Hey everyone!

I am curious about the costs and pitfalls of converting a large open space (2 floors/13,000 sq ft each) of meeting space into office space for lease. The price on the building is very cheap, but that is because the building also includes a large lobby area and a full auditorium (1,000+ people) with stage/lights that might be hard to lease. Plus, there wouldn't be any active tenants at the outset.  Currently, it is being used as a religious facility.

Obviously, it would take some work & cash to convert the meeting/lounge space into office space. I have no idea what I'd do with the auditorium, but the finances seem to make sense without that piece. Going rates for office space are from $7(bad) to $20(class A)/sq ft in the area.

All total, it is a 50,000 sq ft building on 12 acres listed at just over $1 million. It is adjacent to a large hospital with nice brick exterior.

How do you determine office space demand in an area?

Would you hire a commercial broker to find tenants? Is that before or after the buildout?

I know single-family pretty well, but dipping my toe into commercial has some new obstacles! Thanks for your advice!

Originally posted by @Alex S. :

Hey everyone!

I am curious about the costs and pitfalls of converting a large open space (2 floors/13,000 sq ft each) of meeting space into office space for lease. The price on the building is very cheap, but that is because the building also includes a large lobby area and a full auditorium (1,000+ people) with stage/lights that might be hard to lease. Plus, there wouldn't be any active tenants at the outset.  Currently, it is being used as a religious facility.

Obviously, it would take some work & cash to convert the meeting/lounge space into office space. I have no idea what I'd do with the auditorium, but the finances seem to make sense without that piece. Going rates for office space are from $7(bad) to $20(class A)/sq ft in the area.

All total, it is a 50,000 sq ft building on 12 acres listed at just over $1 million. It is adjacent to a large hospital with nice brick exterior.

How do you determine office space demand in an area?

Would you hire a commercial broker to find tenants? Is that before or after the buildout?

I know single-family pretty well, but dipping my toe into commercial has some new obstacles! Thanks for your advice!

The build out costs will vary greatly depending on the type and condition of the building, the tenant needs, scope, finishes and specifications. There really is no way to know without having a lot more info. 

You determine demand by researching vacancy in the area. You do this by driving around and by talking to commercial brokers and property managers about the demand.

In most cases it's best to hire a commercial broker to fill the space. You want to let the tenant do their own build out. You will most likely have to offer a tenant improvement (T.I.) allowance for this depending on demand for space. The less the demand the more you may have to offer and vise versa.

Thank you for the insight @Greg Dickerson !

After more research last night, I found that the property taxes are frozen due to the charitable status of the current owner.  The county says I wouldn't have to pay the higher taxes until after reassessment, which might give me several months of $200/year taxes vs. $40,000/year taxes.

On the negative side...holding costs would still be enormous if I couldn't find a tenant quickly.  I'll start talking to brokers and try to get a better sense of demand in this area.

I think you have lots of opportunity here. The auditorium can be converted into climate controlled self storage pretty easily. the additional acreage can be self storage or depending on area boar/rv storage. Depending on zoning you can probably subdivide the tracks of land into other zoning areas with utilities to the lots can be sold off very nicely for development purposes.  Again depending on the zoning, I think there is lots of opportunity with the right ideas.

@Daniel Lioz thanks for the creative inputs!

There are no shortage of auditoriums in the area, so converting the space makes the most sense to me. It is in the St Louis area (bible belt), so lots of church rental possibilities as well.

I like this opportunity. but you will not bill out office spaces until you have tenants. You can sometimes get with a bank and they can provide funding. but typically you roll your build-out cost in the life of the lease if the tenant is unable or unwilling to pay for it outright. also, you typically provided a credit 5% or so for the build-out or free rent = to that. 

Keep in mind this with not be a NNN lease unless you find one tenant for the entire building. I like the project. that are lots of things you can do. good job I wish this was in my neck of the woods I would do it.

I would contact the biggest and best broker and management compy around and get there thoughts about rent.