Evaluating Deals w/Real Estate Component
October 02, 2024
by a searcher in Denver, CO, USA
Hi all, I'm looking at a deal that includes real estate, a US-based maintenance company that owns its own building. I'm confident in evaluating and valuing the business side of the equation, but I'm new to commercial real estate and looking for any resources to deepen my understanding. I know there are some different loan terms if property is included, and I'm sure there are ways to look at rent savings vs. mortgage payments, but I'm sure there's so much more to consider. Does anyone have good experience here, or can you point me to a resource that can give me deeper insights? Thanks as always to this amazing group!
from Emory University in Tucson, AZ, USA
[One thing not clear in the post is if the 51% rule applies to stock transactions. My partner worked with SBA for a determination and confirmed stock transactions are not qualified for combined 7a 25 year amortization, only asset transactions.]
If this is a strong deal for you, consider engaging a commercial broker to generate a value opinion, which should include market conditions, construction quality, comps, and lease rates.
With the report, you can build a cashflow model of the business supporting a market lease rate (cap rate), the lease paid to an affiliated entity that holds the property (allowed by SBA lending), tax advantages of the affiliated entity, debt service levels, etc.
With the financials, you can build on whether owning is a strategic advantage, if ownership could hamper growth in future years if you require additional space, if a leaseback could be more advantageous for both parties, etc.
from Brigham Young University in Highland, UT, USA