The rollover math on 3.2 years of term left won't sit still

Two things that bit me on a smaller box. First, the tax bill. If the county reassesses on your purchase price and the current assessment is stale, your NNN recovery covers it but your tenant's total occupancy cost jumps, which makes renewal harder at the rent you want. Pull the assessor's history and see what the last three sales in that park did to assessments. Second, non-reimbursable of $15,600 on 62,000 sf is 25 cents. On my building the real number was closer to 40 cents once I counted the accounting, the annual CAM reconciliation, and the odd repair the lease made mine (roof and structure carve-out, always read that clause). Not fatal, it just moves your cap to 7.3.

I've been tracking this exact product type for about a year in three southern metros. 24 foot clear at $75/sf isn't cheap anymore, it's roughly where 28 to 30 foot clear trades in the weaker submarkets. The buildings I've watched sit are the ones with shallow truck courts and single-sided loading. Yours has 110 feet, which is workable for a 53 foot trailer, so you're not disqualified. Ask the broker how many showings the seller has taken and what the last offer was that fell out, and why.

I'd rather own the same shape of building with 8 years of term at a 6.6 cap than this one at 7.4. The 80 basis points is not paying me for a $700,000 hole. Everything I read says vacancy in this sector is expected to peak around the middle of next year and then tighten, which is fine, except your lease expires after that window and commodity space is the part that lags when tenants go looking for better buildings.

Your lender will see the 3.2 year term too. Expect a rollover reserve or a springing cash trap, and get that in writing before you commit.

4.1 acres at 35 percent coverage in an industrial-zoned corridor is worth something on its own. What are dirt sales doing there per acre? If serviced industrial land is $250,000 an acre you're paying about $1.0M for the land and $59/sf for a functional if dated building, and your floor in the dark case is much higher than the pro forma suggests. If land is $90,000 an acre then the building is carrying all the value and quill's re-lease question is the whole deal. Also worth knowing whether the site has excess yard that could be leased separately for trailer parking, which in some markets prices at real money per stall.

Coming from small multifamily, the thing that stops me cold is that one tenant leaving is 100 percent vacancy. With eight units I've never been at zero income. You're underwriting a business that can go to zero revenue for over a year, so the question isn't the cap rate, it's whether you can write those checks out of other income without selling something. I couldn't have three years ago.

Checked your arithmetic. 62,000 at $5.80 is $359,600, minus $15,600 gives $344,000, over $4,650,000 is 7.398 percent, so 7.40 is right. Debt: $2.79M at 6.4 percent on 25 years is $18,650 a month, $223,800 a year, DSCR 1.537. Cash flow $120,200 on $1.86M of equity plus costs, call it 6.1 percent cash on cash before closing costs. Where I'd push back is the 2 percent bumps. Over 3.2 years they add about $22,000 cumulative, which is noise next to your rollover exposure. So this deal is a bet on one event, not on income growth.

Get the estoppel and the tenant's guarantee structure before you spend a dollar on third party reports. I'm mid-deal on a two tenant flex building right now and the estoppel turned up a verbal agreement about yard use that the landlord had honored for six years and never documented. Also ask the tenant directly, in a site visit, whether the 24 foot clear is limiting their racking. Distributors will tell you. If they've already outgrown the cube, your 3.2 years of term is really 3.2 years of notice.

I buy the cheap end of this in small markets, so my whole approach is to price the box rather than the lease. Take your dark case as the underwriting case, not the sensitivity. 14 months of carry at $84,000, 14 months of debt at $224,000, $372,000 of TI at $6/sf, call it $90,000 of commissions, plus a tear off roof somewhere in the hold at $8/sf on 62,000 which is close to $500,000. You do not spend all of that, but a buyer four years from now will price like you did.

Work backward. If you need a 6.5 percent yield on the stabilized $360,000 of rent at $5.80 renewed flat, that's a $5.5M building, and you're being asked $4.65M, so the asking price already embeds about $850,000 of discount. Your downside spend is bigger than that unless you re-lease fast.

So the two facts that decide it: truck court depth is fine at 110 feet, and whether the box demises. A 62,000 sf single tenant box in a market with new 32 foot clear product competing is a hard release. Two 31,000 sf units with separate power and a firewall is an easy release, because shallow bay users in secondary southern markets are the tenants actually signing right now. Get a leasing broker and an engineer to tell you the demising cost, in a number. If it's $250,000 and the column spacing cooperates, offer $4.1M and mean it. If the answer is that the sprinkler main and the power service make demising ugly, walk and keep watching. The sector improving into 2027 helps modern well-located space first, and this building is neither of those.