First-time commercial buyer, would appreciate advice on all-cash offer and appraisal
A family member is looking to get into commercial real estate and has asked us to go in on it with her. I’m pretty familiar with residential and have listened to lots of BP podcast episodes about multi family even though I haven’t taken the plunge on the latter yet.

What I’m not sure about is this property she has in mind. It has a long term tenant for now with a few more years on the lease. They seem pretty stable and have invested a fair bit in their space so I like that.

The current owners also own and operate a business out of another part of the same property. Their financial statements give a 7.5% cap rate but from what I can tell that’s based on a hypothetical rent they’d be paying themselves for the space, and I’m not sure how reasonable that is.

Is was thinking of trying to call in a commercial RE appraiser to get a second opinion on rental values, since the current owner is moving out after they sell so we’d have to find a tenant for it.

I’m curious if that all makes sense. We have the means to buy it outright (and it isn’t a huge percentage of NW) with cash and figured we’d use it as a bargaining chip to give them a low-ball offer (getting us into the 9-10% range) given the weird tenant situation and how other potential buyers might have issues getting a loan for it.

I enjoy leverage and if this were a straight residential property I’d probably get a reverse mortgage on it after buying in cash, but I’m not sure how common or possible such maneuvers are in the commercial space.

I’d welcome any advice or warnings!
[{"id": "gar97l9", "text": "Are you working with a broker? Do you intend to lease the space yourself or hire a broker for that? Find one that is competent in whatever type of space it is and has active listings in your area. Get their opinion on what the space would rent for and how long it  might take to rent it. If you bring them in on the purchase you may negotiate a better rate on marketing for lease. \n\nAn appraiser can only give you values based on the comps available to him or her in a database. A knowledgeable broker would have the same information and know how hot the market is, if leasing activity has fallen off with COVID, etc.\n\nYou might also negotiate a leaseback with the seller where they stay on as a tenant for a period of time during which you market the space for lease.\n\nWith regard to financing - I always purchase cash and \"refi\" after closing when the time is right. In this case you'd want to find that new tenant and then go for financing. In my world a reverse mortgage is a product sold to elderly people with negative amortization..I'd say you're just looking for cash-out financing. Cash-out is a little tougher right now but with low leverage shouldn't be a problem.", "replies": [{"id": "gat4ocn", "text": "Thanks for your response and suggestions! We weren\u2019t planning to work with a broker for the purchase but would probably need one on the other side to help find tenants. Hadn\u2019t really thought about \u201cpackage deal\u201d type relationships though.\n\nOn the residential side of things we often skip agents and brokers and do fine, but since this is unfamiliar territory maybe it\u2019s worth changing that here?", "replies": [{"id": "gat9pw4", "text": "I normally feel the same on the residential side, but yeah I'd view it as a price of learning about the market. If you value what they bring keep them on, if not you can make a switch or go solo down the road. IMO whether a leasing broker is a requirement or not depends on the size of the space and whether potential tenants will be looking on Craigslist etc or if they'll be repped and only looking at Loopnet/Crexi/MLS etc. If it is a small space it might not be worth the broker's time.\n\nI have also slowly come around to the fact that some people will never take you seriously if you aren't repped, no matter how much cash you have. Is what it is.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gawd55z", "text": "Why are you buying it in the first place? And i'd speak with a legal advisor about setting up a company or some kind of entity to shield you from any damages, like bankruptcy.\n\nIf it's strictly an investment property make sure you're taking everything into account. Taxes etc can have a hefty impact and influences what happens if and when you want to sell. There could be better options out there instead of an office building.\n\nYou need to compare your finances. If you buy cash out be aware that prices can drop. If you get a mortgage, you have to pay the monthly amount. They have special finance options that can minimize interest depending on your payment terms and length of loan etc.\n\nResearch the markets prices around you. check with the tenants in the building. if you were a tenant why would you rent that building in the first place?", "replies": [], "depth": 1}]