need commercial property feasibility study expert

[Michael Ganovski]

Hi all, I am evaluating a ~$1M property, first time in commercial.  I am a little blind in this area (been doing rentals and flips past 6 years)- I see props in my budget but don't know about feasibility.  Any SME's out there that do this - or can provide some advice?  thank you - Michael

[Amos Ajo]

The first step is to identify type of commercial property that you are interested in. For example:

• Offices.
• Retail – retail stores, shopping centers, shops.
• Industrial – warehouses, factories.
• Leisure – hotels, pubs, restaurants, cafes, sport facilities.
• Healthcare – medical centers, hospitals, nursing homes.

The second step is to understand and to know the population and the economic activities of the area. Understanding alone is not enough. You should be able to know the population of the area in terms of growth, education, income, and the general demographic profile of the population. You should know the economic activities or business activities in the area.

The third step is location, location, and location. What is the highest and best use of your location? If you are new, use the advice by Solomon in the Bible: “There is nothing new under heaven”. Spend some time to study where the businesses in your area are located. You may quickly discover the pattern. Have you noticed the location of a Walgreen store? Have you noticed where bond offices are located? Have you noticed where convenience stores are located? Your location should be the best location for the highest and best use of your property. Your location should have advantages over current and future competition. 

There is no guess work here. You must make use of empirical data to arrive at your final decision. This is not the best advice but a something to think about before you make significant investment in a commercial property.

[Don Konipol]

Quote from @Michael Ganovski:

Hi all, I am evaluating a ~$1M property, first time in commercial.  I am a little blind in this area (been doing rentals and flips past 6 years)- I see props in my budget but don't know about feasibility.  Any SME's out there that do this - or can provide some advice?  thank you - Michael

Feasibility studies, when performed by a competent party, can be quite expensive, especially for a property you don't even have under contract. Most successful property investors are at least comfortable in analyzing the investment opportunities themselves in the initial to intermediate stage. An expert may be engaged once the property is "under contract" and the initial due diligence, concerning clear title, clean environmental, financing approval, lease verification, and profit and loss report verification have all been taken care of. While, learning by doing is always an option, it almost guarantees costly mistakes along the way. So, you basically have three options - (1) take the time to learn the commercial real estate investment business, with a concentration on real estate investment, financing and market feasibility; enabling yourself to do much of the analytical and structuring work yourself. (2) engage a real estate professional to represent you. At a minimum you'd need a contract with an experienced real estate broker specializing in the geographical area and type of property you're interested in. For example, a friend of mine has been a broker 16 years and will only deal in office building as a tenant rep in Houston, New York, and San Francisco. Or (3) Hire a real estate consultant who holds the CRE (Counselor of Real Estate) designation to advise you every step of the way. While hiring a CRE will PROBABLY get you the best and most unbiased advise; there is an extra cost since the CRE will charge you on a fee basis as would a CPA or Attorney.

[Michael Ganovski]

Thank you both for your replies, they are very helpful, most appreciated. I love this community, thank you again

[Barry Ruby]

@Michael Ganovski Michael, one of the most effective ways to determine land value is to do a residual analysis.

This is done by establishing the Market rate / price point for the sale and or income the finished project can generate. If the project is planned as a rental, figure out its NOI and capitalize it by dividing it by a market cap rate to establish its value.

Take that value and deduct everything BUT the land value including a target development profit (at least equal to the equity required), commissions and closing costs, site, hard, soft and financing costs.

The “residual” figure represents the amount you can pay for the land as supported by the project you want to build on it.

Let me know if you’d like me to send you a short worksheet to perform this drill.

[Ronald Rohde]

Are you represented by a broker or lawyer? They are the best to guide you if you're completely new.

[Scott Mac]

Hi Michael,

Maybe partner up with someone with a lot more experience in this transaction type, and with both of you having skin in the game.

Maybe take down a bigger deal?

Watch your RISK at all times....alone or partnered.

Where to find a partner, as Ronald Rohde said above, talk to your attorney for guidance, (as well as you CPA). He/she may know someone.

Good Luck!

[Scott E.]

Some of the things you will review once you have the deal under contract and are in your feasibility period are:

 -Appraisal

 -Environmental study

 -Review zoning

 -Review lease(s)

 -Review tenant financials

 -Review tenant credit report

 -Call tenant references

 -Property inspection

 -Review title report

 -Review property taxes

 -Get your loan in order

 -Interview tenant(s)

-Review property expense / cap ex report (even if NNN)

 -Consider all deferred maintenance (roof, HVAC, parking lot, etc)

 -Review maintenance routines

 -Consider your exit strategies

-Interview HOA, if applicable

-Study HOA financials, if applicable

[Russ Kitzberger]

You can order an appraisal that is subject to your use/lease-up, or feasibility study. A CRE-designated person or an appraiser can typically provide these services.

If you can allocate enough in your due diligence period, you can get it under contract first if not, you may have a few week wait as these professionals are busy.

[Henry Clark]

@Michael Ganovski. Looks like you have a specific type of property in mind. To help with suggestions can you give more input?

Office, store, parking lot, grocery store, etc

New old

Rented. Not rented.  Contracts in place.  Tenants

Building type

etc.