Revitalized downtown, Liquor on the bottom, build lofts up top

Commercial Real Estate Investing
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Revitalized downtown, Liquor on the bottom, build lofts up top

Brandon Singer
Investor · Winter Garden, FL · Member since 2016 · 14 posts · 4 votes
I'm looking at a off market building in a suburb of Orlando. This is a thriving downtown area with many restaurants, bars and boutique shops. The building currently has a "hometown bar" and a liquor store. It has a second story that I'm interested in building loft apartments in. The building was originally built on 1920. How many loft do you think I can comfortably fit info 4050 sqft on the second floor? Any type of cost estimate for lofts? I'm just starting to explore this. I will soon find out how much the bar and liquor store are currently paying for rent and see if this is a worthwhile endeavor. I have commercial financing lined up for another deal I'm working on. I will hopefully take down one of them if the price is right but I would attempt to utilize owner financing on this as well. Comments and recommendations welcome.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10y

Make sure with your lofts that your cost estimate for rehab and what the city or county wants for compliance are in the same ballpark.

A building that old might have a ton of surprises such as illegal additions, grandfathered permitting but as soon as the use changes you have to bring up to code, knob and tube wiring, asbestos, galvanized pipes, lead based based, out dated electrical panel for today's demands, and on and on.

Check what type of leases are in place downstairs NNN,gross,etc. and if the tenant has to disclose monthly sales and how strong the guarantee is on the lease. Check for any annual increases in rent and early termination clauses. Make sure the rent on the leases is not above market so that you will have a trade down in income if the tenant leaves.

Lot's of other things but this should get you started. 

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    Make sure with your lofts that your cost estimate for rehab and what the city or county wants for compliance are in the same ballpark.

    A building that old might have a ton of surprises such as illegal additions, grandfathered permitting but as soon as the use changes you have to bring up to code, knob and tube wiring, asbestos, galvanized pipes, lead based based, out dated electrical panel for today's demands, and on and on.

    Check what type of leases are in place downstairs NNN,gross,etc. and if the tenant has to disclose monthly sales and how strong the guarantee is on the lease. Check for any annual increases in rent and early termination clauses. Make sure the rent on the leases is not above market so that you will have a trade down in income if the tenant leaves.

    Lot's of other things but this should get you started. 

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    10y

    I am always somewhat suprised by how many investors want to jump into these "conversion" property deals who would never consider a ground up build because they feel it's too much work and they lack the knowledge.  Guess what - many conversions are more work, require more knowledge, and are riskier than ground up builds.  Know what you're getting into before you buy.  I get numerous desperate requests for refinancing from people who ran out of capital midway through a conversion.  I never get requests from people who ran out of capital midway through a new build.

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  • Greg V.
    Investor · Twin Cities, MN · Member since 2009 · 163 posts · 40 votes
    10y
    This is just a rough estimate but in our area we use $100 per sq ft remodel cost on historic loft reno's. If the numbers are in the ballpark, then we look deeper. What I've seen in our market is that it doesn't make sense to reno these old buildings unless you can get federal or state grants or TIFs. Be careful and have plenty of contingency funds.
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  • Greg V.
    Investor · Twin Cities, MN · Member since 2009 · 163 posts · 40 votes
    10y
    Also, our lofts are between 800 and 1200 sq ft. With 4000 sq ft, and depending on the building layout, 1 bedroom lofts or 2 bed flex may be your best bet. 2 bed flex is what we call a loft with 1 fixed bedroom and another one that has movable walls that can become another bedroom or left as a common living space.
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  • Joel OwensBusiness Member
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    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    Sometimes it's better to tear it down and build new rather than covert. The problem might be a building from the 1920's the city or county might not allow that.

    If the location is excellent and you can land national tenants the rents per sq ft can be higher on lease up. Desirability of the tenant mix on street retail might affect what renters pay upstairs for convenience.

    If the 1920's building is in a historical district that can create a host of problems as well. Remember with counties and cities it's generally political. They want a look and feel for the area and do not care if you make money or not. You aren't in the charity business so the deal has to pencil and pencil well even with a contingency fund added in or you don't do it. Even if your plans get approved the time in which your plans come to fruition are key.   

    I have seen people before that I have talked to get stifled for years on projects with time and capital that stunted their investment growth. It's better to wait for the right deal with capital sitting on the sidelines than the wrong  marginal deal just to be doing something.

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  • Brandon Singer
    OP
    Investor · Winter Garden, FL · Member since 2016 · 14 posts · 4 votes
    10y

    Thank you everyone for you valuable comments. Sorry I was not getting updates on this discussion. All the points were very well taken. I'm moving on a different property at this time but still waiting this one as an opportunity. 

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  • Michael Gansberg
    Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes
    10y

    Hi @Brandon Singer, 

    I have a mixed-use building that isn't too far off from what you're describing- three floors, pizza restaurant/bar on the first, apartments on the top two floors. One of the challenges with the building is the bar on the first floor playing loud music late into the night. It bothers the residents, so the rental rates are lower than you'd expect for the area.

    If you do end up closing on this property, you might evaluate the possibility of making the upper floor into commercial space(s.) For businesses that are out by 5 or 6 PM, they may not be bothered by the loud music which generally starts a bit later. If you do go with residential, go heavy on the soundproofing- it probably won't be perfect, but without it, you'll have a very rough time.

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