Start up a new stripmall project

16 Replies

Bought one acre of commercial land beside a high school which has about 3000 students and 500 staffs at San Antonio Texas. 

I am planning to build a 10~12K sqft strip with 6 units, which type of business will be well fit?

In one mile radius , the new strip has a $20~25+NNN lease rate right now.

If anybody at here has experiences to develop this type of property from financing, construction and lease marketing?

ANY advices and ideas are appreciated.

@Wayne Shi where in San Antonio is your land? That makes a huge difference for what type of tenant you can expect and whether or not $2/ft/mo is great or horrible. 

@Jason Hirko The land is at medical center area,outside of 410, in between of Bandera Rd and Babcock Rd. The land faces major street and zero distance of a big high school(three sides adjacent to school).

I wonder if the school is a good attraction for business. 

Have you completed a site plan showing you can actually put 10k to 12k sq ft of building on 1 acre for a strip mall? Sounds too tight to me. Usually 1.5 to 2 acres for that size. You have setbacks, parking ratios, possible detention pond,etc. that eat up part of the gross land you purchased.

You didn't mention what you paid for the land. Putting STNL is often cleaner as one tenant before construction starts. You might could fit a few STNL tenants on the site or one STNL and like a 2 or 3 top strip center.

Strip centers are considered speculative development and lenders usually want 60% pre-leased before construction. 

Ground up development carries the most risk especially strip centers. It's usually cheaper, easier, faster to buy existing buildings and re-purpose them to add value.

Developers I know maybe have 20% of the mix ground up and the majority of their portfolio 80% value add existing projects.

There are some I know that only build strip centers. HPI properties in Texas builds a ton of them.

Thanks Joel. I drawn up a site plan , looks like the 10k sqft building will fit, the land is flat and almost rectangle, with set back and required landscape, I still have 52+ parking.

I plan to build and hold on it, as a steady income for retirement,  maybe use one or two unit by myself, as my wife always want to try a coffee/ice-cream/yogurt  shop. 

What is the construction cost could be , did a little bit research on it and I prefer a tiltup concrete structure, solid and low maintenance.

Really appreciate you great insight and noticed you inputted on 2AM morning , thanks again.

The siteplan is scaled but the rendering is not. Also want to see if the second floor at the middle of the building is an option.

What did you pay for the land?

You will need to take legal costs, land entitlement costs, sewer and water tap fees, exterior construction costs, interior TI costs, leasing commissions, and construction loan costs.

You would take out market vacancy for the area for appraisal purposes. Take market rents per sq ft and then get a cap rate to cost.

Honestly you might want to forget the strip center if you can land a national STNL tenant for the site. Get a long term NNN lease at the same cap rate to cost and do nothing to the property but collect a check on a 15 to 20 year lease.

Running strip centers can be work especially with regional to mom and pop tenants.

I was in the food business for over a decade and it sounds fun but believe me that kind of yogurt type business is a lot of work. Your wife needs to work some at a place like that to see how reality matches up with her dreams of owning a food business. You also do not make much money with those.

52 parking space is about a 5.2 parking ratio per 1,000 sq ft buildable. You need to check if that is allowed by your county or city where the land is located. They might require more parking even if you can build such a site. The tenants also might demand more parking then you are wanting to do. The city or county could also want more green space or a tenant wants a drive thru facing a certain direction for stacking cars. All kinds of things. It's a dance between what you the developer wants, the tenant wants, and the local government and community wants. You have to find the happy medium and see if it still makes sense to build.

Sometimes you just sell the land to an end user for a mark up and move onto the next one.      

Hey @Wayne Shi , just looking at the drawings that you made, it looks like the property is NOT facing the main street. Also, I did not see space for the electric and gas meters or dumpsters at the back of the units. It looked pretty tight on the side street where all the kids drive into the school. Will Leon Valley let you put the back of the units on the street side?

I have worked recently with Universal City and Live Oak. I can tell you that they are a nightmare to work with. I have NOT worked with Leon Valley, but the smaller cities seem to have a vision of what they want for their little piece of the world. They can be tough.

One developer I know sets a guideline of 5,000 sq ft per acre. He says most times you can get 5,000 sq ft per acre to build. If you are conservative with 5,000 sq ft build and the deal still pencils then it can be a safer bet.

If you buy land for a project based on maximizing build able sq ft and it doesn't happen then you can lose money easily.

So plan for smaller space when buying but if you can build larger than thought it's a bonus. If you can't you did not overpay for the land in most situations.

I listen very closely to the voices of experience especially when they have developed many millions of sq ft of space over many decades.

If you had 1.5 acres or more use able instead of .8 maybe then things could be different.

Generally you do not want to go up a level on a strip center. The rents up top are generally severely reduced compared to main level rents. Same goes for street level retail in front and additional units underneath in back. Developers underestimate how lazy most consumers are who want to do business. Walking up a flight of stairs or driving around to the back or parking in front and walking to the back most see it as more work and a deterrent.

I look and watch to see what other developers do and see what happens from it.

If you do build a second story generally better to have an elevator especially medical office so consumers that are older in age can use it. 

Thanks Joel for sharing you valuable experience, we purchased land by family funds and the cost for holding on it is less then 10k annually . The land is platted and zoned for commercial/retail. The water/electricity/gas/cable are just beside property line and the sewer connection is about 280 feet away.

I thought about national STNL but the First  is hard to find one with favorable term and rate  and the Second is  if the economy goes down at future it will be less flexibility then the MTNL.

Building 10k sqft on an acre is kind of typical at our area right now , I totally agree with you more parking space and convenience to in and out  will be an advantage. Then when I think about  the self driving /vehicle sharing in the near future, maybe the demand for parking  will be significantly decrease.  

Consider the large scale of the high school and so much athletics and school events, 3500 plus students and staffs  is a good pedestrian count. Just had a high school graduate , so know a lot about those kids .

Right now I  focus on the prelease marketing and try to secure the SBA or other kind of the low rate loan, also consider to work with a EB5 applicant.

Thanks again.

Hi Rick Pozos, thank you for your inputs, the siteplan is a preliminary, The building is not facing Eckhert Rd as the front is school parking lot and the back is the school football field, it still get a very good visibility. I plan to put the store front on both ends then give the tenants more choices to select the unit they want.

Agree with you about the small cities, but so far the Leon Valley is good, they call this area a sustainability overlay area, and had several nice talk with them.

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SBA loan your business has to occupy 50% or more of the space of the total building. There are other requirements as well. This what I read somewhere but check with a bank loan officer who specializes in those loans.

MTNL you get more break even occupancy BUT if they are more mom and pop with typical 30% down break even is about 65% occupancy generally. In a down turn mom and pop tenants are not as strong. A single tenant investment grade BBB-  or better the odds of default are very low and passive.

If you had Aspen Dental, T-mobile, Starbucks 3 topper with corporate guarantee and 10% increase every 5 years then different ballgame then mom and pop tenants.

It's all in the details that makes the difference which way you might go.

STNL credit tends to sell at lower cap rate also with longer term leases. With MTNL most leases are 5 years with some going 10 but rare. STNL most go to at least 10 years and 15 minimum is common with some going 20 to 25 primary term.

So pluses and minuses to everything. 

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