APEX GLOBAL BUSINESS PARTNERS, LLC | Acquisition Underwriting Opinion Letter
Monroe, WA | deals@apexglobalbusinesspartners.com
Prepared for: [REDACTED]
RE: Acquisition Underwriting — [REDACTED] Mixed-Use Hospitality Property (Multifamily + Restaurant/Bar + Storage)
PROCEED WITH CAUTION. The math on this deal is genuinely strong — at the agreed seller-carry terms it covers debt service several times over, and it prices well within a conservatively blended formula value (see Valuation, Section 3). It does not earn a Green Light, and the reason is the point of this report: good coverage does not override unverified income and unresolved transfer risk. Forty percent of the stated $400,000 net income comes from a restaurant/bar and a storage/U-Haul operation — income that is harder to verify, more volatile, and more owner-dependent than the residential rents — and the enterprise rides on a liquor license that must transfer and three distinct businesses currently run by one seller. The cure is verification and clean transfer; the walk-away is if the ~40% of net income outside residential rents cannot be substantiated to tax returns, or the liquor license will not transfer to the buyer.
This is a three-in-one hospitality/mixed-use property on ~11.6 acres (~32,000 SF, built 1980 / renovated 2021): (1) 32 long-term residential rentals (40 beds / 35 baths) — the stable core; (2) a 4,500 SF restaurant / bar currently running dinner and drinks; and (3) a storage + U-Haul operation. It is held in a PropCo/OpCo structure with an intercompany lease between the operating and property entities. A buyer is acquiring a landlord business, a hospitality business, and a self-storage/logistics business at once — three different operating disciplines, three different risk profiles, and one seller who currently holds them together.
All figures are seller representations pending verification at diligence.
| Income Stream | Detail | Stated NOI | Share | Verification Risk |
|---|---|---|---|---|
| 32 long-term residential rentals | 40 beds / 35 baths | $240,000 | 60% | Low — rent roll / leases |
| Restaurant / bar (4,500 SF) | Dinner + drinks only | $108,000 | 27% | High — POS + tax returns |
| Storage + U-Haul | Containers + contract | $52,000 | 13% | Medium — contract + bank |
| Total stated NOI (seller's figure) | Seller representation | $400,000 | 100% | Verify at diligence |
Stated is not defensible. The seller's materials label all $400,000 as "NOI" — that label is preserved above because it accurately describes what was submitted, not because it's correct. Segregated per M&A valuation practice: only the $240,000 residential figure is Defensible NOI — lease-secured, real-estate income eligible for cap-rate valuation. The $160,000 from the restaurant and storage/U-Haul operations is Business Net Income — tied to whoever operates it, never cap-rated, and valued on an earnings multiple instead. See Valuation, below, for the segregated treatment.
Intercompany rent must be eliminated. Because the buyer would own both the PropCo and the OpCo, the intercompany lease between them washes on consolidation and cannot be counted as independent income — a standard normalization that must be applied before NOI is relied upon. No management add-back is taken for the seller's role; on the contrary, replacing an owner who personally runs a restaurant and two other businesses is a cost and a risk, not an add-back — see key-person risk below.
| Scenario | Basis | Net Income |
|---|---|---|
| Conservative | Residential in full; restaurant & storage haircut ~50% for verification risk | ~$320,000 |
| Base | As stated, intercompany rent eliminated | $400,000 |
| Optimistic | Stated + partial capture of documented upside | ~$480,000 |
| Income Component | Net Income | Valuation Method | Formula Value |
|---|---|---|---|
| Residential rentals (32 units) | $240,000 | 10-cap — lease-secured, operator-independent income | $2,400,000 |
| Restaurant/bar + Storage/U-Haul | $160,000 | 3.5x SDE — operator-dependent, unverified, harder to transfer | $560,000 |
| Blended formula value | $400,000 | — | ~$2,960,000 |
A cap rate prices lease-secured income that transfers regardless of who operates the asset — it is the wrong tool for the restaurant and storage/U-Haul income, which is tied to whoever runs those operations and carries the verification risk flagged throughout this report. Applying a single 10-cap to the full $400,000 blended NOI overstates this asset by more than $1M. Correctly split, the residential core alone supports $2.4M at a 10-cap; the $160,000 of business income supports roughly $560,000 at a conservative 3.5x multiple reflecting its unverified, owner-dependent nature — a blended formula value of approximately $2.96M. Against the ~$2.2M price, the deal still prices attractively at roughly 74% of blended value — but on a defensible basis, not an inflated one. The favorable price is real; it is also compensation the buyer is receiving for taking on the verification and operating risk this report is flagging.
