Need Advice Re: 50K SF Warehouse Conversion Self or Cold Storage?

Question

I'm contemplating purchasing a 50K square foot warehouse and either converting to cold storage, ghost kitchen or self storage. Anyone have any advice on construction costs?

Michael Patti · Answer

Hey Zach, yeah maybe you're right. I'm getting a construction quote for self storage this week. Will keep you posted.

Zach Quick · Answer

@Michael Patti I'd get a feasibility study too if you're serious about it. I don't know what cold storage leases for but I know it's on fire too, maybe paying a consultant in that industry as well to see what the going rate and costs may be.

Zach Quick · Answer

@Michael Patti wouldn’t cold storage require some pretty serious equipment in order to pass muster/regulations?

Michael Patti · Answer

All good points. My other idea was to turn it into ghost/commissary kitchens instead or just cold storage and then it wouldn't have to be such an expensive renovation.

Michael Wagner · Answer

$40 per foot seems optimistic for a full gut job plus CC installation...but maybe its doable for a single story conversion.  Sounds like you could "afford" to spend a good bit more than that and still have it make sense with disposition comps like the one you shared.  My general desire is to double the project cost.  Of course you'll have to factor in carrying costs and negative cash flow for a good while. This is of a scope where a full fledged feasibility study would definitely be in order!

Michael Patti · Answer

Thank you Michael! That is super helpful. So I'm looking at a property in Philadelphia. Self storage is highly needed there. A recent facility sold for $236/foot completed and rented out. My acquisition cost is $40 a foot. It's a brick shell. It will need a total gut renovation/conversion. 50,000 square feet with 20 foot ceilings currently. Any idea what that will run me to turn it into a sexy clean climate controlled space? Do you think I could get away with $2MM?

Michael Wagner · Answer

I recently did NON climate controlled conversion of a 45K square foot facility.  Netted 33,300 of rentable space because we did a drive aisle down the middle. Total cost was about $27 per square foot.  Building needed LOTS of work as we only paid $3.65 per foot for it.

Your costs will be highly variable given the condition of the "shell" as well as how much electrical, security, fire suppression work is required by local codes.  That said, you can have a "conversion kit" installed for $6-8 per rentable square foot.

General rule of Thumb is that self storage makes great sense assuming the market needs it and you can charge rents in the range of 20-25% of total cost. So if you build out for a total of $40 per square foot, an annual gross rental rate of $8-10 per foot would likely pencil out nicely!