What kind of loan would i be looking for if a commercial office building has a 4% occupancy? Obviously the point of going after a property like this would be to get it for a relatively low cost (since it is valued based on NOI) and then sprucing it up, leasing it out, etc., to build up to a much better value later on. I know that a good lender would look for at least 80-90% occupied consistently, but would they look at something that is essentially vacant at the time? Would it matter if I concurrently submitted a proposal for how I intend to market it to a more appropriate occupancy level?

The building I am thinking of is actually priced at a 6% cap based on actual NOI, so its dirt cheap considering its practically vacant.

Thanks in advance!

A 4% occupancy is still able to realize a positive NOI? Are there no expenses associated with this property?

" would they look at something that is essentially vacant at the time?" A vacant building in disrepair….. Probably not. But each case is different. They would probably look at the market and see if your plan makes sense. Submitting the plan is a good step, but it would have to be something feasible. It does not matter what you do if a top property in the area also has 90% vacancy.

The pricing of the property is like that for a reason. You need to dig deeper.

You can always find a private lender/individual who can back you for a project despite th number of variables but from a lenders perspective the sprucing up should not exceed $25K to $30K and we would want to see the money in the bank. The tipping factor for financing a vacant property would be cash reserves in the bank for 4-12 months and any verifiable income that you or any borrower(s) can show. Showing personal income to offset the mortgage payments is crucial as that would be the tentative guarantee that a borrower can afford to pay the mortgage if the vacancy does not improve. The appraisal would also have an effect i.e if the appraisal classifies the market condition in the area as dismal then the loan would probably not happen. Let me know if you have any Questions.

Let me restate it this way, the property is not in disrepair and does not need any renovating beyond probably refitting it to a new tenant's needs. When I say the property is priced right, I mean that the numbers all add up with the notable exception of occupancy. Class B office building, major tenant just left, so thats why there is a 4% occupancy, only one small office is leased out, but it has a 7% cap based on the NOI that results from just that tenant alone. Thats what I mean by it sort of prices out right, except that now it needs a new big tenant or progressively lease it up to several smaller ones. Its in the CBD of a decent sized city.

Do I need to dig deeper? You bet I do! I am always wondering why a current owner would sell rather than roll up their sleeves and dig in themselves, and reap the corresponding rewards. It could be any number of reasons, major unmentioned flaw with the building itself (enviromental?) or they could be facing a severe cash flow shortage, who knows. I am mostly interested in how a lender would view this. Assuming that the previous question can be answered ok (nothing strange), would they still not want to touch it? The answers I see say "maybe" I love it! That gives me hope! That means I can do more of my homework and at least the door wont be locked before i have a chance to open it and say hi.

By private lender/individual I assume you mean hard money? The purchase price is $5M. I have the $1M for the down, plus amounts to spruce it up a bit for marketing to new tenants, but thought that hard money only goes up to 50% or so of the quick sale value?

Thanks!

Don't read too much into that maybe. Is the rental income from that single tenant going to be able to pay the $4MM loan?

I assume that $4M is $4MM or {$4 million}, right?

Yes, the rental income from the single tenant can pay the $4M loan, but i guess thats entirely dependent on the loan terms

The NOI is $350K, so maybe an interest only loan would be best, if such things are possible, and can then switch to a more normal amort (20 yr or so) once it gets leased up. The NOI right now is pretty burdened, due to prop taxes and insurance and other carrying costs of the building that pretty much stay the same or marginally with more tenants.