Good Things Take Time


                   

Good Things Take Time   

By Dave Miller

On Oct 16th 2007 we set up a showing to see a former doctor’s office that just came on the market. The local hospital bought out the doctor’s practice and the real estate. Real estate was not the motive nor was it something the hospital desired.  Their long-term plans rule out owning real estate other than their core buildings. So they bought out the doctor with his office and put the office on the market. The main floor was the doctor’s office which he was vacating. Upstairs was a dentist’s office, he was also vacating. So empty she stands.

The building looked to be in good repair. After researching the market we saw potential but concluded by saying “It’s empty and we are not looking for an empty building”. Therefore we let the opportunity pass us by and do not place an offer.

Time passes. The property is still on the market. We watch it from a distance.

In the process of time our Realtor changes offices and now works side by side with the listing agent. He is told the hospital is now using the building for their primary billing department. They consolidated two or three offices into this one.

Our realtor calls us with the news and I ask to see the lease. It is pitiful. The year to year lease offers a 6.7% return. This ends being good news because no one is interested in this property with such a low return.

After viewing the property again we crunch the numbers. Using a combination of existing knowledge, an accountant and our mentor, we place an offer. The offer is contingent on the standard items, i.e., inspections, zoning, financing and the like. But the one value is that we have 90 days to get a satisfactory lease or we can walk.

The hospital comes back with an upward adjustment of $15,000 in price, we accept their counter. We were not concerned about the purchase price. Why not? One may ask. This agreement is contingent on a satisfactory lease. If the purchase price goes up then the lease must increase to reflect that. We are calculating on a percentage basis, so if they want more for the property we want more for the leased space. They raised their own rent. We are buying based on cash flow so if they don’t give use a satisfactory lease – we walk. It’s that simple.

The lease agreement negotiations started with a meeting at the hospital with their Vice President, the realtors and us. They expressed heavy interest but only on the main floor. We reminded them they are currently using the basement. The VP was not aware of this and said he would investigate. Next they said that they want the main floor and one half of the basement for storage. Our attorney starts writing a lease agreement. I continue to negotiate with the hospital and things improve. I tell them our break of point and then offer them the entire basement for a few thousand dollars more. They accept. We are happy because we do not need to do any work in the basement and this gives them a larger share of the CAM costs.  We end with a better lease than we had expected.

We also ordered a building inspection. This came back reporting that the heating and cooling system had only a few years of life left. A new  system  would be around $20,000. We add in a few other repairs and estimate  the near future could bring up to $23,000 in expenses. Suddenly the venture has lost its luster.

We walk.

No bridges are burnt. We make another offer that reflects the $23,000 in possible expenses. They balk. Prices are obtained by them for a new heating and cooling system. A few weeks pass and we receive a counter. They do not accept our reduced price but are willing to replace the heating and cooling system within their tenure if needed.

Now we quibble amongst ourselves. It is still a good deal. We accept.

In the weeks that follow we wrangled together the legal work.  A limited partnership is created with a LLC as the general partner. This allows for limited liability and avoids capital stock tax.

April 1st 2010. No fooling. This is two and a half years later. We sit in the attorney’s office. Papers are signed. Both parties walk away happy. Rather six parties, the investors, two Realtors, a banker, an attorney and the sellers are all happy. Before the meeting is dispersed two new ideas are sketched with the group. Maybe in two and a half years we will all be sitting around the same table again, just maybe.

Quotable Quote; “I walk slowly, but I never walk backward.” Abraham Lincoln

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Published in: on April 8, 2010 at 1:20 am  Comments (4)  
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