Regarding Commercial Business Park &amp; Investment - Owner Occupied - Seeking help!
My brother and I own a clothing manufacturing business here in Southern California. We are currently in the process of purchasing a business park and plan to submit an offer here soon. We would love to have any input or feedback on what you think about the details. Our primary intention is to own the property  to operate our business from it. The real estate appreciation and investment aspect is only a bonus!

Subject Property: Commercial Business Park

Asking Price: $4 Million

**Our business will occupy 51%. We will be financing this with 10% down and the rest through an SBA loan at a blended rate of roughly 3.35 interest**

31,000 Sq Feet  
17,000 - Executive Office Suits (22 units)  


**Rent Roll:**  
Offices - $5,200  
*7 Units are being rented by 5 tenants*  
Parking - $500  
**Gross Revenue: $5,700**

When we purchase the property, we will use all of the industrial space in the park and will occupy an additional 7 office units. This means there will be 10 office units that are delivered vacant. Our business will have staff available to property manage and get tenants for the remaining units. 

**Why we like this property:**  
Cost Per Square Ft Comparison  
**Subject Property**: $1.30 per square foot  
**Other Commercial Properties**: $2.30 per sq foot (Better construction / High Ceilings)  


1.) New Metal Construction on Industrial Building  
This building was built in 2019 and was built for light manufacturing (15' ceilings) using metal construction which is cheaper then other construction methods. It has no obstructions in the warehouse and would require no modifications which would reduce our move-in expenses.  


2.) The office units are executive suits and are about 600 square feet.

**\*\*\*My question is\*\*\***

**#1.** What are the cons of a metal industrial building? 

**#2.** Is $130 per a square foot a fair price to pay for this type of property that includes a combination of industrial property constructed of metal and executive office suites that are generic in nature?

\#3. We will be opening up a new LLC which our manufacturing business will rent from. If our business rents the property at fair market value, this means the business park would be bringing in gross rent of $21,000 while still having 10 office units vacant. If we can get these office units occupied, we estimate bringing in $28,000 in gross revenue per month.

\#4. With the metal construction(cheaper price per square foot) would you say $4 million is a fair asking price to pay? I figured that we could get this business park to bring in $336,000 a year. If I estimate 25-30% toward expenses, I figured this would be valued at $4,700,000-$5,000,000 based upon a 5 cap.

