This is my first BP post! I've got two parcels (.37 of an acre total) centrally located in the pedestrian area of a small but growing town in Southern Oregon. (Pop. 6k but it's not the complete boonies as 100k+ people live in close-in communities.) About half of it consists of four individual buildings that are leased to various retail tenants. The remaining half has an unnecessary (per existing city code, though they are considering changing that) parking lot and two very old residential units. I would like to understand the highest and best use of the property as a whole and to come up with a long-term plan to get it there. I'm hoping that the long-term plan will allow for an intermediate step of replacing the existing residential units and developing the parking lot.
If there is one thing that I know it's that I don't (yet) even know what I need to know. The city is great but I speak only the most rudimentary planning language. They suggested that I hire a land use consultant but couldn't refer one. I'm waiting to hear back from my lender to see if she can. Is this the best first step? If so, how do I vet potential land use consultants? Are they some sort of magical unicorns who speak planning and contractor-ese and will provide a detailed, specific, and GOOD plan? Do they reduce my role to crunching numbers, choosing designs, and hiring and communicating with the contractor and lender? Does this naive suggestion elicit uncontrollable laughter from the experienced developers who are reading it?
Will someone tell me exactly what I need to research, understand, and to take on myself, in order to make a project like this successful? (I do have a decent understanding of investing. I've bought, sold, and hold multiple SFR in addition to these commercial units. I don't have much experience with rehabs, contractors, codes, or planning departments.)
I would not hire a "land use consultant." You must become that professional. Begin by learning what the zoning would allow you to do with the property. Is it zoned for commercial, mixed use, residential, industrial, hospitality? Depending upon what the zoning would allow, do a deep dive into the surrounding area and examine what would be competing properties. The objective would be to learn how to position your property in relation to the competing properties. Look at the condition of the other properties, the businesses that are tenants, try to discover rents paid, how long they have been there, etc. What type of asset is in short supply? Are there retail services that are lacking? Is office space in short supply? Is the property on a highly trafficked street? You are, in essence, trying to develop your own market assessment by utilizing shoe leather, door knocking, and some technology.
Once you have done that, then determine the going cap rate for the type of property you have determined is a needed resource.
Once all that is done, sit down with your banker and find out what type of financing package would be available to construct the asset you have determined is the best fit for your spot. Since you are taking a long-term planning horizon you might as well begin to chat with contractors. Seek contractors that have extensive experience in building the type of asset you have determined is the best fit. Don't hire a home builder for an office building.
My emphasis is for you to become the expert and not to rely upon third parties. You have already done this with your SFR investments. Just expand your horizons.
I would talk to CRE broker or see what other developments are going up nearby. If you don't have comps, its very open ended and likely a decent amount of risk.
Check air rights and density. How high you can go up on such a small size parcel can make a big difference in returns.
If the buildings are old the procedure to tear them down could get expensive.Also tenants on current leases the disruption to their businesses would likely need to do in stages more (start and stopping) with development and meanwhile labor and material costs can go up. You have to look at risk/reward ration ( what is my upside versus downside and conservatively how long will it take to get there?)
Thanks for the feedback. I guess that I wasn’t very clear with my question because I do feel confident with market assessment. What I don’t understand is how to navigate seemingly vast distance between concept and hiring a qualified contractor. For example, do I start with following planning restrictions to the letter of the law? Or is there a professional who will know what easements or variances are attainable to provide greater building density and/or more efficient public works- tie ins?
Would I go through this process before or after hiring an architect? And do I need an architect? If so, do I ask them to start from scratch one or is it possible and cost effective to purchase premade plans somewhere (where?) and then have an architect or contractor tweak them?
In residential language, I would explain my plan as building a single zero lot line home while setting groundwork to later build the second. I imagine this will involve public works considerations and figuring out some work-arounds with zoning. For example if =<50% residential is determined by tax lot instead of new building, I might combine the lots or adjust the lot lines.
What kind of professional knows about tax abatement incentives, systems development credits, etc? Are there special financing sources that could make it worthwhile to set aside some of the residential units for low income housing or put solar on the rooftops or . . . ?
I know that these aren’t simple questions. So what I’m really trying to ask is, are there resources that will help me learn the basics of mixed use development?
That's a project/land consultant. You will pay ongoing money for services. Services are not cheap. You are wanting a specific skillset and experience to help you with your project.
These people often make hundreds to thousands of dollars per hour. If you do not have the money to pay such a person then maybe look into a joint venture type arrangement where you share upside profits for time invested. If your project is good that might work but also if your project is not as good as you thought you should learn that from the consultant once they review what you are trying to do.
There are some books out there at ICSC and ULI but you would still need a consultant on the local level to give guidance.
Originally posted by @Roanna R. :
Are they some sort of magical unicorns who speak planning and contractor-ese and will provide a detailed, specific, and GOOD plan?
Although we are not magical unicorns, many architects speak planning and contractor-ese quite fluently.
I have a colleague who would be able to discuss strategy and next steps if you're interested. Let me know if you would like me to introduce you.