looking at a retail/apt building - Posted by Rob

Posted by Bill T. on April 28, 2006 at 08:00:35:

Where in the world do you live where you can make this kind of purchase for only 79k? Commercial is definitely the way to go. If it looks good, take the plunge. Remember, BIGGER is BETTER!

looking at a retail/apt building - Posted by Rob

Posted by Rob on April 25, 2006 at 16:15:50:

I’m looking at a commercial building with 10 efficiencies and 3 store fronts. Property was built in the 1920’s and has been vacant for about a year. I’ve only walked through once, but at a glance some of the plumbing needs to be updated, needs a new rubber roof, several radiators need to be replaced or repaired. The structure is sound and needs mostly paint to spruce up the units. There is one boiler to heat the whole place.

I’ve worked on historic properties before and own a historic 4-unit. However, I have never taken on a commercial property. I’m not sure of everything to look for when evaluating this deal. The asking price is $79,900 with the owner carrying a mortgage. However, he will reduce the price if I purchase out right. The efficiencies could rent for $300/mo, I’m not sure about the store fronts. Any suggestions would be appreciated. Also, any suggestions on financing options would also be appreciated.



Re: looking at a retail/apt building - Posted by ray@lcorn

Posted by ray@lcorn on April 29, 2006 at 14:15:24:


I see this type of deal often. Downtown mixed-use rehabs are one of the most enticing property types on the board, and have also probably led to more investor downfalls than any other type of deal.

It is easy to see the attraction. They are typically priced way below replacement cost, often tied to the lure of historic tax credits (HSTs), downtown redevelopment funds and/or various grant programs, and usually coupled with liberal seller financing terms.

There is a reason for all the inducements. These are the hardest buildings to renovate for modern use, even without the onerous requirements of HSTs to retain original components. Just bringing the building to code can require gutting perfectly sound walls, tearing out substandard stair runs, fire exits, expanding doorways and total re-wiring and re-plumbing. Costs can go through the roof-literally-and it is almost impossible to avoid expensive surprises.

As an aside, you mentioned this building has a boiler. I have experience with several, and can tell you that they are very expensive to replace, maintain and repair. They require inspection not only by a certified boiler mechanic, but also a chemist to evaluate the build-up of sediment in the bottom. Definitely not a DIY project.

Assuming the construction and development issues can be overcome, there are marketability issues. Parking can be a problem for the residential units if there is none onsite. Second floor access can be a hindrance for residential too, and an elevator is the most expensive car you’ll ever buy and not be able to drive. (I have three)

That second floor space is also tough for ADA compliance for commercial uses like office or product assembly operations.

The storefronts are only as marketable as the relative health of the downtown itself. In short, if there are rampant vacancies in the neighborhood it is unlikely the population or traffic exists to support additional space. For all of those reasons these deals are very tough to finance, tough to manage, and then tough to sell if you ever want out.

All that said, there are those rare situations where the downtown merchants are on the rise, the city demographics are on an upward trend, employer concentrations create foot traffic, restaurants and bars create nighttime traffic and the neo-urban homesteaders are looking for trendy lofts and condos in the middle of the action.

For example, we have a classic downtown office building built in 1929 which we renovated into a modern facility. We turned the biggest detriment to the building- an unsightly roof over part of the second story which is about all that could be seen from the third story windows- into the biggest selling point. We put a new roof on first, and then installed a new deck system on top of it with built in planters and seating areas, and made it accessible from the 3rd floor office suite. That turned it into a downtown oasis, and it convinced a tenant to take the whole floor so it would be for their private use. (I should also mention this downtown has zero vacant space, and the location is next to the courthouse and across from the biggest bank in town, and has a private, gated parking lot adjacent.)

So it can be done, but unless this deal is one of those cases, then before buying you would be well-advised to do a lot of research to determine if the potential for that type of future exists.


Re: looking at a retail/apt building - Posted by Randy

Posted by Randy on April 29, 2006 at 13:39:39:

Given the information you have in your post, it seems like a pretty great deal.