Hey Ags,

I seek the wisdom of those here that have commercial real estate experience.

I just found a vacant office building on good frontage that would be a good site for my office.

It is about 4800 sq feet and empty. It once had a dental office and a restaurant but empty now (and looks like at least 8m)

They have it priced by my back of the envelope math based on a 5 cap on a phantom full lease.

I am familiar with the NOI valuation but here the NOI is currently negative as it is an empty building.

How should I approach an offer? Austin is booming but like many places the office space has lower occupancy right now

You would try to get to a stabilized NOI and cap it just like you are doing, and back it up with some similar empty building office comps. Market in Austin is bananas not surprised they are trying to get away with a 5 cap on an empty office building. Is it truly. a NNN lease? What rental rate are you using and how does it compare to submarket? What is the vacancy in the submarket? Are taxes fully assessed?

Send me a DM with the details and I can give you some more info depending on location etc.

With interest rates so low, sale prices are high; puts buyers at same monthly payment versus lower sales price and higher interest.
Replacement costs are higher too.

I'd talk to your broker, each site has unique characteristics that determine value. Also keep in mind finish outs have gone sky high in the last year, both labor and materials.

I am a commercial broker and can answer questions offline if you'd like. I won't solicit buisness as I don't work the Austin market.

Would you occupy the entire building?

I'm looking more investment.
It is possible I put my side business in a portion

5 CAP occupied or not - no way !

Thats pretty aggressive for an empty building. For comparison, the last commercial office deal I was involved in (late 2019) we purchased a much larger building that was 95% occupied on Mopac for a 6.5% Cap.

They are pricing it for a user, which is why I was asking if you would occupy the whole building. Owner-occupied buildings typically trade on per square foot, rather than a proforma cap. You'd need to get some comps of similar buildings to know where the fair price is.

From an investment POV, a 5% Cap would be reserved for a single-tenant NNN building with a long term lease (think walgreens, etc).

Give me a holler if you want to talk more about it. We need to grab lunch again soon.

Dr T and the Women said:

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I'm looking more investment.
It is possible I put my side business in a portion

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Keep in mind you will likely have to offer TI's to lease it up

Bitter Old Man said:

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Thats pretty aggressive for an empty building. For comparison, the last commercial office deal I was involved in (late 2019) we purchased a much larger building that was 95% occupied on Mopac for a 6.5% Cap.

They are pricing it for a user, which is why I was asking if you would occupy the whole building. Owner-occupied buildings typically trade on per square foot, rather than a proforma cap. You'd need to get some comps of similar buildings to know where the fair price is.

From an investment POV, a 5% Cap would be reserved for a single-tenant NNN building with a long term lease (think walgreens, etc).

Give me a holler if you want to talk more about it. We need to grab lunch again soon.

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For sure

Thanks all for input