We recently came across two different listings that highlight the importance of having us do the due diligence for you before you receive a listing from a broker. Our alerts are for solid, profitable businesses that have been screened.
We recently came across a parking lot in Georgia that was selling at a solid cap rate of 11% with long term tenants and verifiable income for the last 10 years. As some of you who have been waiting for a listing in the Georgia area know, this is an extremely rare find. We carefully reviewed the financials and had numerous conference calls with the seller. The 140 stall lot had been leased to the US Postal Service and they were paying $11,000 per month. Now this was a lot with no labor, low taxes, fully automated, leased to a government agency with another 5 year renewal option coming up in 2013.
We made several calls and found a valuable source that tipped us off to the fact that the USPS would not be renegotiating the lease and would be in fact moving to a different location. Ouch.
McDonalds hardware parking lot in Ft Lauderdale Florida.
This is from the broker:
“Thank you for your interest in 255 SW 24 Street (SR84). The current lease term ends December 31, 2015. Each year on January 1st the rent increases a total of $3,000 ($250 per month). The tenant is currently paying $4,250 per month. The tenant is McDonald’s Hardware. This property is necessary for McDonald’s Hardware because it accounts for about 90% of their parking. Please let me know if you need any additional information.”
Sounds Great right? After our due diligence here is what we found out.
Email from broker:
“When the original lease was drafted the monthly rate was $6,000. The owner and tenant reduced the rent by $2,000 per month because the parking lot was never 100% completed. When the owner of the parking lot demolished the building that was there couple of years ago, the city required additional drainage. The owner, at that time, was not in a position to complete the work so he made a deal with the owner of McDonald’s Hardware to reduce the rent by $2,000 and begin parking cars without fully completing the work. It is my understanding that the permits are still open and the work can be completed for approximately $100,000. When the work is completed the tenant will pay the increased amount. Currently there is parking for 29 cars but the new plans will reduce the overall parking to 21 because of additional drainage and green space required by the city. The reason the lease ends on December 31st 2015 is because the building lease next door (McDonald’s Hardware) also ends December 31, 2015. (Warning) The owner of McDonald’s Hardware is in contract to buy that location. When the purchase is complete she will be forced to renew and renegotiate the parking lease. From what I understand, the McDonald Hardware business cannot operate without the additional parking offered by the owner of the parking lot. I should also mention the owner is motivated to sell.”
You don’t say.
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