Two Loft Buildings 20 Units Total
Currently Under Exclusive Option 10% Cap Rate as-is/12 – 15% Pro Forma New Transit station under construction nearby New Police Headquarters nearby Homeless Shelter and Day Labor building nearby will be moved Historical Landmark nearby involved in multi-million dollar upgrade At least two large revitalization projects nearby Very close to downtown Owner is selling because of his age, current medical condition, and spousal pressure While there are many development, revitalization, and urban growth projects going on within a few blocks of these properties, the immediate surroundings are not very pleasant to look at. This, of course, has kept the price down. There are quite a few factors that play into the general unpleasantness of the surrounding area. A homeless shelter and day labor building not far from the properties is in heavy use. The city council is currently in the process of finding a new home for these purposes and when that happens, the surrounding area will quickly clean up. Also, with all of the projects that are going on around these properties in the early to mid phases of completion, from the outside, the whole area appears to be torn apart. This, again, plays into the favor of a low purchase price. The current cap rate is 10%. However, this is calculated based on the current owners figures. The current owner has a full time, onsite manager, who gets a salary and benefits, plus an external management company. As well, current leases must be renegotiated and brought to current market value. With some simple changes to these business practices, a cap rate of 13% or higher could be achieved with no capital expenditure whatsoever. The pro forma provided by the current owner is only 10.5% cap rate, based on his figures. Again, this would be substantially higher based on a change in the business practices.
An example of changes that can be made to improve cap rate and cash flow that does require small capital expenditure is the reconfiguration of under performing space. There are a total of 20 units in the current configuration. A 6000 square foot unit is currently renting for $0.25 Sqft. This unit could easily be changed into 5 units, renting at $1.00 Sqft. This change results in a four-fold increase in cash flow, without a large investment. The cap rate and net income off of these properties is simply the tip of the iceberg. The fact that there are so many great projects happening just blocks away is sure to improve the values of these properties a great deal. Of course, no guarantees can be made in this sense, but simply looking at a map of the area and seeing what is happening will put all of this in perspective. If you are interested in this project, please let me know. I am seeking money partners, or lenders only.