Sunday, January 18, 2009

A Win-Win Commercial Investment Sale

Troy is a mortgage broker who I've known for years. He has worked with me on a number of personal loans, including a refinance of my home and a mortgage on an investment property I once owned near Virginia Tech.

In 2005, when the housing market was strong, he bought an historic brick building in the center of Old Town Manassas, Virginia, a walking city with an old-time Main Street USA feel. By day it is populated by small business owners, insurance agents and lawyers (due to the proximity of the courthouse), by night and weekends with tourists and families attracted to the family-run restaurants, arts and antique stores, and charming shops which line its streets, all of which are promoted by an active Old Town Business Association and Historic Manassas Inc., an organization dedicated to fostering business growth in the town.

With the changes and challenges to the mortgage industry, Troy needed to free up the cash he had invested in the building. In the spring 2008, he asked us to put it on the market for sale.

Consisting of 6,290 square feet on two floors, the building was originally constructed in 1918 and had been renovated in 1985. Troy occupied a suite of offices on the second floor, leasing out the remaining offices to multiple tenants. The majority of those offices were under lease, many occupied by long-term tenants. The building was ideally located within walking distance of the VRE (Virginia Railway Express) and a new five-story municipal parking garage.

Troy was willing to stay on as tenant or vacate, whichever the purchaser preferred.

The party who purchased the building had no plans to occupy it. He was looking for an investment property that offered a good cash flow. We calculated the rental income with Troy's company remaining as a tenant, deducted the operating expenses for the building, including utility costs, property taxes, insurance, and upkeep and repair, in order for the buyer to determine the net operating income (NOI). Factoring in his mortgage payments and tax benefits, the deal made financial sense to him.

We presented a contract with a leaseback provision, specifying the terms (rent and time period) under which the seller would enter into a lease with the buyer, which went into effect at the closing of the sale. The buyer was guaranteed a good income stream and return on his investment from the rental income from Troy's company and the other tenants.

We listed the property on May 1, contracted with the buyer on June 3, and the deal closed on June 30. The buyer was under a mortgage commitment deadline and needed to close quickly. Troy was happy with the sixty days list-to-close time period. In addition to staying in his offices and freeing up some cash, he realized a respectable profit on the sale of a building he'd owned for three years. A win-win situation for all parties!

Troy is Vice President of First Potomac Mortgage, located at 9116 Center Street in Manassas. Google Map

1 comment:

  1. Great Post! It's very nice to read this info from someone that actually knows what they are talking about. Commercial Investment Properties notes