Rates are illustrative / as agreed with the seller, not current market quotes.
| Structure | Financed | Rate / Term | Annual Debt Service | DSCR |
|---|---|---|---|---|
| Seller carry (agreed) — on stated NOI | $2,000,000 | 4.0% / 30-yr, no PG | ~$114,576 | 3.49× |
| Same carry — on conservative NOI | $2,000,000 | 4.0% / 30-yr | ~$114,576 | 2.79× |
This is the crux of the verdict. Coverage is not the problem — even after a 50% haircut to the restaurant and storage income, DSCR is 2.79×, far above the 1.80× agreed floor. The seller carry is exceptionally buyer-friendly (fixed payment for the life of the note, no escalation, no personal guarantee). A less disciplined screen would call this Green on the strength of that coverage. Apex Global Business Partners does not, because the numerator of that ratio — the NOI — is 40% unverified and transfer-dependent. A strong DSCR built on soft income is a strong DSCR on paper only.
The agreed seller carry (fixed, no PG, 30-yr) is the right instrument and rare — preserve it. Recommended: proceed on the seller carry with a holdback or price adjustment tied to verified NOI (an earn-down: if diligence confirms the restaurant/storage income, price/terms stand; if it comes in light, price steps down). This converts the verification risk into a structural protection rather than a leap of faith. Keep buyer equity minimal given the favorable carry, and reserve capital for the restaurant-operations transition.
$160K of the $400K net income is restaurant/bar and storage/U-Haul — the two hardest streams to verify and the most volatile. Resolution: three years of tax returns, POS/sales exports, and bank statements reconciling to the P&L. Bad answer: restaurant income that doesn't tie to tax returns, or is trending down.
The restaurant income depends on a NY State Liquor Authority license that does not transfer automatically. Resolution: confirm SLA transferability and timeline; make closing contingent on it. Bad answer: a license that lapses or requires a fresh application with a revenue gap.
Three distinct businesses currently run by one seller. Resolution: a documented transition plan, a stay period or management contract for the restaurant, and confirmation of what staff conveys. Bad answer: the seller is the operation, with no transition and no bench.
PropCo/OpCo intercompany lease inflates apparent income if not eliminated on consolidation. Resolution: restate NOI net of intercompany rent. Bad answer: a material share of "NOI" is the entity paying itself.
Fixed-payment seller carry with no personal guarantee is a genuine advantage, and the documented upside levers (U-Haul expansion, expanded food service, events, storage, rent optimization — ~$200K conservative, all accruing to a buyer whose debt payment never rises) are real. These are why the deal is worth curing rather than passing.
Documented and credible — treated as upside, not base income: U-Haul contract expansion (+$80K), expanded food service to breakfast/lunch/to-go (+$40K), event space/catering currently unadvertised (+$25K), storage expansion (+$20K), residential rent optimization (+$20K), and amenity monetization (+$15K) — roughly $200K of conservative upside that, under the fixed-payment carry, accrues entirely to the buyer without raising debt service. This upside is the reason to cure the caution and pursue the deal, not to pay for it today.
PROCEED WITH CAUTION. A well-financed deal (2.8–3.5× DSCR) at an attractive basis, on a rare buyer-friendly carry — held below Green by real, unresolved risk: 40% of net income is unverified restaurant/storage income, the enterprise depends on a transferable liquor license, and one seller runs three businesses. The coverage is not the question; the durability of the income under new ownership is. Cure: verify the non-residential income to tax returns and confirm license transfer. Walk-away: if that ~40% of net income can't be substantiated, or the license won't transfer. Proceed to a contingent LOI, not to close.
Underwritten by Apex Global Business Partners, LLC | Monroe, WA | deals@apexglobalbusinesspartners.com
This underwriting opinion is for informational purposes only. It is not a guarantee of financing or a legal opinion. All figures are seller-stated unless noted. Engage independent legal, tax, and financial counsel before proceeding.