/or air rights to market value.

SUBTRACT

Operating Expenses. What’s does it cost to run your building every month? Assure to add a % of gross operating expenses as buffer for unexpected maintenance needs.

Capital Expenses. Costs to improve efficiencies of building operations; not subject to depreciation.

Capital Improvements. Investments to physically improve the building, subject to depreciation (after NOI).

Tenant Improvements. Costs to build tenant space, recaptured in rent over life of lease.

Brokerage Commission. Like TI, brokerage fees, recaptured in rent over life of lease.

NET OPERATING INCOME

Result. (Existing rent + rent from rezoned space) – Operating Expenses – Capital Expenses – Capital Improvements – TI – Brokerage Commission = Net Operating Income.

Cap Rate. A divisor that leads to Market Value. The capitalization rate (cap rate) is directly affected by the term of the lease, the integrity of collecting rent from leases, the credit quality of tenants, and sometimes the use of space.

Market Value. Adjust sale comparables to the capped NOI of your property, the result equals the market value of your property.  This case study is about a property sold for mixed-use redevelopment.  Add the capitalized value of land and/or market value of air rights [per buildable foot] to this result.

Uses of Market Value. Use market value to secure a mortgage, a take-out or sell the property. Confirm the market value with a commercial appraisal; no one can dispute a reasonable appraisal approved by an M.A.I.

Hire Me. If you’re planning to sell your property or need to identify its market value for a transaction, I can perform the analysis to identify its market value.  In the past, my results came within 5% of an M.A.I’s appraisal or the sale price.  Please fill out the form in Request a Consultation with your information; I’ll reply within 24 hours.  Until the next post…