Trampled on the path of progress?

3 Replies

I'm looking at a small MFR deal: 14 units, all 1/1. C+ property in a C+ area. However, there is a development (not re-development) plan  for the immediate neighborhood that it lies in, in which they are proposing zoning plans for each of the parcels in the area. Mind you, there's not a whole lot there now, and hence it doesn't appear to be  a RE-development plan.

From what I can tell, they want to turn this mostly under-utilized area into a bedroom community: there is a mixture of very-low to very-high density housing as well as a few mixed-use parcels and open-preserves. TBH, I'm not exactly sure what they mean by "mixed-use." It could be trendy hipster loft over a cafe, or it could be a taco-bell sharing a parking lot with a dentist.

I don't quite know what to think about this deal. On the one hand, it puts the prospective property "on the map" as it where. On the other hand, there's going to be a bunch of presumably new housing in the area. From what I hear is that in general most developers are preferring to build A-class properties just because land is tight and expenses are high. So I might find myself owning the ugly duckling C+ property with 1/1's surrounded by A's with 3/2's. Or I might be filing a niche for hipster millennials in the path of progress.

Anyone deal with this type of situation before and/or have some advice as to how I should think about the problem or how I should further investigate?

Thanks!

James

@James Kojo , I see nothing but positive outcomes for the deal, provided the asking price reflects value-for-money against C+ sold comps, rather than against anticipated future value because of proposed gentrification.

Or I could just say: I don't quite get your concern. Why wouldn't you want surrounding new B+ development?

This seems like great news for your "ugly duckling"! If the whole neighborhood is repositioned from C+ to B or even B+ then that tide will certainly raise all boats. Additionally, this will give you the confidence to reposition your own property through rehab, which will create an opportunity to create a ton of value and refinance all of your initial capital out of the deal. Try to get a better understanding of what the new development is. You're are most likely right that it will be class A stuff because anything else is simply too expensive to build ESPECIALLY in San Jose.

I agree with what’s been said already. If you can buy on actuals in a neighborhood that’s going to turn then it’s all good for you. You can renovate to a B and rent for less than the new builds. They draw people into the area and you turn them into your tenants because they would rather save 500/mo. I don’t see a lot of downside for you unless you massively overpay!

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