We own 1.41 acres with a 7,000 sq ft 2-story commercial building in Bentonville, AR about .2 miles from the new (under construction) Walmart Home Office Campus. Our listing with a realtor just expired and we're not renewing it. Details aren't important, but we weren't happy. This wasn't our first disappointing experience with a realtor. We're a lot more motivated than the realtor was, but we're not sure how to market it ourselves and would appreciate any advice!
Our parcel has 315 ft of road frontage on the same side of the street as the Home Office campus will be. It's located between the highway (.5 miles away) and the Home Office, so is on a major commuting route. Walmart alone employs 14K+ people in Bentonville, and thousands more work for vendors. Bentonville is booming, we've received estimates from $1.7M to $2.2 M for this property. Our parcel is the central parcel surrounded by others we don't own - together they total about 7.5 acres.
Currently the building is mixed use - two apartments above and retail below with a separate storage building in back. The greatest value is in the land but the building cash flows nicely. Our preference is to sell, but we might be open to discussions about developing with a VERY experienced developer. In other words, we could really use some advice.
Thanks for any help you can offer!
If you sell (which is what I’d do) I would 1031 exchange
Thanks, Caleb. Our preference is definitely to sell, and we'd do a 1031. Appreciate the response!
There are many options for you:
1. Continue to rent the property and enjoy the cash flow and the inevitable asset appreciation
2. Sell it in a 1031 Exchange which, as you know, is time bound so you need to have a target property for your next investment. Since a 1031 us time-bound when you decide to go that route be sure you have everything accounted for to get to closing. For example, if you invest in a property that may have environmental concerns you run the risk of not closing in time. You should know really well some critical items about the buyer of your property: reputation, financial capability, and their intended use. If their intended use could cause delays for the closing tread carefully.
3. Cash out and move to Florida...
The basic question for you to answer is what is it that you want, what drives your real estate decisions? Is it to build wealth, get cash and go, leave a legacy asset for your children? What is your planning time horizon? Short-term, long-term? Once those questions are answered and you have assessed your financial capability and you management expertise, then move forward. The planning part is critical.
Development with someone you don't know is risky. A 1031 Exchange can be risky. Holding an asset in hopes of appreciation is risky. So lastly, I would say, assess your risk tolerance. Are you comfortable with higher risks?
@Account Closed Why do you think it didn't sell for that price last time when it was listed? Am familiar with the area, so I know it's a hot area, am under contract for a property in Rogers.
why not find someone better and more versed in the commercial world?
Thank you for all the comments!
Rodolfo - I appreciate your in-depth reply. We've done several 1031's and plan on doing a 1031 with this property when it sells if at all possible. Our strategy is to continue investing in real estate in our area but to focus on multi-family or commercial that we know how to add value to. To further maximize value on this particular property takes us into a realm we've never worked in before, and that's why we'd prefer to sell it outright. We agree that development is with someone we don't know is risky!
Zach - we think there were a number of reasons it didn't sell earlier. Even in the last two months we've watched development and interest move toward us rapidly since clearing and activity began on the new Home Office location down the street. There just aren't a whole lot of parcels available this close to that site. And, I'll just say that our question about how would we market a commercial property reflects not only our need to understand what exactly to do, but also our feeling that one property might be easier to sell than five bundled together.
Matt - we may end up doing that. Our goal now is to try to understand what would be involved if we marketed it ourselves - we've never done that. Once we know a little more about that from people with more experience, then we may make the decision to list again.
Again - it's so great to get this feedback. Wish we'd found BG years ago!!
@Account Closed Does the property currently generate enough income to justify a $2 million purchase price? ? $20-30k/month? or are you selling it for that price based on the highest and best use being something else due to its proximity to the Walmart office? If so, does the highest and best use require an assemblage of the other land around you? Are those properties for sale and for how much?
My point is that you may be pricing it too high for it's current use to attract an investor based on it's possible future use. The problem with that is those are likely two different buyers.
The other thing I would add is you probably need to be patient with a property like that to get the full value. I've been sitting on a raw piece of land next to a Kmart redevelopment site for over 5 years and only in the last year have I been getting interest in it. Land for redevelopment seems to just grind along slowly. At least you have some income while you wait.
I am a small balance developer as well as a commercial broker and investor myself. My specialty is retail and multifamily.
Multifamily it depends on the rents a developer could get and the air rights (how high they can build) for density. You have to look at your county or cities current land use map and future land use map for zoning. Your highest and best use MIGHT NOT be what the city or county wants for the area and that would be a big uphill battle for the developer to get plans approved for their project.
People have to understand projects get proposed all the time for new development but only a small percentage ever get started and even a smaller percentage get built out and completed. So if you are asking for a developer to pay a premium price for land based on a potential project that has not broken ground or just started that is extremely risky to purchase on such terms.
2 million for a 1.41 acre property is extremely expensive. You are over 1 million an acre. Taking down building costs, land costs, construction costs & labor costs (which are up over 20% nationally by the way), and legal costs it would be very hard to make new development pencil at those numbers unless you can go many stories up.
