I have an 18,000 sq ft building in a vibrant downtown area that sits on a 1.85 acre lot with 110 parking spaces in front. It is an old concrete warehouse with 12 foot ceilings that I converted into office/retail suites made up of 5 smaller suites between 1,400 and 2,800 square feet and one large suite that's 10,000 feet. I've leased out the 5 smaller suites and have the 10k ft suite remaining.
I did events in the 10k foot space for a year after the renovation, but the event space business was slow so I put the space up for lease. The space has attracted a lot of interest, but prospective tenants have been asking me to divide the space (into 4k and 6k foot spaces) and to provide a fairly generous tenant improvement allowance. I don't have a problem dividing the space, which will entail extending the plumbing and adding a new electrical service for the second space, but I don't have the liquidity to pay a TI allowance. Plus, with the cost to divide the space and pay the TI allowance, I wouldn't really net any income for the spaces until year 4 or 5 of the leases.
So I've been brainstorming to figure out the best use of the space. I've thought about subdividing it into 4 spaces of 2,200 sq ft or 8 spaces of about 1,100 sq ft to allow for smaller businesses. The area around me is booming with new multi-family and office building developments, so I've even considered building out loft style apartments inside the space and perhaps adding a second floor of apartments as well.
All that said, the area is becoming more and more popular all the time, so perhaps I should just be patient and wait for a larger tenant who want the larger space that doesn't require a ton of build out and TI allowance on my part. Anyhow, any suggestions and thoughts would be appreciated.
Go talk to your local chamber of commerce AND economic development corporation. If you're unfamiliar with the latter, go search that term.
They will tell you want the demand is and you can basically build what's in demand. You might also talk to local commercial brokers and ask them what their prospects are looking for, but can't find.
When you do those two things, it's like shooting fish in a barrel.
Sometimes if you do not have TI dollars you can give the tenant below market rent in exchange for them paying the TI for a certain number of years and then bring closer to market.
There is also consideration if it's a mom and pop or regional tenant versus a national there is more risk in getting the TI dollars back eventually. Some landlords like having to pay very minimal TI's to risker tenants when back filling empty spaces.
@Jacob W. I would stay away from adding residential, as that will be exponentially more expensive that commercial, and may not be allowed based on the zoning of the site. Additionally, having residential next to commercial can sometimes be a problem with noise / smell / etc separation if not properly designed.
I would maybe try to target the tech startup market if there are in your area, as they sometimes only need some desks and a bathroom. Also, co-working spaces may be something to consider if your market can support one.
Another thing you could look at if you market would support is an indoor mini-golf or axe throwing facility; we have these in Seattle and they are always packed full of people. Can you get a liquor license for your space?
@Jacob W. You could also look at craft beer / spirits if zoning allows
@Jacob W. Gym or exercise facility? There are many franchises that would love space like that with the parking. Their build outs aren’t usually that expensive