Marquis mixed use retail/restaurant/office analysis help

13 Replies

Take a look at the details below and please give me your opinion using CCIM/Rule of thumb/beer-math/inter web BP analysis and tell me if this deal is worth a closer look or should I shelve it without a second though. Much appreciated.

I'm looking at purchasing a marquis building in downtown Colorado Springs. Currently a crappy sports bar with no cool factor at all which has been operating miserably out of this space for as long as I can remember. The building is a former haberdasher/clothing store with 1900 charm. There was 2004 remodel that updated mechanical, electrical and sprinkler systems. It has a kitchen and a liquor license. 2 floors of lease space. I anticipate sub dividing and remodeling to incorporate mix retail/office and bar-restaurant spaces with a lot of cool factor; multiple tenets. I'm not interested in operating a business out of there myself. I'm simply interested in this space for the real estate potential.

16,000sf downtown marquis building asking $3MM. 

I'm anticipating a $1.2MM remodel and a 1yr holding costs of 250K. 

30% equity position with down payment on on the full $4.2MM. (Building plus rehab)

After rehab lease space should average $25sqft NNN. With the potential to ask for $50sqft NNN.

ARV once fully leased. $5MM

happy to share more info. let me know what metrics and details you need.


Thanks 

Marcello

Hi @Joel Owens . I'm hoping you could take a look at my deal. I have been reading your posts since 2011. Since then, completed a variety of different real estate deals including fix and flips, hard money lending and an STR in ski country; all residential. However, I have never bought a commercial space. I have a shared interest in a commercial space but that is just not the same thing.

Originally posted by @Marcello Di Gerlando :

Take a look at the details below and please give me your opinion using CCIM/Rule of thumb/beer-math/inter web BP analysis and tell me if this deal is worth a closer look or should I shelve it without a second though. Much appreciated.

I'm looking at purchasing a marquis building in downtown Colorado Springs. Currently a crappy sports bar with no cool factor at all which has been operating miserably out of this space for as long as I can remember. The building is a former haberdasher/clothing store with 1900 charm. There was 2004 remodel that updated mechanical, electrical and sprinkler systems. It has a kitchen and a liquor license. 2 floors of lease space. I anticipate sub dividing and remodeling to incorporate mix retail/office and bar-restaurant spaces with a lot of cool factor; multiple tenets. I'm not interested in operating a business out of there myself. I'm simply interested in this space for the real estate potential.

16,000sf downtown marquis building asking $3MM. 

I'm anticipating a $1.2MM remodel and a 1yr holding costs of 250K. 

30% equity position with down payment on on the full $4.2MM. (Building plus rehab)

After rehab lease space should average $25sqft NNN. With the potential to ask for $50sqft NNN.

ARV once fully leased. $5MM

happy to share more info. let me know what metrics and details you need.


Thanks 

Marcello


I would need a lot more info but on the surface it doesn't sound like a good deal. Not sure you can assume rents at $25 sqft much less plan on asking $50. That's class A primary market rent. In any event if you assume $25 sqft for rents your NOI will only be $250k so your in at a 5.5 CAP of all goes as planned.

Also if you anticipate $4.5 with purchase remodel and carry cost You’ll likely end up closer to $5 million. I would want at least a 30% margin on a development project like this. 

 

@Greg Dickerson

Thanks for your reply. The $25sq is about right (ARV not current) This property is slap dead center of Colorado Springs. Within two blocks we have both a Marriott hotel and Hilton hotel,a 15000 capacity stadium and the Olympic museum all under construction. Multiple high rise apartments either just finished or in construction (400ish new apartments all within walking distance). Gentrification is going on and I believe most of the new wave construction is fueled by the influx of aerospace/space dollars pumping in from the private sector and DoD. Can you help me understand how you would calculate a 30% margin here. Thanks again.

Deal looks thin to me after resale costs. Real estate commissions, short to long term capital gains if you do not 1031,legal fees, etc.

