Hello! First time poster here, I've read the books and have attended the boot camp. However, when running through real world deals I've come across some bizarre situations that leave me with some burning questions. For example, when a park is bundled with something like a hotel or a small apartment complex do you value it at a 10 cap or 3-5 cap which is what I've heard the going cap for apartments is? What about small businesses like a laundromats or convenience stores? I've even seen a mobile home park bundled with the restaurant, how on earth do I cap that?
In all those cases, my plan would be to divide the parcel (if possible), but how do I handle the initial valuation? Is there even a blanket answer or is it something that depends on the stat/county/city? Thank you in advance.
Apartment CAP’s are more like 7-8 right now for low B to C class stuff. Definitely not 3-5. 3-5 would likely be for a very nice A class property in one of the six mega-markets. Anyways, value any multifamily at a 10CAP that is in a park. For most everything else, I would strongly urge the seller to keep or they could hold very creative terms on the asset until I got it sold. Basically, I would sell it for them if they didn’t make it a burden on me in the interim. At the end of the day, most sellers know that certain things (like a park and a restaurant) don’t go together all that well.
To clarify some information on the park with a restaurant, it was a building owned by the park that was being leased to a person who was using it for their restaurant. Would I put the income from the lease at a 10 cap? The tenant was responsible for all maintenance and repairs for the building. The issue for this park was that ~50% of the income of the park was the rent from this lease, which seemed a bit risky for my tastes. I'm just wondering what I should do in this type of scenario in the future.
You need to examine the lease for that restaurant tenant. You should also examine the health of their business and the time remaining on their current lease. For that transaction, it would be dicey for all of us to have that much value tied up in an asset class we aren’t familiar with. If it were me, I’d tie it up at that 10 CAP price and immediately contact the city to see if it could be separated from the park. The next step after that would be to call 3 or 4 local brokers who’ve listed that asset class in the past and have them spin up their preferred buyers list. The intention would be to get a contract on it while you are in diligence with the understanding that you can close that transaction once yours closes. It’s very important that you be transparent with your seller through this process as you may need them to get a little creative with the financing to make it work. Transparency is always appreciated and gets you a long way.