Commercial broker wants to sell our property. Too good to be true?
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[{"id": "hstq4uk", "text": "There are a lot of areas around the country that have ended up in a popular path for development since 2008. If your property one of those areas, this could be very real. Do you have any interest in relocating the business? If so you\u2019re probably going to have to move pretty far from where your customers are used to going to be able to get a mortgage or rent equal to what you\u2019re currently paying on the mortgage. If you want a true BOV (broker opinion of value), let us know the address.", "replies": [{"id": "hsts97e", "text": "&gt;Do you have any interest in relocating the business?\n\nhonestly no. my dad was in the industry for so long the business wouldnt be able to run without him. hes getting old and the stress is wearing on him. plus mom n pop shops are getting bought out or closing because of big nationwide shops. im trying to convince my dad and i think hes coming around. just dont know what to do next if we sell. this business is all we've ever known and me and  my brother dont have good job prospects. my dad wants to make sure we have some kind of cash flow if we sell. \n\ni was looking at a property that is currently being leased by an arby's triple N lease i think. the property is a lot of money but its in a good area. do you think that would be a good investment?", "replies": [{"id": "hstvana", "text": "Are you talking about purchasing the arby\u2019s for cash flow? If so, the cons of a single tenant net lease property are:\n1) you\u2019re betting it all on that business and that location, if you think \u201cwe have the meats\u201d is a solid business and would continue to stay in business then move on to number 2.\n2) the second con of STNL properties is the cash flow is predetermined (could be a good thing, depending) and your upside is capped. Find out what the Cap Rate of this acquisition would be. That will be your unlevered return, example: $100,000 NOI with a $2MM purchase price would be a 5% cap rate. \n3) in the current inflationary environment, predetermined future cash flows will be eroded by inflation. You\u2019re still only getting $100,000 (or whatever the actual number is). Yes, you\u2019ll have rent escalations in the lease, which are often 10% every 5 years. But ideally you\u2019d want this increase tied to CPI, but good luck getting a tenant to sign on with that right now.\n4) your building is specialized to the current tenant, you\u2019ll have huge costs retrofitting that Arbys to say a Starbucks down the road. \nIn sum, people don\u2019t invest in STNL to generate large cash flows, they typically purchase them with 1031 proceeds to park capital, avoid cap gains, and generate a steady return. I would personally avoid doing this with your situation.\nMy advice, get at least one more broker to give you a BOV so you have two. Then, choose the one you trust more. Negotiate the brokers fee. Take the proceeds and invest and use them as you see fit.", "replies": [{"id": "hstw6k2", "text": "&gt;Are you talking about purchasing the arby\u2019s for cash flow? \n\nno just the land is for sale. arbys is the tenant and they just signed a 15 year lease. \n\nthanks  for the advice", "replies": [], "depth": 4}, {"id": "hsurf5o", "text": "Username checks out.", "replies": [], "depth": 4}], "depth": 3}, {"id": "hsu1qmn", "text": "You should ask the broker about ground leasing the land instead of outright selling it.", "replies": [{"id": "hsu2oha", "text": "that is a good idea too but a little riskier", "replies": [{"id": "hsu2x6f", "text": "Riskier for who?", "replies": [{"id": "hsu37jq", "text": "well if the tenant doesnt do well and closes then we'd still have to pay the mortgage", "replies": [{"id": "hsu5iny", "text": "That\u2019s a fair point if you think there will be a similar use. If you think they\u2019re redeveloping they may just pay off your mortgage as key money (and they\u2019d rather not have fee simple debt if they have a leasehold interest). It\u2019s worth asking the broker their opinion on that scenario, but you\u2019re right a sale may just be cleaner.", "replies": [], "depth": 7}, {"id": "hsudu72", "text": "That\u2019s not true. \n\nIdeally, you\u2019ll work a GL with a credit tenant and have a personal guarantee / corporate guarantee. \n\nThis means that even if they close, they are still obligated to pay rent until initial term ends.", "replies": [{"id": "hsuj5p2", "text": "A mortgage is also subordinate to a ground lease. If the property defaults on the ground mortgage and the ground lease the lessor can foreclose on the lender and the lessee and take the property back.", "replies": [], "depth": 8}], "depth": 7}, {"id": "hsxdk9n", "text": "Go to loopnet and look at property in your area to see if his numbers check out on a sale.  Potential issue for bodyshop is going to be contamination of your site.  If you list with the broker you don't need to sell if he comes with less.\n\nGround leases are less risky for landlord at their face.  Your not involved  in your tenants mortgage.  Often at the end of the lease you keep the improvements.", "replies": [], "depth": 7}], "depth": 6}, {"id": "hsunkht", "text": "These guys.