Nobody I called cared that the office was 45% below replacement cost

The replacement cost angle gets sold hard in every course I've watched and it only works when someone actually wants to occupy or own the thing. Below replacement cost on an asset with no buyer pool is just below replacement cost.

What's TI/LC? I've seen it three times in this room and I've been guessing tenant improvement, but the LC part I don't know.

@rigging leasing commissions. Landlord pays a broker to bring the tenant, usually a percentage of the total rent over the lease term, and it's due mostly up front.

@ember your $40 to $50/sf TI quote is the part I'd argue with, and not in your favor. On the office fitouts I've priced in the last two years, demising a floor plate that's been dark for a while means you're touching HVAC zoning and often the sprinkler layout, and if the restrooms predate current accessibility code you're rebuilding those the moment you pull a permit. I've seen a supposed $45/sf allowance turn into $70/sf of real cost with the landlord eating the difference. Your buyers were probably being kind.

I've had this exact building in my spreadsheet twice (different city, same shape) and both times I talked myself out of it in about a week. Reading yours, I don't think my hesitation was smarter than your action, you just found out faster. The thing I'd want to know is whether the 61% leased tenants were any good. Three small local tenants on short terms is a very different asset than one credit tenant with eight years left, and the second one at least gives a buyer a reason to hold while the vacancy sits.

Did the seller ever come off $1.6M once you had the buyer feedback in writing? I've had two dead deals resurrect at 70% of the original number six weeks later when the seller's broker finally believed the market. Not saying it saves this one, just that a family LLC with no debt on it can eventually get to a price that works, they're only anchored to what they were told.

I'll take the other side of your own conclusion. The phone calls would've saved you the $7,500, sure. But the underwriting error is older than that, you signed a contract on an income property without knowing the cost to produce the income. That's not a sequencing mistake, it's a modeling one. If you'd made the calls first you'd have skipped this deal and then done the same thing on the next one that looked cheap per foot.

Build the TI/LC and downtime line into your model permanently and the phone calls become a check on your number instead of a substitute for one.

Genuine question from the trades side, is anybody buying these to convert? I keep getting asked to quote plumbing risers for office to residential and the answer is always awful, because you're chasing stacks that were designed for two restroom cores per floor. Curious whether any of your four buyers even raised conversion or if that's mostly a headline thing.

@solder it's mostly a headline thing at that size. Conversion pencils on floor plates under about 12,000 sf with windows on enough sides, and 1987 suburban usually means a deep plate with a dark core. I priced one for a client and we were at $180/sf all in before soft costs, which on @ember's building would be $5M on top of the $1.6M. You'd need residential rents that don't exist in a suburban office park.

@ember the other thing nobody's said, ask what the roof and the rooftop units were. A 1987 building with original RTUs is another $250k of capex your buyer is netting off the price, and it doesn't show up in NOI at all.

Four buyers isn't a buyer list, it's four phone numbers. I hit my own ceiling at about the same place and the fix was boring, I started going to the local commercial broker happy hours and asking people what they'd bought in the last 12 months rather than what they were looking for. What people say they want and what they actually close on are different lists. If I'd asked that question in your market you'd have heard nobody had closed suburban office in a year, and you'd have known before the contract instead of after.