Huge Excess Rent

[allansappraisal]

The OP did not mention what the tenant used the space for.

Basic/general office space

 

[allansappraisal]

Are you sure the rent doesn't include payoff of TIs, and will go down at some point? I see rents that seem high, but include payoff of TIs over 5 or 10 years.

The contract rent DOES include TIs, but as another poster stated, it only contributes to$2.82/sf

Huh? I don't even know what this means. Just apply an arbitrary percentage as a discount?

Yes. I don't agree with just throwing a percentage on it, so that is why I posted.

 

[Michael P Jacobs MAI]

<snip>Or it could be a con with another partner in crime. Canadian swindler Ed Okun wrote a fake high-rent lease to a phony tenant who never actually paid anything, and then syndicated the deal to TIC investors. He's serving a 100-year prison term now.

Sorry for hijacking the thread but it's FRIDAY and I just wrapped up an intense week. I was told by a bank about THIS well before it hit the news... I kept wondering how there was enough margin/volume in mattress sales to justify joining a Starbucks (...and suddenly it's a 5-cap). I'm not sure if I ever used a Mattress Firm as a lease comp but they've been tenants in centers I appraised. When the market is telling you something, listen!
https://www.forbes.com/sites/bisnow...eal-estate-fraud-bribery-scheme/#33970ec390f1

 

[DREA Dean]

Agree, and there is more to the Mattress Firm story than just leases and rents. There are investigations into all sorts of accounting irregularities, as MF rapidly expanded and bought up rivals. None of it makes much economic sense.

 

[NachoPerito]

I don't think a buyer would pay extra for the excess rent unless it was a credit tenant, like McDonald's.

I would have to disagree with this, respectfully, this tenant has 4.5 years remaining, which is substantial additional income. If the lease checks out then someone would certainly pay more. Especially if there is a personal guaranty.

I also was thinking this may be due to the Tenant Improvement payoff so it would go away when totally paid. I would check on that because I would qualify the tenant improvement payoff as separate from the rent.

 

[Michael S]

Sorry for hijacking the thread but it's FRIDAY and I just wrapped up an intense week. I was told by a bank about THIS well before it hit the news... I kept wondering how there was enough margin/volume in mattress sales to justify joining a Starbucks (...and suddenly it's a 5-cap). I'm not sure if I ever used a Mattress Firm as a lease comp but they've been tenants in centers I appraised. When the market is telling you something, listen!
https://www.forbes.com/sites/bisnow...eal-estate-fraud-bribery-scheme/#33970ec390f1

I found an update to this article posted a week ago https://www.forbes.com/sites/bisnow...r-has-unclean-hands-in-real-estate-conspiracy

I just listened to this podcast recently on mattress stores. You can download it or just read the transcript here: http://freakonomics.com/podcast/mattress-store-bubble/

DHOLAKIA: So I did the math by talking to some of these store owners, and they told me they have to sell anywhere from a dozen to 20 mattresses a month to essentially cover their costs. And there are several reasons for this. So one reason is that their overhead costs are much lower. So they don’t stock inventory, for example. They’ll just deliver the mattress from their distributor or the warehouse, and so on. Many of their employees are on commissions, which again lowers the labor costs.

So the gross profit on a mattress can be anywhere from a few hundred dollars to well over a thousand. If they sell just one mattress a day on average they'd be doing pretty well.

There's a regional mattress store company here and a local broker that's worked with the owner on some of their leases said that the owned turned down and offer of something like $25-30 million for his small chain of maybe 15-20 mattress stores. I just watched a small mattress store with 5-6 locations go into a new strip center with Chipotle and AT&T where the rents have got to be about $35/SF. Plenty of other premium retail locations with mattress stores.

 

[hastalavista]

Thanks for the link. An interesting story.

 

[Lee Lansford]

Off on a tangent, I trust that the OP is either working under the supervision of a Cert Gen appraiser or actually has a Cert Gen license. Just a thought as a Cert Res cannot otherwise appraise an office condo.

 

[allansappraisal]

I trust that the OP is either working under the supervision of a Cert Gen appraiser or actually has a Cert Gen license. Just a thought as a Cert Res cannot otherwise appraise an office condo.

Both assumptions are correct, I do not know why AF still has me down as a Cert Res.