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hsudii4", "text": "I\u2019m a developer and we buy properties all over the country. \n\nWe pay the freight on A sites.\n\nCouple of questions:\n1. How big is your property? (Acreage) \n2. Is the site full access?\n3. How many cars per day in front of site? \n\nIf you\u2019re comfortable with DM\u2019ing me address my group may have interest in buying it depending on answers to questions above.", "replies": [{"id": "hsupmki", "text": "1. 2.5 acres\n\n\n2.not sure what that means\n\n\n3. not sure either but its right along a busy local highway. the development of houses is absolutely insane. the lot next to us, literally 50-100 feet away they are building a subdivision. houses being built at a neck break pace. its kinda weird\n\nappreciate your interest but im not sure about that last part", "replies": [{"id": "hswtwr5", "text": "Full access means you can turn in and out of your property going any direction. \n\nCan you make a right in, right out, left in, left out to enter your location?\n\nOr is it right in, right out only and left turns in and out are illegal?", "replies": [{"id": "hsxdrcb", "text": "Very important!  But even if you can now it doesn't mean you'll be able to keep that access on a redevelopment.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hsttwfs", "text": "Nobody on this thread can answer this without knowing the specifics of your site and the market. I can say there are businesses where the land has appreciated in a short period of time to $3M or more due to redevelopment value, but there is no way to know with high level description if that is applicable in your case.\n\nIf in doubt. Interview another qualified broker and ask them for a broker opinion of value. If it comes back in a similar range, it's most likely correct.", "replies": [{"id": "hstw1nk", "text": "ok thank you", "replies": [{"id": "hsv8c8e", "text": "Not sure about commercial property, but having sold homes that I don't know the values of the area  I'll have 5 realtors give me their assessment of it's value. Disregard the highest and lowest, and average the other three. Then choose the realtor you most connect with. Also negotiate commission percentage.", "replies": [], "depth": 3}, {"id": "hsv8clv", "text": "Not sure about commercial property, but having sold homes that I don't know the values of the area  I'll have 5 realtors give me their assessment of it's value. Disregard the highest and lowest, and average the other three. Then choose the realtor you most connect with. Also negotiate commission percentage.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hstxfww", "text": "Get a broker opinion of value, a bov. There is a costar underwriting report that will in 30 seconds, spit out a report that will tell you if the guy is full of it or not.", "replies": [{"id": "hsty12v", "text": "thank you", "replies": [{"id": "hsua0hk", "text": "Do you want me to plug it in on costar for you", "replies": [{"id": "hsubrdg", "text": "i appreciate it that very much but thats ok. i think the offer/valuation is believable because i was looking at some commercial property in our zip code and found a slightly bigger and slightly better located shop very close to us at 4.5 million. however the shop for that location is on a multi year lease.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hstyupl", "text": "Is $3m for vacant or with a long term lease signed by your business? Very different assumptions on either situation", "replies": [{"id": "hstzoa7", "text": "for vacant. he did say he could sell our business with the building as a package for what im guessing more than 3 mm but i dont think our business would be worth that much because according to him  when they figure out a value for a business it basically boils down to net profit and they do an X multiple of that. we dont net that much", "replies": [], "depth": 2}], "depth": 1}, {"id": "hstzwqs", "text": "Sell the property and lease it back to you? Or sell it and you then move out?", "replies": [{"id": "hsu05tf", "text": "sell it and we move out", "replies": [{"id": "hsu0jq8", "text": "Industrial properties are selling for a lot right now, and depending on your property this could very well be true. \n\nIt might be worth contacting another broker to get their opinion. \n\nAs another Redditor has said, we can\u2019t know if this is fact as we don\u2019t know all the details, but industrial property is flying right now so it very well may be true. \n\nI would also say to the broker that you want whatever they say they can sell it for +10%. You might as well in this current market :)", "replies": [{"id": "hsu0q8h", "text": "thank you", "replies": [{"id": "hsu0uu1", "text": "All good - depending on the strength of your business and willingness to take on some stress it might be worth trying to sell it alongside the property if you want to sell it", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hsu07lp", "text": "Here\u2019s a hot take: tell him/her find me a buyer for 3.5MM\u2026..BUT you need to consider where are you going to put the business? I\u2019d just package deal that shit and walk.\n\nA. You don\u2019t need the purchase\nB. A slight bluff helps\nC. See if he\u2019s serious (official documents/contracts)\nD. Cash out as much as possible if y\u2019all are trying to walk away.\nE. No more business stresses along with actual liquidity you can use for other investments/ventures.