Hello,
My in-laws own a multi-tenant retail property in an excellent location in Dallas, TX. They have recently asked my wife and I if we would like to purchase an ownership stake in the company that owns this property. This is the only property that this company owns and it is the only reason why it exists. Here are some details:
Assets
6668 SF Retail Center in Dallas, TX
Less than 10 years old, built from steel, concrete and glass materials
Tenant 1 = National, 5 Year NNN, July 1, 2012 - Jun 30, 2017 with 2 months free, 1 option to renew for 5 years, $28/SF @ 3,000 SF
Tenant 2 = National, 10 Year NNN, $28/SF @ 3,668 SF (Lease not signed yet - in negotiation)
NOI if Tenant 2 signs lease = $183,908
NOI if Tenant 2 doesn’t sign lease = $81,204
Liabilities
Loan:
- Balance = $1,063,750.74 (as of 3/18/12)
- Interest Rate = 6.75%
- Loan Term = 15 years
- Monthly Payment = $13,533.90 (Principal $7,748.87; Interest $5784.03)
- Maturity Date = 11/28/20
Approx $100K in finish out expenses for Tenant 2 once lease has been signed
Approx $30K in property tax expenses for 2012
We’ve never done this before, so I wanted to get some feedback from the group. In particular, I am looking answers to the following questions:
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I know that there are many ways to value a company but how are CRE companies like this typically valued? Based on the details above, what's your opinion on the value of this company?
How exactly would this type of transaction work? (ie. I assume that we would purchase company stock, is this right? If yes, does the cash from our purchase belong to the company or does it belong to my in-laws? If it belongs to the company, what's the best way for my in-laws to get this money out of the company?)
If anyone has done something similar, are there any specifics that we need to be careful or mindful of?
[/LIST]
Your thoughts and wisdom is appreciated. Thank you in advance for your help. Kind regards,
Todd
Todd,
I will defer to others when it comes to the fine details.
Basic idea is the company does not matter. You are effectively buying a couple of income streams represented by the building. The company is just a specific vehicle. Your inlaws own shares in the company. They would sell you some of the shares. They would pay capital gains most likely but I would check with their accountant if anyone cares about that tax impact.
The lender might be interested in a change of ownership in the company. You also want to know what obligations the present owners have signed for and if anything is going to change when you buy in.
As to why you and your family might want to do this (or not do this) is not something I will ask about. I am assuming you know what you are going when it comes to family dynamics and you have received estate planning advice.