About 3 months ago I purchased a commercial building in East Providence RI. This is about a 3500 SF footprint, on 3 levels, including the basement. The intention of this property is to move my architecture firm into & also have some rentable space to help finance the whole thing. It's a 1940 era concrete block building, with 12 foot wood ceilings, wood floors, industrial windows. We took a loan to renovate the first floor into 2 rentable units - 1300 SF and 1400 SF. I'm planning on putting my office on the 2nd floor (GSF 3500) - although I don't need this whole floor.
One of the challenges is rehabbing the building vs cost - a lot of delayed maintenance on the building (it was simply a storage warehouse for 30 years). My long term goal is to convert it to apartments or live/work units, but right now the best my budget can do is basic commercial space (white box).
My goal of this diary is to hopefully get some advice, and some creative thinking going. In my area, small commercial spaces (class C or D commercial) do seem to be renting, but the market is much hotter for residential. Unfortunately, my cost for electrical, HVAC, plumbing, & fire protection is too high to do the residential conversion right now. Just getting one floor white boxed is taking all the $.
Posting a couple of photos here
Exterior - front - we repainted two sides, to give it a bit more curb appeal. Obviously, it's a basic industrial building. One thing I liked was that it already had 3 gas meters and 4 electrical meters, so it came with a bit of what we needed to split it to multiple units. Plenty of power supplied to the building.
One of the units under construction.
Another interior shot. The block walls have been primed, and a big stack of windows waiting to get installed (to replace all the small ugly windows you can see in this shot). This unit looks horrible in this picture...but I'll post another one soon showing the windows installed and the walls painted.
Here's one with some of the windows installed
One thing I'm mulling over is the conversion to residential. We'd probably max out at 10 one bedroom units (about 600 SF each) or could do fewer larger units. Although I'm an architect, I'm having a bit of trouble wrapping my head around the code requirements for live / work, especially in terms of HVAC (can we use the ceiling hung heaters or do we need new residential HVAC systems?), electrical (can we use the existing circuiting, or do we need new AFCI circuits everywhere?), and plumbing (can I do shared baths outside the units (allowing me to reuse existing baths - or do I need to build private baths inside each unit?). Getting solid answers on these questions could be huge in terms of the $. Obviously, any advice would be great.
@David Sisson Have you talked to the city building/planning department to figure out if they will be in favor or against your proposed use change? I'd also recommend talking to owners of neighboring properties if the opportunity arises, since I believe their input will be solicited for any potential zoning changes.
Aesthetically, I like your exterior painting (and nice budget move only doing the 2 visible sides!), and I can see that changing the windows will do amazing things inside the space (almost literally "night and day").
Taking a step back, my general idea is "do one thing and do it well" - so if it were me with that building I'd probably pick a course as far as office/commercial or residential and stick with it. But if the town is in favor of (or not opposed to) a more creative use then maybe there's an opportunity there.
I'd also say, think about if you ever decided to sell the building and who your potential buyers would be. How many people are going to want to buy a mixed office/residential building, versus one that's simply offices/commercial, or simply residential. Not to say that mixed is the wrong move, but I do think it's a more limited resell market so something to consider.
Lastly, I have not done this, but in the recesses of my brain there's a concept of a "highest and best use study". I have no idea if this project is a good case for such a study, or how much it would cost, but as long as you're opening up the can of worms of changing the present use, it might be something worth looking into (even if you ultimately say, that would cost too much for this building/project to make it worth commissioning such a study).
Anthony, thanks for the insight. One thing I forgot to mention is that we have extremely favorable zoning. The property lies in an overlay zone that allows almost anything by-right. It has an underlay of commercial zoning, but the overlay allows various residential uses. We've already settled on a buy-and-hold strategy, but "highest and best use" is something I could analyze. Given my limited skills, right now it seems a wash - the amount we'd have to invest to convert to residential wouldn't be offset by the increased rents.
Obviously, we'd need city buy-in, but so far the city has been very supportive of us and I've established a good relationship with the Fire Dept, Building Dept, and Planning. Neighbors have also been supportive of us - the building was barely used for 30 years, so our new activity is seen as a plus.
I signed up just to reply. I have never commented in one of these forums but it's 3:30 am and Ive been up all night searching for a live/work space I can purchase for a reasonable price.The lofts I am finding are 300K and the mixed/use buildings in the range I can afford are in such horrible locations I cant have my clients come there. I have a high end business.
Have you considered going condo?