The exit cap rate usually depend on tenant mix just as much as location (nation, regional, mom and pop) in nature.

@Joel Owens

Thank you. I'm not sure of the right question here. How much more would you need out of it? 

1031 is not going to happen for this deal. My target exit 3-5 years would be to owner-finance the resale. 

Target tenets; a mix of national and regional retail, bar-restaurant. Its a C the goal is to make it an A.

Originally posted by @Marcello Di Gerlando :

@Joel Owens

Thank you. I'm not sure of the right question here. How much more would you need out of it? 

1031 is not going to happen for this deal. My target exit 3-5 years would be to owner-finance the resale. 

Target tenets; a mix of national and regional retail, bar-restaurant. Its a C the goal is to make it an A.

 If you're all in is $4-5 million, you'd need to exit at $6, 6.5 million. Do you (or your brokers) have experience getting national tenants? its not the same process as local or even regional...

Originally posted by @Marcello Di Gerlando :

@Greg Dickerson

Thanks for your reply. The $25sq is about right (ARV not current) This property is slap dead center of Colorado Springs. Within two blocks we have both a Marriott hotel and Hilton hotel,a 15000 capacity stadium and the Olympic museum all under construction. Multiple high rise apartments either just finished or in construction (400ish new apartments all within walking distance). Gentrification is going on and I believe most of the new wave construction is fueled by the influx of aerospace/space dollars pumping in from the private sector and DoD. Can you help me understand how you would calculate a 30% margin here. Thanks again.

The project needs to cost you 30% less than you can sell it for. That’s your profit margin. 

@Ronald Rohde

I will investigate the $6, $6.5 MM exit. As far as experience in attracting national tenants, no one has domain knowledge on my team. I do know a local developer working on another project who has experience with national tenets I believe I could get an audience with him. 

Since I've been on BP I have taken advantage of the proforma spread sheets that I could pull from the users file place...I cant seem to find access to the file place?  I was going to ask for a recommend pro forma excel file for a commercial project of this scope. BP user docs have always played a key part of all the deals I've done since 2011. This is showstopper for me. @Joel Owens do you know what happened to BPs User File place or how I might access it? 

@Greg Dickerson

Thanks. 30%. sounds like a very safe margin.

I've heard the term soft costs used by residential developers when separating costs of land, debt service and the hard costs of construction. The rule of thumb understanding I have is that soft costs should not exceed 15% of hard costs. Have you heard this before or anything similar? I want to be able to plug in different assumptions and war game this project in excel.  Do you know of any proforma calculators I could use? Thanks.

Originally posted by @Marcello Di Gerlando :

@Greg Dickerson

Thanks. 30%. sounds like a very safe margin.

I've heard the term soft costs used by residential developers when separating costs of land, debt service and the hard costs of construction. The rule of thumb understanding I have is that soft costs should not exceed 15% of hard costs. Have you heard this before or anything similar? I want to be able to plug in different assumptions and war game this project in excel.  Do you know of any proforma calculators I could use? Thanks.

There are no rules of thumb for hard or soft costs. The costs are what they are so you need to get quotes.

For modeling check out https://www.adventuresincre.co...

 

Originally posted by @Marcello Di Gerlando :

@Greg Dickerson

Thanks again. I downloaded a file from the adventures in CRE wed site. Wow!

 Watch the videos too! Very helpful

Re: 15% it can be a good rule of thumb, but understand that every project may break that rule due to specific issues (title, environmental, local government, design, etc.) but yes your permits, arch, legal shouldn't be blowing up your budget at 25% off the bat.

@Ronald Rohde

Thanks again.

I toured the property. Really beautiful space and truly a marquis Colorado Springs building. I don't believe I could rehab it for less than $2MM which really blows this project up. Additionally it seems that its now under contract. I wish the new owners luck and success. I will move on with a little more in my tool kit thanks to the BP community. Big thanks to @Greg Dickerson for suggesting  https://www.adventuresincre.co... and @Joel Owens for his sober guidance and steadfast dedication to BP.