Is this incredible office deal?
John Vanhara I am constantly watching commercial real estate market especially office buildings. The main reason is that I am looking for great investment deals. I did all my purchases in Las Vegas, NV, because it is the place where my company is located, but sometimes I feel there might be great opportunities nationwide. It is just little hard to jump into market, which I don’t know well. But some of the deals look incredibly well. This is one of them:
43,987 sq. foot office building for sale in Memphis, Tennessee
CB Richard Ellis is pleased to present for sale the 2400 Poplar Avenue office building located in Memphis, Tennessee. To receive more information about this opportunity, please execute the attached confidentiality agreement and fax to Melissa Russell at 901-260-1013.
PURCHASE PRICE: $1,250,000 ($28.41 PSF)
SQUARE FEET: 43,987 office space
1,000 secured basement storage
PARKING: Two (2) level, parking garage
below the building (44 spaces)
On-site surface parking lot (67 spaces)
Adjacent surface lot (70 spaces)
STORIES: 5
ZONING: C-H (Highway Commercial District)
OCCUPANCY: 74.47%
MAJOR TENANTS: LeBonheur Children’s Hospital
(administrative offices)
Shelby County Government
Shelby County Democratic Party
First of all the purchase price seems incredible. Only $29.41 per sq. foot. There is no chance someone will build anything so cheap at today’s construction prices. Just this gives huge entry barrier for any competition. To build a new office will cost at least $100 per sq. foot in my opinion.
So why is it so cheap? Is it because demand for office space is so low? Is it because rents are so low? Average office leases are $1.70 per month in Las Vegas (that’s about $20.40 per year). I know from my personal experience that if you don’t own class A office the actual rent is probably close to $1.20-$1.50 if you are looking to find tenant quickly. That’s about $14.4-$18 per sq. foot per year).
I did some search on internet to find out average office rents for Memphis, Tennessee. I found average rates going about $13 and more per sq. foot. If that information is correct that means rates are very similar in both cities. I would like to hear from some commercial real estate broker in Memphis to put more light how is their market doing, but anyway this really looks like a great deal. Office buildings in Las Vegas are sold for $200 and more per sq. foot. Basically 10x times bigger price and similar return? Is that possible? Am I missing something here?