EPTX - Flexpark · Small Bay Industrial Basecamp

Jul 12 (edited) • Deal Analysis

EPTX - Flexpark

I recently submitted an offer on a 4.42-acre industrial property in El Paso, Texas consisting of 37,700 SF across six buildings. Each building has its own fenced yard, with building sizes ranging from 2,500 SF to 11,000 SF.

The property is fully leased with a WALT of 2.63 years, and based on my underwriting, in-place rents are approximately 28% below market.

The seller is asking $3.2M. I submitted an offer at $1.9M, which was too low to receive a counter. Based on conversations with the property manager, I think a deal could probably get done around $2.5M. The property is owned by a trust that is being unwound, so a sale is expected.

At a $2.25M purchase price, I'm underwriting an in-place cap rate of approximately 7.86%.

The biggest challenge I'm working through is my assumptions around CapEx and tenant improvements.

The buildings were constructed in the 1980s, and during my tour I noticed roof leaks in every building. I've requested maintenance records and a history of capital improvements over the past 10 years, but the seller hasn't provided anything yet. For now, I'm assuming approximately $225,000 in upfront CapEx, but I'm questioning whether that's conservative enough.

On the leasing side, I'm looking at two scenarios:

Existing tenants renew at moderately higher rents with little to no TI since many have occupied the property for years.
I push rents closer to market (roughly a 35% increase at lease expiry) while budgeting $8.00/SF in TI for second-generation office space.

For those of you who have acquired older industrial properties with deferred maintenance, what do you typically underwrite for:

• Initial CapEx reserves?

• TI for second-generation industrial space with existing office finish-out?

• Any other costs that first-time buyers commonly underestimate?

I know one approach is to increase my offer, get the property under contract, complete due diligence, and renegotiate based on the PCA if needed. Since this would be my first acquisition, I'd rather make sure my underwriting assumptions are realistic before going down that path.

I'd appreciate any feedback from those who have been through similar acquisitions.

I've attached my investment deck if anyone is willing to take a look.

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EPTX - Flexpark