Retail Shopping Center - Alternative Financing . I’m looking for ways to structure this deal.
The property is a 17 unit retail center for sale at $5.6M. 

Current NOI is $321k - right under a 6 cap at 62% occupancy. Rent is under market. All leases are NNN with rate bumps starting in 2023. All tenants are e-commerce resistant. 

The property is 40k sq ft which is priced under replacement cost. Rent is under market by $2.4 rent psf. The shopping center is in a metropolitan city with average household income of $80k

I have been tracking my market for quite some time and haven’t found anything that is an value add and priced based on current NOI. 

Thoughts on the deal on a high level? 

This will be my first commercial building. I am moving from smaller multi unit family. Will the bank finance at 80% LTV? We have $600k in Capital which won’t be enough. I have asked if seller would carry 10% of the note. What other financing alternatives are there?
[{"id": "iffpgvb", "text": "High level? You can't afford this. You should be low LTV and high reserves to take on a project like this.\n\n(1) If you could get 80 LTV, 5% 25yr, which is unlikely, your DSCR as-is would be \\~1.0. Want IO while you lease it up? I assume you'll need 60 LTV for that. So if seller finances beyond 80 LTV, you're going to be cash flow negative.\n\n(2) What is your lease-up strategy? What size are the vacancies and can you reasonably expect to lease them quickly? You need funds for general CAPEX and for TI, don't forget lease commissions.\n\n(3) What happens to the NOI if you lose a tenant?", "replies": [], "depth": 1}, {"id": "iffrdmb", "text": "What's the reason rent is \"under market\" and occupancy is 62%? \"E-commerce resistant\" means what...? No name restaurants and hair/nail salons who are weak tenants in the best of times? My first thought is that one of your assumptions is wrong. My second thought is \"you make your money when you buy it\" and you're paying too much, so no structure is going to save it.", "replies": [{"id": "ifgooms", "text": "\n\n No one leaves their property at 62% then decides to sell. You always fill it with shit then show the under market rates as upside. Chances are your current tentants are at or above market. 6 cap for a strip mall is a level of nuts that is unfathomable unless you got tenanta ready to roll.\n\nLets assume it is 50k as ft, so 19k sq ft vacant. Assume $12 pad @70% margin = $160k more ebitda, which now is a 9 cap. That assumes no risk, no capital and a loan at 7%... Debt service of $362k for interest only 70%, so you have 100k FCF to cover capex and profit at probably best case. Chances are you are going to get a 50 or 60 ltv, thrn layer in potentially mez debt and you are fucked.", "replies": [], "depth": 2}], "depth": 1}, {"id": "iffujgn", "text": "Find a preferred lender to fill the gap.   You pay them 12-14% plus a point or two and you get your deal done.", "replies": [], "depth": 1}, {"id": "iffvu7n", "text": "I don\u2019t know mate. If you\u2019re 62% occupied it sounds like you might be in worse shape when those below-market tenants roll, not better. \n\nWould you even have debt coverage based on in-place income? \n\n80% LTV doesn\u2019t seem reasonable with this risk profile. Maybe more like 60-65%?", "replies": [], "depth": 1}, {"id": "iffwrmq", "text": "10% down on a $5.6M purchase? It will be tough to finance. \nWhere is the property located? If the lender will carry back a larger 2nd it might pan out, but even then the rents aren\u2019t in your favor with 62% occupancy. \n\nBest case? \n10% down - 20% carry back - 70% LTV HML if you have excellent credit and can get the units pre-leased during the escrow period to get a lender approval.", "replies": [{"id": "iffxgzn", "text": "Wouldn\u2019t the rental income service the debt if my in place cap rate is close to 6%? I understand that if I use HML, prob not bc if high interest on the note", "replies": [], "depth": 2}], "depth": 1}, {"id": "ifg7a3y", "text": "I'm a RE investor/developer and I look at projects like these all the time.\n\n&amp;#x200B;\n\nThe two questions I always ask myself are as follows:\n\n1) Is this a VERY good deal?\n\n2) Should you do this deal?\n\n&amp;#x200B;\n\n**Is this a very good deal?**\n\nOn a high level - yes it seems like a very good deal. The following factors need to be explored to verify this, since I do not know the property:\n\n1) What condition is the building in? Is it nice and more marketable than nearby deals?\n\n2) What is the overall vacancy rate for this submarket (e.g. &lt;1.5 - 2 mile radius)?\n\n3) What are the recent lease comps (&lt;6 months) in the nearby vicinity telling you? Are recent lease deals generally going up or down?\n\n4) Do you know any good leasing brokers who are smart, honest, financially sound? Ask them what they think about the property\n\n5) Will you have the capital available to fund the leasing of the building (commissions, Tenant Improvement dollars), and covering maintenance &amp; repair costs? This can easily be a $200 - 300k total reserve you'll need. \n\n6) What is the cap rate of the deal once you reach 90% occupancy? I'm guessing it'll be close to 10%. What are the market cap rates for stabilized retail investment deals?