This is the first building that made my heart pump when I saw the picture of it. She is like a Victoria Secret model dressed in a bathing suit tenderly calling out my name. :biggrin and…this is a really interesting case study!
The federal government is selling one of their buildings in a smaller region, it’s a beautiful concrete-brick office building, bright red exterior, with a nice shinning Government Emblem embedded at front. Large windows and neatly trimmed lawn, she is a beauty. The cost to build this thing would be 2 million plus. They are selling at the price of $320k.
Currently there are 4 government tenants, with leases ending between March 2015 and 2016. They have expressed intention of continuing leasing the place after. How reliable is that information? I have to investigate, but it is a condition of the sale. There is also 1 private tenant. Building is about 87% full according to the listing, but there is no way to confirm what’s the actual GSI as the building is about 1500 km from where I live. The local commercial building vacancy rate is estimated at 13%. However from a federal agency’s perspective there is no other building like this in the area, not nearly as glorious.
The current rent income is 125k gross, but the actual expense for last year is at a staggering 107k.
The list of expense is long and really detailed, recorded for every month for the past 36 months.
Breaking down the 100 items into 4 categories: Cleaning and trash removal at 17k, maintenance and repair at 45k, utilities at 34k, road/ground/parking lot service at 11k.
Well, so much for the 50/50 rule. this building is running at 85% expense ratio. :shocked I kind of expected that the government has a higher standard of maintaining this building, but never this high!! That makes me think, if I lose 1 key tenant (30% of gross), this building would be upside down. Isn’t that high risk?
However this building caught dozen other buyers attention, and I can just imagine how they drool over it. The seller is not taking offers until January next year, and from the looks of it, it’s going to attract plenty offers.
Everyone is thinking the same thing, maybe the government is paying too much? Maybe they can reduce the expense and make this building more profitable, so it looks as nice on paper as the actual building. But the big question is HOW to do that. Maybe the service contracts currently are too expensive, but I won’t know until I find out exactly what those contractors do, and that might only be available until after closing.
:help I want to submit a solid offer, but not at a price that would put on too much risk. Any thoughts?
Edit: hmm i was blind sighted by the list of expenses, only to realize that the government doesn’t pay tax! :evil So there is additional 10k tax and building insurance maybe 5k, well, at least now I know why they are selling this