I would love to hear everyones thoughts!
[{"id": "ggk3eq5", "text": "I hope you have enlisted the help of a professional broker that can answer these local questions, and look out for your best interests.", "replies": [{"id": "ggk3jwg", "text": "Yes! We enlisted a local broker who will be supporting us here - Out of curiosity, beyond the initial due diligence, what do you think the agent would be needing to look for when it comes to our best interest?", "replies": [{"id": "ggk3nlo", "text": "Pricing / Comps / Local Market Activity is the big one.", "replies": [{"id": "ggk44je", "text": "Thank you so much - Just requested that!", "replies": [{"id": "ggk4gl0", "text": "This should of been step 1 ...", "replies": [{"id": "ggk4m3w", "text": "Thank you - I did not request local market activity which is a great recommendation to determine if we have negotiation on the asking price. I had already requested pricing and comps :-)", "replies": [{"id": "ggk59s2", "text": "It's always good to know if there has been 1 sale in 10 years, or 1500. \n\nAgain, your broker should know who the players are, and what has been going down in that area. Drive around with him/her and see what the comps look like. Bigger parking? Better build out? closer to freeway? etc etc.", "replies": [{"id": "ggk5mgd", "text": "You are totally right! We did not even think about that so I am so glad you took the time to help provide some awesome feedback. It's really helpful and I will be reviewing this with the broker tomorrow!", "replies": [{"id": "ggk5oq7", "text": "Let me know where I can send my invoice too :)", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "ggk3vn9", "text": "All of your questions are local.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ggk3ouv", "text": "ya... you don't need internet advice, you need local market knowledge to confirm if your assumptions are accurate.", "replies": [{"id": "ggk4qkv", "text": "Thank you - I do have a local broker! Are there any particular questions or thoughts you think I should ask them? Assuming my assumptions are accurate, what would you say about this opportunity?", "replies": [{"id": "ggkyxk7", "text": "Answers to your questions:\n1: metal buildings always trade at a discount\n2: value depends on local market. The amount of office space can be viewed as an issue, typical industrial users need less and less of it these days, making any \"excess\" amount \"useless\" to a whole building occupant. As you have identified, you will attempt to lease out small office units (arguably one of the worst subsectors of any of the asset classes). \n3: this assumption is all based on local market factors\n4: again, entirely dependent on market factors, but a 5% cap seems pretty aggressive unless you are located directly in one of North America's top 10 or so real estate markets. A 7% cap fully stabilized is probably a safer assumption.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ggk585d", "text": "Where in SoCal are you finding $130/sqft? I\u2019m currently in market for flex/warehouse in SoCal and running close to $300 +", "replies": [{"id": "ggk5t8r", "text": "I have been looking for 3 months and this is the lowest I have found. I attribute it to the construction style of the industrial warehouse + the outdated office units(which is a bonus for my business). This is in the Inland Empire!\n\nBased upon my 3 months of research, I have not found a property in the Inland Empire that is selling for $300+. They are all going for $200-$250 per square foot", "replies": [{"id": "ggk7ajh", "text": "I\u2019m looking in OC. I looked near Riverside/Chino/Ontario and the prices were definitely attractive compared to OC/LA. Only deterrent for me is the commute would drain me as I\u2019m located in OC. \n\nI too am going with SBA 504. \n\nGood luck with the purchase.", "replies": [], "depth": 3}, {"id": "ggkz8ff", "text": "Why such a discount to market? I know you've stated a number of factors... What's the history on the building? Is the seller providing clean environmental reports? The discount might be to sell a headache or significant liability.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ggkfwe6", "text": "I know this one.  I was considering this property myself.  We decided not to unsure of the positioning of the property bc it was so far south of the city center.  We also were not planning on using the industrial portion for ourselves, purely income property.  It sounds like it makes a lot more sense for you if you're planning on manufacturing there.  Beware that metal building gets hot inside on warmer days.  Would need to budget some HVAC.  \n\nFYI the owner/developer owns several lots around the area and develops them one at a time.  He was considering buying the lot behind this property so he could connect it to his other lot.  \n\nAnyway, good luck!", "replies": [], "depth": 1}, {"id": "ggl2q8k", "text": "As almost everyone has pointed out a lot of this is local. I bet u/cruisermax could point you in the right direction to validate some of this. From a very high level have you considered that you may be competing for tenants with the developer at some point? Are there any restrictions (physical, parking or other zoning) to convert all or some of the office space to warehouse for future use? What, if any, of the expenses are recoverable by the office tenants? Are they separately metered for utilities, including HVAC? Since you don't have any historical have you looked at operating statements for similar properties to see if your expense guesstimate is reasonable? Lastly, how about property tax? No idea on this area but if the initial assessment is based on the recorded purchase price what will the annual bill look like at the current millage rate? Again, based on the local area what if the assessment was set higher based on replacement cost or the market-rate income approach?", "replies": [], "depth": 1}, {"id": "ggl3huo", "text": "Metal construction is nice because it's cheap to build and quick to construct, the cons are that it's terrible in terms of insulation, in summer it will feel like an oven, in winter a refrigerator. Of course all this depends on the location and whether you have insulated panels or other kinds of insulation. Other cons include issues with durability. If the metal that makes up the outside walls goes to the ground they will often get beat up just from common dings. Also roof replacement is more expensive than your typical modified/tpo/whatever roofs since the structural component is also the water proofing layer and thus you have to replace both.", "replies": [], "depth": 1}]