Mixed Use property in Philadelphia

3 Replies | Philadelphia, Pennsylvania

I’m buying a mixed use property with a commercial first floor and apartments above it. Never had any experience renting commercial space. It’s about 1200sq.ft open space with a bathroom. A few years back it used to be a deli store, before that it was a beauty parlor. It needs to be completely renovated. The property is not in a major business street. The street has enough of traffic but it’s more of a residential area. There is a grocery sore in a property directly across the street.

So I have a few questions:

  1. When you rent commercial space do you do renovations before you find a tenant or after?
  2. Who is responsible for the change of use of the property (let’s say if I have a daycare moving in) the tenant or the landlord?
  3. I wander if I can (if the city allows that) partition the space into a few different office spaces and rent them separately?
  4. What is the best source for commercial listing in your experience?
  5. Any other suggestions or recommendations on what to do with the space would be greatly appreciated. 

If you never done commercial before, speak to a few commercial brokers in your area. My dad owned a mixed use property, originally three small stores downstairs, eventually converted to two. He relied on them.

These brokers know what is in demand in your area. For instance, I once was going to buy an active business to go into, I heard laundromats would be good, so I got a laundromat broker who looked for laundromats to buy, or empty stores that make good locations for laundromats. He pointed out to me which locations are good and which not, and I couldn't believe traffic patterns has a lot to do with it.

And then when my dad had a vacancy, the local brokers who he works with and trusts would have ready clients looking for stores for rent. Usually, the clients are vetted so that they would be financially capable.

As to renovations, there's two tracks. You either do your own, it shows well, and you could rent to businesses that needs no further renovation, principally offices. Then there are those, like restaurants, that requires it, regardless, building a kitchen, refrigeration rooms, that you'll leave it for them to do.

My dads commercial space is in the middle of a residential area as well, which needs certain services where people don't have to travel far to get, such as delis, beauty parlors, barber shops, laundromats, and in the old days, local bars. But my dad preferred quiet businesses most of which are looking for office space, such as insurance, accounting, real estate. These types of office space seekers as it turned out had been priced out of high traffic areas, charging triple or four times the rent, but require legal commercial space to operate, so a less trafficked areas suits them fine, particularly if they have established clients. It all depends on the commercial dynamics of your area, which is why a local commercial brokers works best for you. You won't know any of this off the internet doing online listings

One thing my dad learned is for commercial liability insurance, restaurants is the highest, and offices are the lowest, with other businesses in between. So he collects less rent for the insurance office, but his expenses are correspondingly lower.

Oh, be ready for residential tenant complaints upstairs when you have restaurants or delis downstairs, particularly odors and noise, especially if they open late. Imagine an Indian restaurant downstairs with it's curry odor? I looked at one mixed use property with 6 stores downstairs, and two large apartment upstairs and one of the apartments, tenants keep moving as he has a restaurant downstairs. The other is a rent controlled unit where a 90 years old lady lived over 60 years, with controlled rent of $98.00/month and market rents are $800.00.

As to your other question about zoning and permits and who is responsible, you will find local commercial brokers helpful, particularly if they worked with commercial tenants of all types.

@Yuriy Skripnichenko , I agree with Frank, it sounds like you should speak with a commercial retail broker. You’ll need to have a few different professionals (attorneys, zoning, etc.) answer your questions specific to your area, and a good broker should have all of those connections.

If you’re in Philly, I’d recommend MSC retail, Metro Commercial, or I have retail professionals in my office under the name Rittenhouse Retail. PM me if you’d like an introduction to anyone.