Multifamily Investor · Newport Beach, CA · Member since 2015 · 176 posts · 182 votes
I'm looking at a 5 unit building in Kentucky. 4 apartments upstairs, and a commercial space downstairs which is vacant.
What do you do with a vacant commercial space?
Place an ad on craigslist? Put a simple 'for lease' sign on it?
I've never worked with a commercial tenant, let's say a coffee shop wants to go in there, am I supposed to provide anything for the tenant other than an empty space with working utilities? Do they come in with a 5 year lease and provide all their own equipment, furniture etc. just like an apt?
Just looking for some general insight here. Seems like a great idea to have a mixed use building to help pay the mortgage...
@Chris Collins Time to meet a commercial leasing agent. Commercial success is all about people, is this property located in an area where people want to be? Certainly your residential tenants would love a food place. Best to reach out to a few leasing agents and ask them to evaluate the space with you. They will give you the market rates and help you evaluated the income that the space could generate, depending on size and zoning rules. You can deliver the space 'vanilla ready' to the leasing agents to fill, or wait for a perspective tenant and share in the expense of build-out of the space to accommodate the needs of the tenant. Your expenses for the latter would be spread over the lease term as a bump in the rent. Talk with a commercial property manager in the Kentucky area, as if you were a perspective client, to understand the expectations of Lessee's for the location. Here in California, commercial Tenants will be paying for all utilities and upkeep of their space and sometimes a portion of the landscaping, security, pest and exterior building maintenance. It reflects in higher rent. In general, everything is negotiable.
This sounds like an older building. On the positive: If you find a successful commercial tenant, they will stay there for years. This will be the anchor of your building. If you are close with them, they probably will watch over your building for you. On the negative: Older, secondary retail space sits on the market for a long time. In many places, like Kentucky, the old main street areas are depressed. Retail modernized and moved outside the older commercial areas. Often Walmarts dominate the new retail scene and other stores cluster around the new Walmart.
I put for lease signs in the commercial spaces. I order very large signs that are super visible. Houses often sell using the MLS. Commercial spaces are a bit different. Internet presence helps, but many of your future tenants will come off the sign.
If your space is older, I doubt you'll get a 5 year lease. See what you can pull off. Older spaces are generally gross leases, but NNN leases (tenants pay the building taxes and expenses) is very nice.
I would do some research on what commercial spaces are renting for. Don't be surprised if it takes a long time to lease this.
@Chris Collins Time to meet a commercial leasing agent. Commercial success is all about people, is this property located in an area where people want to be? Certainly your residential tenants would love a food place. Best to reach out to a few leasing agents and ask them to evaluate the space with you. They will give you the market rates and help you evaluated the income that the space could generate, depending on size and zoning rules. You can deliver the space 'vanilla ready' to the leasing agents to fill, or wait for a perspective tenant and share in the expense of build-out of the space to accommodate the needs of the tenant. Your expenses for the latter would be spread over the lease term as a bump in the rent. Talk with a commercial property manager in the Kentucky area, as if you were a perspective client, to understand the expectations of Lessee's for the location. Here in California, commercial Tenants will be paying for all utilities and upkeep of their space and sometimes a portion of the landscaping, security, pest and exterior building maintenance. It reflects in higher rent. In general, everything is negotiable.
Need more info. How big? What was there before? Around here everybody slaps a restaurant inside but it's discovered those aren't always the best uses in the long run. I've seen salons and barber shops successfully absorb those spaces as their clients follow them. Tattoo shops similarly.
Thanks everyone for the replies and for the insights. I definitely have some research to do. I don't have any of the answers to your questions yet, but now I know what questions to ask!
@Chris Collins talk with your city to see what type of businesses your zoning will permit in your commercial space. From there, you will need to do research on the Tenant pool of business types that can operate within that permitted zone. @Kathy Henley touches on pretty much everything else. Connect with a local commercial agent to get an idea of the rents available.
Commercial Tenants are all unique, and depending on their use, many will require extensive build out for their business to run profitably. With a longer term lease (3-5 years) and a strong credit Tenant, you might be more inclined to pay for more of the Tenant Improvements, or share some of the costs and amortize the TI cost throughout the Lease Term. Its all negotiable.
If it is in a high traffic area and has great visibility, place a sign in the window and see what type of activity you receive! I would recommend staying away from listing sights like Craigslist and aim to list on sites such as LoopNet, CommercialSearch, 42Floors, and CoStar. These listing platforms for commercial spaces usually require a hefty monthly fee, but your local commercial broker should have access to all.