First Time - Retail Strip Center Development- advice, tips, etc

10 Replies

Hi All,

My father and I are working on our first commercial development; a 20,000 Sq. Ft retail center. I wanted to get advice and tips from developers and anyone with experience in this type of real estate investment. 

We've currently got the steel up but now we have to make a lot of decisions in the coming weeks/months and wanted to make sure we are doing things accurately. Any advice would be greatly appreciated!

Thanks in advance. 

Where is it located? Do you have tenants signed up? Are you doing the GC work? Looks pretty to me!

@Ronald Rohde this is in Pearland, Texas. We are looking for tenants. And we have a GC who is asking us questions on how we want to design/etc. Thats where I needed any advice or tips. 

What is your development/build out background?  Looks like your slab is in with drains everywhere?  Have you advertised for tenants yet?  You can also try to go steal some high profile tenants from older strips.

Originally posted by @Abbas H. :

@Ronald Rohde this is in Pearland, Texas. We are looking for tenants. And we have a GC who is asking us questions on how we want to design/etc. Thats where I needed any advice or tips. 

 You should probably stop right now and figure out development budget, expected rents, cap rate and ultimate return on capital. Absolutely the knowledge and lessons learned are invaluable, but just building for the sake of building causes problems down the road.

Don't stop, keep moving forward and soliciting advice!  Don't be afraid to make mistakes and learn from them!

How are you funding this so far?

Did you already own the land?

Banks typically will NOT give construction funds on retail center ground up development until you have at least 50% pre-leasing and sometimes 60%. Generally before starting construction or closing on the land you have leases in hand for a certain percentage of the project.

Lenders want to know that worst cases you have enough leased up to be about break even with debt service. They do not want to fund a project and then rent per sq ft does not equal projections or little to no lease up occurs. Now they might have to foreclose as no money is coming in to pay the loan.

Pearland,Texas has some good areas.

I imagine since you are building the shell you have site plan approvals already? Frankly the way you are currently doing it is 100% backwards and poses the most risk.

At this point you might want to bring on a site fee developer. They tend to have many years experience and you watch and learn as they take the project from start to finish.

Right now it seems you do not even know if the base tenants will be national, regional, or local in nature. Some national chains can take 6 months or more to commit versus local who will usually move faster in weeks to months. If local tenants it is very important to review liquidity and net worth. Also if this will be their first unit opening or they are a multi unit operator? When you build a new building cam per sq ft starts out low to tenants then as it gets fully stabilized the property taxes get reassessed. That is when the smaller tenants with not much experience get sticker shock when their cam above base rent shoots up fast.

Currently it appears you do not know the tenant nor the rent per sq ft they will pay. Before you sink anymore money into this project you need to know the conservative projections.

I know some developers where the lenders do no require pre-leasing BUT they have been doing it for 30 years and build 20 a year. Newer developers lenders tend to stick to the pre-leasing requirements to mitigate risk. 

All i can say is you should have had all your questions answered be4 digging holes in the ground.   Strip centers are losing value all over the darn place.

Maybe like the guy above said.     STOP STOP STOP now  and reevaluate.

I hope you went in all cash, either that or have a ton of money. As everyone else above said, you went backwards. Nothing wrong with making mistakes and bettering yourself if you have the funds, but if you have limited capital, these are not mistakes you want to make. Making reasonable mistakes is more like saying maybe the plumbing could have been done better or the architectural design was off, these make sense. The wrong kind of mistake is spending millions on having a building built with no ideas on design, layout, tenancy, etc. I'd stop and speak to an experienced retail GC, who may know what makes sense for the market as they are on the front lines of development. Then reach out to an appraiser or get data on the market rents.

Abbas - First thing, as others recommended stop development and look for tenants. For Commercial retail/office spaces our practice has been to get preliminary site plans approved by the city, make nice building elevation CAD pictures, create brochures/flyers and market them aggressively. Typically it takes 1yr+ to get 50-60% leased and then start construction. 

Some of the tenants may require to modify your initial plans. For example we had a Veterinary clinic, who wanted some open space in the back and we could adapt to their needs.

Make a list of prospective tenants and market to these select businesses. Is their a dry cleaner/dentist/nail spa/coffee close by? 

@Abbas H. how is it coming along? You got some blunt albeit true advise from the group. My recommendation is to either stop construction or have the GC complete the shell and leave it in shell form until you find tenants. Do NOT assume you can "built it and they will come". Carrying costs will kill you if you financed it, but it seems like you are doing all cash as no bank I know would have financed this with no leases in place. Good luck and good the group posted.

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