What is the current value based on cap rate and NOI of your existing property? You need to look at current cap rate market value without the land potential. It sounds like you might have not had the proper person marketing and listing your property for sale. It takes specialized knowledge in the commercial space. Often some brokers or agents who mainly do SFR or small balance commercial can get in over their heads thinking of doing a larger commission deal for themselves and do not have the specialized knowledge to navigate those waters and consult with their client appropriately about market expectations and hard numbers for what is realistic.
Your current use for your land you need to do some research and see how much new construction and permits are coming for the immediate area. This way you can look at absorption levels and see if your market for office for example is overbuilt, under built, just right. Then you need to call and see what the new developments are asking per sq ft for office rates and compare to your existing rates. If it is new building with much higher rates that could help your existing building. If the developers have a low basis in the land with property and scale and are offering the same or close to the same rent rates as you but a new building with amenities that could not be good.
You need to look at what is the highest and best use for your property with hard numbers and not just an idea. Example I know land will run me XX, cost per sq ft for shell will be XX, interior improvements will be about XX a foot, labor,etc. As a developer builds construction costs and labor keeps rising so developer has to put in a considerable contingency for delays and costs to a project.
A developer usually will not buy a piece of land to sit on it. That is what we call a (land bank) investor in the business and they pay low prices so if they do not want to develop they can sell off for a profit to an end user or a developer.
The developer will generally put an option contract on a property to tie it up. They will then go for zoning and site plan approvals and want to do a certain percentage of tenant lease up before closing on the property. Lenders often want so much pre-leased before they will give funding to a developer to start construction on a project.
As the speculative projects in an area go from just talk,to approval, to construction then surrounding land becomes more of a solid investment choice.
It sounds like you want to sell off this for a larger gain and then put risk on the developer. You have to understand experienced developers do this for a living and are not going to put millions at high risk with a project that is overpriced and has a high chance of losing money. It's all about the location and numbers with what is possible.
I do have a client in the area that wants existing retail properties but might look at existing office. They are not a developer but just want a certain cap rate and return. You will need to put anything for sale in the marketplace on here and have to be a paying member for that.
Thanks so much for your response.
The price is based on both highest and best use, proximity to Walmart, and the location and opportunities of the property itself on the main artery to Bentonville's downtown core. Correctly developed it would definitely support that price. We set the asking price well below similar properties nearby with income-producing buildings that are somewhat dated or use-specific ($494 - 397 sq. ft.), and a little higher than adjacent or nearby vacant land ($1,098,013 - $1,342,593 per acre.)
Suggested development has included a chain hotel, boutique hotel, commercial such as gas station, commercial office - there's a great vendor need for this, mixed use commercial down and residential above (which Bentonville is very supportive of), and townhouse style residential - desperately needed.
I'm curious, do you market your property yourself? Would you? If not, what do you ask a commercial realtor you're interviewing?
Thank you again for the very thoughtful response. This is all helpful.
And I'm going to listen to BP show #47 now!
Wow. Thank you for all that information. I have some learning to do.
I have some of these numbers, I may have mentioned them in the post above, but not all. I appreciate your comprehensive perspective very much. I think I have to study your comments a bit before I can fill in more blanks. In the meantime, I'll take a look at the marketplace (I'm still learning this site).
It may be that our basis positions us better to partner with a developer somehow. But we'll do a lot more research before considering going there.
I'm grateful for the time everyone is taking to help us out. This is a wonderful site.
@Account Closed This is just my opinion, but I think if you try to sell it yourself you will still own the property 10 years from now. Not that, that is a bad thing. As I said, given the location you may be well-served just biding your time.
My property is listed with the biggest and oldest broker in our area. For better or worse, the large deals happen through a network of connected local brokers, developers, bankers, attorneys and government officials. If you aren't plugged into that, you may still be successful but the odds are lower.
I'm not saying anything corrupt is going on although I'm sure it often does. Rather, when the hotel or fast food developer or, more likely, their broker rep comes through town looking for a development site, who do you think they go talk to? It will be the experienced brokers, bankers, lawyers, and government officials.
Sure, they might see your 'For Sale by Owner' sign. But you are way increasing your odds by just listing it with the correct broker.
How to find the right one? Who in your market has brokered development deals recently? It will likely be the biggest most successful commercial brokerage in your area. Also make sure to talk to the big boys like CBRE/Marcus & Millichap/JLL in the large city closest to you. Little Rock?
@Account Closed you probably want to get a hungry broker from Fayetteville to work hard for you.
PM me if you want me to refer you to someone that could help.
@Hadar Orkibi - thank you, will do!
@Jeff Kehl - That makes a lot of sense. I'll do some research into recent deals.
Is the building(s) in good condition as is? Do you need to make any improvements in order to attract a buyer close to your listing price?
Hi Chris, we've made considerable improvements to the building. Probably won't make any more because the majority of likely uses for the land would either remove the building or adapt it depending on future use.