Looking High and Low

I get asked a lot, what is it like to scout for commercial property? I say scouting for commercial real estate is easy, because commercial property is everywhere. But how do you find the deals, is really what they to know.

The way I scout is totally systematic. State by state and property profile by profile. What that means is each type of property has certain parameters that have to be met. For example, when looking at raw land, you look to see if the property is in the path of progress. What is the price per acre? What is the as-is value? What is the highest and best use of the property? What will the property be worth after it has been entitled?

When looking for office building one key factor is price per square foot. The Net Operating Income (NOI) and capitalization rate (cap rate) are also key factors in determining the value. What condition is the building? Is the building located in an area where you will be able to rent up the building after repairs? You would not want to buy a building is a declining area.

In apartment building you go by the price per door and the NOI and cap rate. Again, the condition of the building, plus the vacancy rate are terminating factors. Management of the apartment complex is another major factor in figuring the viability of turning around the property.

Mobile home parks are figured by per door price along with the NOI and cap rate again. Also, what class is the park, A, B, C? What amenities are in the park? How old is the park? What size are the slabs? Are the spaces individually metered for electric, gas and water?

Assisted and senior living, the price per bed is critical. What is the occupancy rate? What is the NOI and cap rate? What services and licenses are in place?

Industrial and warehouses are pretty user specific. So you have to have a user in mind or know you can change the use of the building before you chase the deal. Price per Square foot is king, because most building are vacant or will be vacant soon. Again, location is very important and is that part of town still growing.

So at the end of the day. You have to look high and low, state by state and property by property.

The property deals are out there everyday and in every state, you just have to look.

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Happy scouting

Ted