\nF. Set up a royalty type contract to they can have it all as package deal but we want X amount per month/quarter/year on returns.", "replies": [{"id": "hsu0j7y", "text": "yes i was thinking about that but i dont wanna scare him away lol", "replies": [{"id": "hsu5uo3", "text": "Be strategic and you won\u2019t. Don\u2019t be a dick but be firm and also lay out the knowledge he doesn\u2019t or does have. Say here\u2019s what we are worth based on etc etc and a good real broker will say fuck alright fair enough", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hsu0cr3", "text": "Ask him to explain his valuation. If you still have questions consider an appraisal", "replies": [{"id": "hsu0tdl", "text": "he gave me a broad explanation but youre right i should ask for a more detailed approach to his appraisal. thank you", "replies": [], "depth": 2}], "depth": 1}, {"id": "hsugdg9", "text": "Ask him for comps", "replies": [], "depth": 1}, {"id": "hsun8xq", "text": "1. It's not too good to be true.\n2. Do you want to move your business (or would they allow you to rent from them at a reasonable price for 3 - 5 years)?\n3. What would it cost you to buy another property, rebuild your structures, re-plant your business, and cover any loss in customer base for 3 years (while you build the new base)?\n\nMy Dad had a piece of property, right in the center of a downtown core that was exploding that, let's say was worth 100 bucks.  He'd purchased it a zillion years ago when it was only *\"all the money he ever knew existed\"* but was now less than pennies on the dollar what it was worth.\n\nSomeone came along and offered him 200 bucks for it (twice what it was worth in the then current market). He did the math, and after paying capital gains, going through all the hassle of finding a new place twice as big (because he'd never in his lifetime, live long enough to get a similar hit on something he purchased today, so...it had to produce *better* on day one), he needed the purchase price to be $350.00 and....he didn't want to move his business (which would have cost him more) so he showed them his math and said \"*I totally get why you want this property but, for it to be worth my while, I need $350.00 and....I need another $100.00 to motivate me\".*  The fellow responded \"*you're fucking insane Mister....that's 4 and a half times what it's worth\".*\n\nMy Dad (correctly) said *\"not to me it's not\".*\n\nA few years later that same fellow offered my Dad 600 bucks for it.\n\nNone of which is to say I believe you should squeeze this buyer for every dime you feel is hidden in his desire to buy, as I'm a firm believer that you need to leave something on the table for a buyer to feel like everyone gave something, but, it is to say that you need to understand what your true cost is to sell to this person. My Dad clearly knew what it cost him to sell his property, and he was simply being pragmatic about the offer to sell / buy.\n\nHe actually *wanted* the buyer to have it for the purpose they wanted it for....he just didn't feel like paying *them* to accomplish the task.\n\nOnce you know that number...you'll know the number the buyer needs to pay you to leave.", "replies": [{"id": "hsupz0x", "text": "thanks for the insight. its just unfamiliar territory we're trying to navigate", "replies": [], "depth": 2}], "depth": 1}, {"id": "hsupebf", "text": "I\u2019d personally attempt to sell the business and lease the building to the new owner.  I\u2019ve done this with two businesses that I owned.  Or you can shut down your business and lease your building to another business.  I\u2019d assume you\u2019ll get a better return on your building than from buying an Arby\u2019s.  The issue that I have with buying a NNN lease is that you are paying a huge premium on the lease and if the tenant leaves, you are left with a building that\u2019s worth 1/3 of what you paid for the leased property.", "replies": [], "depth": 1}, {"id": "hsvmoi3", "text": "I can attest that industrial real estate is hot in general. It always comes down to product and location. The broker who approached you is essentially \"dialing for dollars\" to drum up business so be wary of his numbers but he's probably not completely wrong. If you decide to pursue this, you might consider selling with a leaseback contingency that would allow you to continue operating your business there for whatever terms you determine via the lease. Whatever you do. all real estate transactions are legal transactions so get yourself a RE lawyer if you take any action.", "replies": [], "depth": 1}, {"id": "hsvvpgl", "text": "What city? What type of revenue does the business make? How big is the property, and the building square footage? Don\u2019t let anyone steer you in the wrong direction, get CMA report for both the property and business. If you sell, sell both cause if someone is interested in the business they would rather own the property. This is still a seller market so that a good thing.", "replies": [], "depth": 1}, {"id": "hsvvsnf", "text": "Honestly asking- what is the appeal of STNL? There\u2019s zero upside in ability to add value to the property and a ton of downside depending on lease terms and tenant. The only pros I can think of that asset class is it\u2019s the lowest price barrier to entry in CRE and is mailbox money.", "replies": [], "depth": 1}]