Wednesday, April 25, 2012

When "If" is a 4-Letter Word: 228-230 Court Street

On a hit song from a few years back, Gwen Stefani plays a bad girl who wishes she wasn't. She asks her man, "Now tell me, boy, now wouldn't that be sweet? If I could be sweet..." And who could disagree? IF she were sweet, of course it would be sweet. But she admits that's all hypothetical.

It reminds us of the old Yiddish saying, "If grandma had balls, she'd be grandpa," where the "if" in question is so far-fetched that it has no bearing on the current situation.

Accordingly, a huge corner lot in prime time Carroll Gardens at 228-230 Court Street would be a sweet 6.85% cap at $5M, if it grossed the $424K/year the set-up calls for. But that rent roll, it appears is just one big "if" at the moment. After all, can you lease a space like this for $85/psf in Caroll Gardens? Funny you should ask, because the same company is simultaneously marketing the same space for lease at that price. If you could get "if" and "then" on the same property at the same time, that'd be sweet. If not, then it's all conjecture.

Everyone we've spoken to agrees it'll be some hundreds of thousands of renovation to get this space to the point where it's fetching that kind of rent. The whole point of a cap rate for an investor is that it's a fixed return on a performing asset that stays steady or goes up. We can't slap a specific cap rate on this thing like that until it's proving it can make that money. Anything else is speculation, so let's just call it that. If you got their actual rents and bid a 6.85% cap on those figures, we don't think they'd be happy. But at least that'd be a true 6.85% cap.

It's like when 262 Prospect Place promised us their insanely-high common charges would come down after you buy the property. Nah, why don't you get the charges down first and then come talk to us. If you wanna play that Wimpy game, then "we'll gladly pay you Tuesday for a hamburger today."

Pro's: huge corner lot, prime time location, chance to reposition a huge property with great rental upside potential

Con's: cap rate is all conjecture, gotta convert the funeral home

Ideally: if these listing brokers can bring the operator who'll fund most of the build-out and pay these rents, then they'll have a cap rate worth talking about

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