\n\n&amp;#x200B;\n\n**Should you do this deal?**\n\nBased on what I am hearing - you should absolutely walk away from this deal.\n\nThe reality is that you'll invest every penny you have into the downpayment, and you will not have the funds available to adequately cover future leasing costs, maintenance &amp; repairs, and other (unexpected) costs. I'm also not sure if you'll be able to handle the negative cash flow if 3-4 of your tenants suddenly leave.\n\nI would never recommend 90% LTV for getting into an asset, unless you have a substantially unleveraged balance sheet that can carry the deal if things go sideways. Long-term wealth in real estate is created through holding power - you need to be able to hold an asset through a financial crisis.\n\nIf I were you, and you honestly think this is a phenomenal deal, I would look for partners. Go raise another $1.7M - 2.2M in equity so you can buy this and cash flow on day one. You'll make less total profit, but you'll substantially increase your odds for making a profit and not losing everything you have.", "replies": [{"id": "ifhjdij", "text": "Thank you for your thorough response. These are great questions to explore! With $600k of capital, what do you recommend for someone to explore the commercial property without investing through a syndication? Would you target smaller $1-2m property - most likely won\u2019t be credited tenants", "replies": [{"id": "ifho5e6", "text": "William - I'll respond to your comment soon, but please take down that link as soon as possible.", "replies": [], "depth": 3}, {"id": "ifhqlz0", "text": "I would say you should be pretty careful around a property like this. \n\nGiven the property's positioning around the mall, the asset does not stand on its own feet. It does not have visibility from the main road, which is fine because of the mall, but it also means this property will live and die based on the long-term performance of the mall which is your anchor.\n\nHistorically, this asset has had \\~20% vacancy over the past 10 years. The existing rent roll shows you that very few tenants have been here long term, and only 1 tenant has been with the property through the last recession (2008). I think this is the biggest red flag more than anything. \n\nI don't know anything about the mall, but I would be pretty careful. I do think the long-term trend is aimed towards open air malls. \n\nWith regard to your $600k capital, I would honestly focus on a $1M purchase. Get your feet wet in a small deal, which would allow you to learn a lot without losing everything you have. Once you do a few successful small deals, you will have better experience that can be applied towards larger deals.\n\nI say this all the time - the real estate industry is all about holding power. It does not matter how great the asset is if you can't hold it through a financial crisis. Some of my best purchases were great assets that traded hands because the seller had too much debt.", "replies": [{"id": "ifhu0cu", "text": "Thank you so much. This makes a lot of sense. I did not think about the downside of it being positioned around the mall. This is exactly the type of advice I\u2019m looking for. I agree with the vacancies that it\u2019s a huge red flag", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ifgpf4o", "text": "40k SF with 17 units is concerning.   Sounds like that property has too much shop space and not enough \u201cdraw\u201d spaces.    The current vacancy level likely reflects this, and no mater what \u201cmarket\u201d rents are in your area, a high level of vacancy will give prospective tenants negotiating power.   \n\nI manage 200k+ SF centers with that number of shop units that are a challenge to keep occupied despite strong anchors.   To much overlap in the true e-commerce resistant food and service categories.", "replies": [], "depth": 1}, {"id": "ifgr5pr", "text": "NMTC", "replies": [], "depth": 1}, {"id": "ifgx78u", "text": "You\u2019re getting ripped off at sub 6% cap rate on non-credit tenant retail.", "replies": [], "depth": 1}, {"id": "ifhdikk", "text": "Ask for an A/R report if you haven\u2019t already. How much term do these leases have? Do you have capital to fund TI/LCs for new deals?\n\nAgree with others. Non-credit retail today at a 6% cap is pretty aggressive.", "replies": [{"id": "ifhj0kl", "text": "Thank you. This is in Dallas market. Sold Comps around the shopping center is 6%. Is it low because of higher interest environment compared to couple months ago?", "replies": [{"id": "ifj29i8", "text": "Yes higher rates have blown out cap rates a decent amount. Would of course depend on location but 62% leased tells me it must not be a super desirable location. Some risk but if you feel good about the returns, that\u2019s all that matters. Good luck!", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ifirs7q", "text": "5 handle is pretty tight, no?", "replies": [], "depth": 1}, {"id": "ifnxndn", "text": "This will not work. It\u2019s too expensive. Maybe it works at $4-4.5m, but not $5.6m. \n\nNo way will a lender finance 80% LTV. They might do 50% or 60%.", "replies": [], "depth": 1}]