Co work space for contractors

[JP Falk]

Toying with the idea of developing a project which would be targeted at tradespeople/smaller contractor. Each tenant (or partner, not sure of the structure yet) would have their own office space (approx 200 sq ft), a shared bathroom/shower room, conference room, and kitchen .  There would also be a shared heated garage/workshop space with 14’ ceiling and big overhead door, vehicle hoist.  Outside would be a fenced area with secure keycard access, with a few parking spaces for each company, off loading space for deliveries and a forklift or loader for loading/Unloading trucks.  Probably a 20x40 outside storage space also for each company , inside the fenced compound.  I have a 17 A.C. site I’m looking at which already had the correct zoning and was filled  over the last 20 years with good material.  I originally thought of this as a business version of house hacking , as I run a general contracting firm with 10 employees. We would build the project out and take one of the spots out of 8 total.  There would be no overlap of trades; one sparky, one plumber etc. , Probably a good network effect with cross referrals etc.   Numbers look good

Land purchase.   150k

Build out hard and soft costs. 250k

Total 400k

Lease up numbers

Gross rent     8000

Expenses   3000

Net   5000

ARV (not a ton of comps) but just going off a

10 cap rate I would say  600k

7 cap - 850k 

Though the few comps I could find would be closer to 5-600k

Would do equity take 60% LTV out after lease up so hopefully pull out a good chunk of my cash or set up as LP with 8 shares each one @ 100K ...keep my one share and pull out 650k after legal and closing expenses

If someone approached me with this deal I would probably be all over it if I had all those amenities for 100k , considering rent for a similar space would be 900-1200 right now in my area 

Any feedback or thoughts?

[Greg Dickerson]

@JP Falk great concept overall with the exception of shared warehouse. I think you would need to offer secure lockable space as potential tenants would be concerned with theft of tools and materials.

Individual office warehouse spaces would be a better way to go overall and you could set up as condos if you deceived to sell spaces at some point.

Best bet is to run the concept by the potential tenants to find out the demand and type of space they would prefer. 

Always best to deliver a product in demand to a hungry market vs trying to create a new market.

[Wayne Brooks]

Yeah, I’d go with the typical office/warehouse set up.....it’s what I have, plus a 5,000 sf fenced yard. A contractor needing/wanting warehouse space wants their Own warehouse space, for a number of reasons.

[Craig Tripp]

Sounds interesting and I’ll be following.  The condo setup recommended by @Greg Dickerson is a proven concept that has worked for us.  

I’m also interested in BRRRing warehouse space for my foundation repair company.  The idea would be to rehab a space as we occupy it.  Once complete, find the next but lease the current space to grow one shop at a time and accumulate 

[JP Falk]

Yes agree the separate warehouse space would be a plus, also setting up as a condo scenario.  I have discussed the rough concept with some contractor friends and subs as well as potential price points and they are definitely interested.

I had also looked at brrrr for housing my business similar to what you were thinking Craig but the numbers in my area are more favourable to a new build if we do it ourselves (I’ve spent allot of time training employees in a wide scope of work) we are able to do everthing ourselves except electrical .  With the new build I’ll have at least 25% equity right away just through cost savings in labor and materials, maybe more .

[Katie Neason]

Pre-lease on the front end to prove the concept. 

[Matthew Paul]

The problem with sharing a workshop , you will ALWAYS get that 1 special person who wants to hog it all for themselves .

[Ronald Rohde]

Originally posted by @Craig Tripp:

Sounds interesting and I’ll be following.  The condo setup recommended by @Greg Dickerson is a proven concept that has worked for us.  

I’m also interested in BRRRing warehouse space for my foundation repair company.  The idea would be to rehab a space as we occupy it.  Once complete, find the next but lease the current space to grow one shop at a time and accumulate 

 Its found up here as well. it works as a secure warehouse space, but less so for shared amenities. Focus on people storing their mowers, bobcats, etc. Gotta be secure and have security, but people will pay for this.

[Tyler Kastelberg]

@Katie Neason @JP Falk

Katie made the best point with her note to "prove the concept"

I'd recommend taking it a step further to see if you can build the operating business before buying the real estate.

What I mean ...

Build the "contractor co-working" business before purchasing land to develop. Lease land and/or warehouse space to test your strategy. Use non-recourse SBA financing if you need funding to build out the space.

Gather feedback from your customers and tweak the business model before you decide to buy land to expand the business.