How do I analyse a new 5 unit strip mall in an industrial center?
Hey everyone, I'm looking to move on a piece of land located in a pretty remote location at the entrance of a large industrial park. The reasoning behind it is the industrial park has shown substantial growth in the past few years and looking to add some big tenants in the near future but is currently undeserved in the commercial space (resturaunts, banks, convenience store, etc).
I found an offer for a roughly one acre piece of land, well situated at a main cross roads in the park, with the grading of the land already complete. My question is how do I go about calculating the value of the land based on the income potential of building a 5 unit strip mall when there's absolutely no similar comps for miles?
My back of the napkin calculations are: the land is offered at $8/sqft so i figured 8 x 1 acre = ~$350k. Cost to build a 10,000 sqft building @ roughly $100 per sqft is $1 mil. So total cost is about $1.4mil, give or take.
If rent per unit is $2/sqft x 10,000 x 10 (accounting for vacancies and misc costs) = $200,000/yr
So Cap Rate is about 14.3%.
Now with that being said, I'm almost certain there's other costs that will creep up which will lower the Cap but this is a great start worth pursuing I think.
Can you guys give me some advice on what these likely costs are and whether my numbers make sense? If anyone has any experience with similar properties please let me know what your experience. Thanks!
Originally posted by @David Jiang:
So Cap Rate is about 14.3%.
Now with that being said, I'm almost certain there's other costs that will creep up which will lower the Cap but this is a great start worth pursuing I think.
Can you guys give me some advice on what these likely costs are and whether my numbers make sense? If anyone has any experience with similar properties please let me know what your experience. Thanks!
You would get the market costs (operating expenses) from your cap rate comps. How many cap rate comps do you have? I doubt any of them are near 14.3% but post the calculations and I could analyze them for you and tell your at what cap rate you should base your offer.
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Where is this located ? At $100/sf did you include development fees and soft costs? Are you planning on 1 tenant or multiple tenants. I do not invest in retail but have built it and the vacancy rates are really hit or miss depending upon the location. If the area does not have an anchor tenant then vacancies can be very high
This project sounds very speculative. The main thing you need is a lot of cash reserves for carrying cost until you can get it filled. How long do you have in your projections for lease up? What do you have allocated for tenant improvements? How are you paying for those? For example lets say you build your $1.4MM project and it take about 24 months to lease up. In month 23 you get your last tenant for 2000 sf. The TI allowance is $20/sf, you will need $40,000 to finish out the space. Is that number accounted for in your projects? Where is it going from? Going through a similar experience (I have a commercial building under contract that is a shell and needs a complete buildout in an a redeveloping area. We are about 10 years into the redevelopment, so it is well on its way with minimal vacancies among several other blocks of retail and office) I have met with a couple of very experienced commercial investors who have done exactly what I was looking to do both locally and nationally to pick their brains about this investment. What I have learned through their wisdom is that retail needs 3 components to be successful. Well established Daytime traffic, Rooftops, and other retailers. Just a few things we are thinking through so I thought I would share.
