Simulation: a fictional property for practice.

An office building sold by a court-appointed receiver

A receiver is selling a 30,000 sq ft office building for $2.1 million. The court has to approve the sale. Can someone else outbid you?

A fictional office building sold by a receiver under a court order. Court procedures differ by state and court; read the order and the sale motion.

• Price: $2,100,000, subject to court approval
• Building: 30,000 sq ft, 40% empty
• Information: The receiver provides leases and a rent roll
• Terms: As-is; 10% deposit when you sign; closing after the court order

Mission 1: When is the sale final?

Which is closest to right?

• Only after the court approves it. Many courts let other buyers bid higher at the hearing, so you can be outbid
• As soon as the receiver signs the contract

Court sales take longer, and your deposit is tied up until the court rules.

Mission 2: Your due diligence

Pick all you’d do.

• Read the court order appointing the receiver and the sale motion, which are public court records
• Ask the receiver for tenant estoppel letters
• Order a Phase I environmental assessment
• Ask the former owner’s employees what’s really wrong with the building

Your seller is the receiver. Get everything through the receiver and the court record.

Mission 3: The numbers

• NOI today, 60% leased: $150,000 a year: worth about $1,667,000 at a 9% cap rate
• NOI once fully leased: $240,000 a year: worth about $2,667,000 at a 9% cap rate
• Tenant improvements for 12,000 empty sq ft, $35 a sq ft: −$420,000
• Leasing commissions: −$90,000
• Holding the empty space for 18 months: −$150,000
• Fully leased value, less the cost to get there: About $2,007,000, before your profit

At $2.1 million you’d pay more than the building is worth even after the work of leasing it up.

At $2,100,000, what do you do?

Buy, investigate or pass? Work through the drill to see what an experienced investor would weigh.