Monetizing Commercial Building

6 Replies

Just looking to bounce ideas with some experienced folks on here.

My law firm has been expanding and has outgrown our current space. The seller of a unique property accepted our offer a month ago and we are set to close in about another month. The property is close to our current office but much larger. It's separated into two buildings, which are comparable in size and take up a good chunk of a city block. One of the buildings is half occupied by a long term tenant (established law firm) and our firm will be occupying the other half. We have it under contract at a price that makes sense for that building alone, so the second building is gravy. The second building is 2 stories ~ 9000 ft^2 and is occupied by two small tenants who pay almost nothing. They are on m2m leases. The buildings are on the located in downtown Jacksonville and are within an opportunity zone. The surrounding area is being developed with a number of large residential projects and is about to see a massive influx of money from the owner of the Jaguars. I need some thoughts on how we should analyze the highest and best use of the building. We are using a well known broker for the transaction but we just haven't heard any stellar ideas for the other building. It's both awesome and scary to have a good sized building and no idea what to do with it. Thoughts on how we should be looking at this as a commercial landlord?

@Chris Carson , first of all congrats on the deal! There a lot of possibilities. A few that come to mind:

Since you say the second building is an added bonus, try to find more long term, higher paying tenants (but that should be a no-brainer). That's where real returns will come from.

You say it's an opportunity zone. You need to invest significant capital into improvements to get the tax deferred benefits, but you'll have to see what the building is zoned for, in order to give yourself more options.

You could create a shared work-space, if managed well, can generate a lot of revenue.

Again see what the zoning allows for, but you could lease to a cafe or the like.

@Chris Carson You have a unique opportunity with the second building. Have you done a market analysis to see if there's room for residential units, and if you can re-purpose the other building into mixed-use with the ground floor retail or office and the second floor residential, then that would be the first strategy I would look at.

You mention it's in an opportunity zone. Did you sell the building your leaving and have capital gains that can be put in a QOF, qualified opportunity fund? If so then the reconstruction should be at or above the original basis, not knowing what your paying for the new property. If you don't have money due capital gains purchasing the property, then you would not benefit from the tax advantage. 

If it's downtown, check with the zoning department and planning commission, there should be no problem getting approved for mixed-use and may already be zoned for it..

The other strategy you could look at is selling the other building to a QOF after getting the site entitled for a mixed-use asset. There would be a cost to getting it entitled but you would a more valuable and marketable asset with the entitlements in place first.

@Chris Carson just as reference we own 200+ units in jax and have another 800+ under contract to close in 2-3 months time. 

We just did our first opportunity zone deal in Columbus, and I'd be happy to help if there's anyway I can from looking at the zoning or just talking OZ stuff to see if I can help clarify some stuff for you. 

I'm definitely curios where it is because the OZ in downtown are mostly in some pretty "rougher" areas except some small pockets so it sounds like you could've picked up a gem.

If it were me I'd look at what the zoning permits, and then I'd talk to someone at the zoning office to see what the rezoning process would look like and then potentially what could be built there. If there's an opportunity to knock down and build up, it could be very interesting to spend the money to rezone, have plans done and sell off the a developer in a couple of years. The development would also only help your buildings value as well.

Originally posted by @Chris Grenzig :

@Chris Carson just as reference we own 200+ units in jax and have another 800+ under contract to close in 2-3 months time. 

We just did our first opportunity zone deal in Columbus, and I'd be happy to help if there's anyway I can from looking at the zoning or just talking OZ stuff to see if I can help clarify some stuff for you. 

I'm definitely curios where it is because the OZ in downtown are mostly in some pretty "rougher" areas except some small pockets so it sounds like you could've picked up a gem.

If it were me I'd look at what the zoning permits, and then I'd talk to someone at the zoning office to see what the rezoning process would look like and then potentially what could be built there. If there's an opportunity to knock down and build up, it could be very interesting to spend the money to rezone, have plans done and sell off the a developer in a couple of years. The development would also only help your buildings value as well.

 I'd be interested to hear about this deal in columbus if you could send me some info on it and how you handled it and why you decided to do it as well. 

Originally posted by @Chris Grenzig :

@Chris Carson just as reference we own 200+ units in jax and have another 800+ under contract to close in 2-3 months time. 

We just did our first opportunity zone deal in Columbus, and I'd be happy to help if there's anyway I can from looking at the zoning or just talking OZ stuff to see if I can help clarify some stuff for you. 

I'm definitely curios where it is because the OZ in downtown are mostly in some pretty "rougher" areas except some small pockets so it sounds like you could've picked up a gem.

If it were me I'd look at what the zoning permits, and then I'd talk to someone at the zoning office to see what the rezoning process would look like and then potentially what could be built there. If there's an opportunity to knock down and build up, it could be very interesting to spend the money to rezone, have plans done and sell off the a developer in a couple of years. The development would also only help your buildings value as well.

 How did that OZ deal go? tons of people are asking questions, but few people have completed deals.

That said, if you think significant capital is coming in, I'd just wait and see how those funds are deployed. You will get a clearer picture of your highest and best use after the other money comes in. 

@Robert Ellis It was a 121 unit vacant deal we found off market. We're still going through the whole permitting process and really not looking to release any specific info at this point in time.

@Ronald Rohde so it's still new, only closed a few months ago and we're going through the process with the city to get all permitting squared away and getting all plans drawn up before starting the work. We bought it all cash, closed in 2 weeks and haven't started the renovations yet, but they're way more than what we purchased it for.