Having completed my research for the week on the property, I can now present some of my analysis on the site. First, I’d like to thank the broker who took the time to provide neighborhood demographics and full property report. Super Helpful, and I hope some of the work I’ve done will help one of their potential investors. Here goes:
Sales Price: $740,000.00. Based on the fact that this property requires extensive renovation capital (upwards of $70/Sq Ft to demo, remediation of major structural issues along with tenant improvements), I would require a 5-10% discount on the purchase price, offering between $660,000 and at most $705,000 to purchase.
While I love the idea of a theater in Union, this use is not sustainable here. First, there is NO PARKING on the site. Major drawback for theater goers having to spend the afternoon looking for parking. Second, the location is in the heart of the central business district, where there is major foot traffic during business hours, why not have your business maximize on this? A conversion to retail would cost upwards of $70/SF so almost another $Million to convert. We are looking at a total investment of about $1,700,000.
Investment Strategy: If you borrowed 65% of the total investment, your equity partners would put up the additional 35% (about $580,000), 15 yr Commercial loan at 5%? I think its doable. The biggest contingency on this deal would be our ability to secure a retail tenant at NO LESS than $20/PSF in rent. The comps in the area range greatly from $10 per sq. ft to up to $30 per sq. ft. Feels risky…but, if achievable, you’re looking at a 15% cash on cash return at the beginning of the 2nd year of occupancy and a 20% IRR (internal rate of return)….music to my ears….
If you are interested or have comments, leave a reply or send me a message and i’ll share my spreadsheet and additional assumptions.