There are typically two kinds of buyers in commercial real estate. Buyers are either investors looking for a certain kind of property type, occupancy percentage and return and there are buyers looking to occupy a property for their business while potentially leasing additional space to tenants to assist with their return or their mortgage payment. Roughly 20% of commercial properties are sold off market as most listing agents attempt to find buyers to double side the fee and save their client money on the commissions. Once properties hit COSTAR (the MLS of commercial real estate) it typically means the listing agent could not procure a buyer.
We have been working with a buyer client for over a year that is selling 20 UPS Stores and they would like to find a building with a steady return. The client was looking for a building with tenant(s) with 7-10 year leases and a cash on cash return of 7.5% or greater depending on the tenant credit mix. Roughly three months ago a friend of mine that has several locations nationwide for his business asked me if I would like to assist him in selling his building to include him remaining at the building as a tenant in what is called a sale leaseback. Over the course of the next month we put together a structure he could live with lease wise and a price. Once the terms of his lease were determined and we backed into a reasonable value on a per square foot basis I calculated the return and it fell within the return parameters of my buyer client. After a little back and forth the seller and buyer agreed to terms on a 6 year lease and an 8% cash on cash return. The buyer is getting a very financially stable seller/tenant, a $250,000 personal guaranty that burns down annually and $12,000 in net rent monthly plus annual rent increases of 3% not to mention the tenant covers all expenses direct in this NNN lease agreement. The seller is getting their goal price and they have security that they will continue to be able to operate within their building for the next 6 years. The fee was set at 6% and the purchase price was $1,800,000 so the estimated commission is $108,000.00 and we will be managing the property for $400 per month.
We are also working on completing the sale of 100,000 SF industrial building in Phoenix for a national client based in Houston. They are growing their petroleum and lubricant business in the West and they need locations to buy or lease in Phoenix, Denver, Salt Lake City, Las Vegas, Tucson and San Diego. After touring the market for lease and for sale and after losing a couple of for lease deals the client decided they wanted to purchase a building. We identified a building and we put together an offer strategy. After a few weeks of back and forth we finalized the LOI and executed a PSA. The buyer will occupy 75% of the building and we will be tasked with leasing the rest of the space (which has a large cooler) and we will be managing the building for the client. The purchase price of the building is $7,800,000.00 and the fee is 2% to EIR which is $156,000.00. The agent at EIR that referred us the business will receive $31,200.00 plus a portion of the leasing fees and the property management fees.