100% Leased. 7% Cap Rate. But How Durable Is the Income? A fully occupied medical office building with established tenants, a location adjacent to a hospital, and an advertised 7% cap rate has several characteristics we would normally want to see in an income producing acquisition. For todays AON Live Deal Review, were looking at 130 Medical Center Parkway in Huntsville, Texas, a 17,081 square foot medical office building offered at $3.5 million. The property is 100% leased, sits on 2.23 acres, and is being marketed as a stable cash flowing healthcare asset. The temptation would be to look at the occupancy and cap rate and conclude that much of the underwriting has already been done for us. It hasnt. A building can be 100% occupied today and still carry meaningful rollover risk. Before deciding whether the 7% return adequately compensates us, wed want to see the tenant by tenant rent roll, lease expiration schedule, renewal options, contractual increases, tenant credit, landlord obligations and any near term capital requirements. We'd also want to know the weighted average lease term. If several tenants expire within a relatively short period, 100% occupancy today could look very different a few years after closing. If the leases are staggered, the tenants are strong and renewal history is good, the same headline numbers could tell a much more compelling story. Thats the distinction were looking for in this deal. Occupancy tells us how full the building is today. The leases tell us how durable the income may be tomorrow. So how would you approach it? Is 100% occupancy and a 7% advertised cap rate enough to move this into serious underwriting, or would the lease schedule determine whether you go any further? The Questions → The Underwriting → The Offer → The Decision If these are the kinds of acquisition conversations that interest you, wed love to have you join us.

A Dollar General with a 7.50% cap rate, a $600,000 asking price, and more than 20 years of operating history at the same location would normally get our attention. The corporate guarantee and double net lease make the income stream even more interesting. But there is another number that matters just as much as the cap rate: only 2.3 years remain on the lease. For todays AON Live Deal Review, were looking at an 8,125-square-foot Dollar General in Hereford, Texas. The property is being offered at $600,000 with $45,000 of NOI, producing the advertised 7.50% cap rate. The current economics are easy enough to understand. The more important question is what happens after those 2.3 years. Before deciding what we would pay, wed want to understand Dollar Generals renewal options, the likelihood of the tenant remaining at this location, what rent could look like upon renewal, and what obligations might shift back to the landlord. Wed also want to understand the propertys economics without Dollar General, because that tells us something very different about the residual value were actually buying. That is what makes this deal interesting. Were not simply deciding whether a 7.50% cap rate is attractive. Were deciding whether that return adequately compensates us for a significant lease rollover arriving relatively soon after acquisition. More than 20 years at the location certainly gives us useful history, but history isnt a renewal commitment. So how would you approach it? Would you be comfortable paying $600,000 for the existing income stream, or would the approaching lease expiration need to be reflected in your offer? The Questions → The Underwriting → The Offer → The Decision

Here's our Friday Live Deal Review. We're looking at a 5,000 SF office/warehouse in Temple, Texas offered at $525,000. There are two 2,500-SF sides. One is leased. One is vacant. The listing advertises a 7.98% cap rate, but there's an important qualifier: its financial summary is identified as 2027 pro forma. So here's today's challenge: Are we buying an income-producing property at a 7.98% cap rate, or underwriting a lease-up that still has to happen? Before deciding whether $525,000 works, what would you request from the broker? And more importantly, would you value the vacant half based on the income it could eventually produce, or require the seller's price to reflect the vacancy that exists today? Let's underwrite what we actually own on Day 1 before giving ourselves credit for what might happen on Day 365. The Questions → The Underwriting → The Offer → The Decision

There’s a financing question in the latest G1C Group Acquisition Brief that I think is worth discussing inside AON. Suppose you’re buying an equipment-heavy business for $1.5 million that produces $300,000 of normalized annual cash flow. You could finance the transaction primarily with a conventional acquisition loan. Or you could separate the equipment, use asset-based financing for that portion, add a seller note, and reduce the amount required from the senior acquisition lender. The second structure sounds more sophisticated. But when we actually run the debt service, it can leave the business with less cash flow after closing because the equipment debt amortizes much faster. That gets to a larger point. I don’t think we should be asking only, “How little equity can I put into this acquisition?” A better question is, “What capital structure gives this business the greatest probability of surviving a bad first year?” We also dig into another development I think matters for acquisition entrepreneurs: private-equity activity is increasing in the smaller end of the middle market. That doesn’t mean institutional buyers are suddenly coming after $1 million Main Street businesses. But smaller platforms need add-ons, and over time that acquisition activity can work its way further downmarket. For those of us thinking about aggregation, that creates an important distinction between owning several businesses and actually building a platform. I’d be interested in how everyone here thinks about that distinction. If you acquired five businesses in the same industry, what would need to be true by acquisition number five for you to say you had built a platform rather than simply accumulated a portfolio? https://g1cgrp.com/g1c-insights/f/when-the-capital-stack-says-no

A 24-unit self-storage facility. $545,000 asking price. Below-market rents. Unused parking capacity. Room to expand. At first glance, the upside is pretty easy to see. But thats exactly where this deal gets interesting. For todays AON Live Deal Review, were looking at a small self-storage facility in Jonestown, Texas. The property includes 24 units across 6,192 square feet on 0.64 acres. The listing also identifies 22 outdoor parking spaces, with only seven currently being used, and says rents are below market. There is also an advertised opportunity to build additional storage. The asking price is $545,000, or about $88 per square foot. What we dont have publicly is the information that matters most: current revenue, TTM NOI, rent roll, actual unit occupancy, collections history, or enough financial detail to determine what the existing operation is actually worth. And that creates our question: How much of the $545,000 purchase price is supported by todays cash flow, and how much depends on upside the buyer still has to create? Below-market rents arent automatically value. Theyre potential value. Empty parking spaces arent automatically value. Theyre potential revenue. Expansion capacity isnt automatically value either. It still requires capital, approvals, demand and execution. Before underwriting any of those things into our purchase price, we'd want to know what were buying today. So where would you start? Would you underwrite the existing operation first and treat the rest as upside? Or would you be willing to pay something today for the future opportunity? The Questions → The Underwriting → The Offer → The Decision