Commercial Lease versus Sale on Washington DC Capitol Riverfront
Hello. Been trolling these forums for a while and finally decided to tap the collective knowledge of the BP community. Here is my scenario that I have been pulling my hair out trying to sort. It is a good problem but given my lack of commercial real estate experience, I have had a hard time judging my options.
Essentially my father has a small business that he started many years ago along the Anacostia river front in Southeast quadrant of Washington DC. He established his business in that area when it was mostly an industrial and unsavory part of town. Fast forward to today, his place is now square in the path of development sandwiched between the nationals stadium and soon to be constructed DC united soccer stadium. In the last few years a business improvement district has been formed and many plans are in the works to redevelop the area as Washington DC's next prime waterfront (see capital riverfront plans here: http://www.capitolriverfront.org/).
While this is all very exciting, you can imagine with each passing year the property tax has been shooting through the roof. As a small business he can envision the day where the property tax rises to the point that continuing to do his business there will no longer be tenable. Anticipating this to occur within the next 6-7 years, we began discussing possible strategies for business relocation.
Here are some facts on the property
- 15,000 sqft of industrial warehouse type space with 40+ft ceilings with two loading dock access points
- 3,000 sqft of finished office space
- 10 parking spaces out front
- Dad spends about $10k/month for insurance and the mortgage note on the property
- Building is lacking a fire sprinkler system-- to bring up to code to get a certificate of occupancy we estimate it would probably take $80k-125k to get that retrofit and make suitable for leasing
- Currently property taxes are about $70k annually
- neighboring properties have sold for anywhere from $400-500/sq ft.
- neighboring leases seem to have been advertised anywhere from $12-22/sq ft NNN.
- pay off on mortgage is about $1.3 million.
We are struggling trying to determine whether its worth selling now and moving on, or trying to get a tenant for the property to buy another 5-10 years before attempting to sell once the DC united stadium construction is finished (estimated 2018) and the surrounding infrastructure and waterfront improvement plans are realized.
I am sure there is substantial information in my description that may be lacking to help sort this out. Part of the problem is I don't even know what other information is relevant. The other problem for us is we don't have very much capital available and probably don't have enough cash flow to justify someone giving us another loan. I would be interested in hearing about any creative financing strategies that someone might be aware of or if anyone else has had to wrestle with similar circumstances. I don know if this would discourage potential tenants, but we were thinking we might have to offer a lease discount so the tenant could make improvements as they see fit since we don't have much capital resources. Our other great unknown is we are not certain if we could even find a tenant. I hope someone on here has some experience in that Washington DC submarket of the Southeast capitol riverwaterfront. Would love to hear their thoughts on selling vs leasing. Please excuse my lack of knowledge. Let me know what additional information could help you out.
Thanks again and sorry for the long post!