Sold! Coming Soon! Why is this building still vacant? These are some of the thoughts that have crossed people’s minds over the last few months in Northwest, IN. We’ve now seen multiple fast food restaurants close, promise a new restaurant coming soon, and sit vacant for 6 months to a year with no work done. What’s happening here?
The quick answer is Investors not doing their homework. I can note 2 buildings in the area that were purchased by a franchisee (won’t say the name) and sold as a sale-leaseback on the same exact day for more than two times the price paid by the Purchaser. The Franchisee signed a 20 year lease with the investor, which the investor paid a premium for. 6 months later, no work has been done, and the franchisee has filed for bankruptcy. The investor is stuck with a property that they over-paid for with no lease or guaranty in place. They can’t sell the property because it’s worth nowhere near what they paid, so they will have to try and lease to cover the mortgage and keep the bank off their back for the next 5-10 years while slowly paying down the debt.
How can this be avoided? Do your Due Diligence, study the strength of the tenant, and most importantly hire a broker. We are here to assist in these types of situations. We will help protect you by making sure the tenant is paying a fair market rent, the property isn’t over-valued, the credit of the tenant is strong/worthy of the CAP rate, etc. Buyer Beware! Don’t get stuck with a vacant building eating away at your pockets!