Sacramento CRE Bridge / Refi - Thoughts?
Hi Guys, 

My father did a deal in Sacramento a few years ago and was curious to get this sub’s view on the quality of the deal. I’m still new to RE - so wanted to use this forum as a sounding board. 

We paid about $2 million for a ~35K sq foot 45 unit class C office complex that was generating about 170K in NOI at a 60% occupancy. 

Now occupancy is about 80% and NOI is closer to 200K, but we realized that rents are 30-40% below market and there’s still room to budge on occupancy. 

We’re speaking to lenders to gather additional financing (whether bridge or refi) to put another 800K into the asset to bring it up to Class B. 

If we stabilize the asset at market rent, I believe we should be looking at roughly ~$290K NOI. In the Sac area stabilized Class B assets will typically sell at a 4-5 cap... meaning this asset should be worth $6-$7M? 

Sounds like a winner - but curious to get this sub’s view? 

Thanks!
[{"id": "fqrxm4p", "text": "Not familiar with Sac or Office, but with COVID-19  I feel like it\u2019s hard to say what cap rates RE will be trading at once this is all over\u2014so that 4-5% might expand to a 5-6% or worse. Might be best to delay any major investment decisions until picture is a bit clearer.", "replies": [{"id": "fqsf5lw", "text": "Yeah agreed - this has been in the making for awhile but realize it makes a lot more sense to wait 6-8 months.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fqs9kv3", "text": "4-5 cap? Really? Not doubting you, that\u2019s just extremely aggressive for an office building especially right now. I\u2019m in portland so I don\u2019t know the Sacramento market that well. \n\nI\u2019m a commercial lender though. If you\u2019re interested I can send you my terms to make it competitive. Also I waive any loan origination fee for redditors. Also the tenants have had to have limited impact by COVID. As an office property I would imagine there\u2019s not a huge impact like there would be for retail. PM me if interested.", "replies": [{"id": "fqsf6pk", "text": "Sure I\u2019ll PM you", "replies": [], "depth": 2}], "depth": 1}, {"id": "fqsduhq", "text": "Dude right now is a crazy time to jump on this. Plan it all out, for sure. Be ready to leap when there is some clarity with the market - but right now, wait for a vaccine, or more stabilization in the market, there are too many discussions about second and third wave. Too many uncertainties. \n\nI do a lot of feasibility work in the Bay Area. We don\u2019t expect rents to recover to q4 2019 rates until mid 2023. And thats with tech and biotech recovering faster and stronger than any other sector. \n\nIn South Bay a 4-5% cap for office was working based on what I had been seeing a few months back. Right now, who knows. Investor surveys are not providing any guidance. There\u2019s not much data to go on. I heard hotels at 9-10% earlier this week, but that was national survey, and anecdotal, and that\u2019s just like 100-300 basis points higher than what we saw in top tier markets in January, so who knows now?\n\nIf I were you I\u2019d be chilling with a good property and good tenants. Take care of the people who are still paying. Make sure you do solid DD on people asking for rent subsidies. Wait and see where this goes in the next 6-12 months.", "replies": [], "depth": 1}, {"id": "fqt879f", "text": "Your options are going to be tough if you aiming for a bridge refi in this environment. Even with interest rates being as low as they are, I\u2019ve seen lenders quote L+450 to 550 range (1% floor) to price in uncertainty. Also I\u2019d throw in an additional 25-50 bps cushion on that cap rate at 50-60% LTV is where you\u2019d most likely see your quote land, assuming this is cash neutral.", "replies": [], "depth": 1}]