I don't know how that works but if you own and maintain the common areas cant you control who you sell to ( the new buyer would be on the condo board you form) and if you are of like mind you can control the types of buyers/ businesses that buy and you could keep part of the building yourself as rental?
I would buy a unit that size especially if it was in a building with another company in my industry.
Here is my dilemma. I own an Interior Design/Decorating Company. I have a small retail location in a VERY pricey town in MA. Oddly I have a satellite office in a model home I designed right up the street from my shop for free for the next 2 years. ( The builder hired me to help each buyer customize their units) I am throwing away almost 20K a year if I keep my retail space but I cant move my whole shop there so I thought " Ill sell my condo, I'll have about 100K cash and go buy a live/work space."
The issue. I will never get approved for what I can really afford because my income doesn't prove it. Why? because all my overhead etc ( 20K worth) is paid out my company before I pay myself a salary. If the expense was gone my salary would increase or if they would acknowledge that income I could be approved for a much larger amount but it would be foolish to pay myself, pay tax on it, then put it back in my company to pay expenses. I'm so frustrated and I bet there are others out there like me.
My apologies for venting and I know I'm not being helpful to your situation but the part of this issue we have in common are the strict residential/commercial guidelines.
My condo is a waste for me. I'm 51, single and the only person who ever goes in my guest room is my cleaning lady. My work is my life so it makes sense to combine my home and my company.
Anyway, I really replied because I don't think it would be as hard as people think to find people who want to rent live work space. There are a lot of young start ups out there who want to maintain a professional image but cant afford to rent an apt and business place.
Hi @Christopher Eysie - we aren't planning on doing condos - mainly because this is a buy and hold. I admit, it's attractive to imagine raising a bunch of cash quickly, but the long term plan is cash flow.
I am interested in doing live/work - This is really the goal, I just can't pencil it out yet. I might have to make it pencil out soon, because I'm not getting much traction on getting commercial tenants (of course, we're not done w/renovation yet...)
In your case, you should talk to someone about a SBA loan. You might have better luck when they actually look at your real finances, not just the W2/1099 portion. As you've realized, buying rather than renting can make sense, but if you can make your purchase be part of the business (rather than personal), then you can deduct better. I don't know who administers SBA loans in your area, but find out and talk to them. Then, talk to a commercial lender.
Here in RI, we have the RI Small Business Development Center - which is an awesome resource for helping grow and focus a business.
I've mopped up a few electrical issues - really minor stuff where things were connected to the wrong panels. Getting ready (and excited for) the floor refinishers - suppose to start on Monday. I can't wait to see these floors come back to life. Negotiated paint with the painter - a long story that involves disappointment - but the good news it that we will have paint, even if we need to put it on ourselves. Here's a couple of pictures from last night.
i ordered new thermostats. The building has 8 furnaces, so selection and price of thermostats was a big deal. I settled on a mix of programmable and wifi programmable - trying to get good energy efficiency and control, without bursting the HVAC budget. I also ordered fire extinguishers. I really had no idea how expensive fire extinguishers were, but managed to get them down to $30 each, which is a great deal.
The biggest headache right now is getting internet service installed. We can't move the office in until they install, but getting cox to confirm an install date is proving impossible. I was promised tomorrow, but no idea yet...excited to make the move (even if the building is completely not ready yet)...but a bunch of last minute panic about internet.
Other than the wood floor refinish, there are just a couple more things to have the contractor do, then we can cut them free (and pay them the final!). At that point, we need to refinance the construction loan into a permanent loan. I'm worried about interest rates...hope we can make the re-fi before anything goes crazy.
Today was supposed to be move in day - but Cox has dropped the ball for the second time, so we don't know when the internet will arrive. I spent the evening yesterday cleaning, and even after 2 hours, had only managed to sweep a bit more than half of the second floor (approximately 2000 square feet). I'd wanted to sweep the whole floor, vacuum, mop, but couldn't manage it. I cleaned the bathroom, which was a bit of a joke because the one functioning bath isn't renovated yet, so it felt like cleaning dirt.
So, yeah, getting excited to get the floors redone on the first floor, because we can put in the toilets, paint, and have 2 nicely renovated baths.
We need to be out of our current space before the end of the month, so we are approaching the deadline. In 2 weeks, or sooner, we will move in with or without internet. Tough to do the business without internet. I wonder if we could survive a couple of days off an iphone hotspot and limited internet usage...
Cox promises Monday internet install! woo hoo! fingers crossed...
Got the cox install this morning :)
It's been a busy week - we moved the office in - even though the space wasn't close to ready.
We also FINALLY got the floor refinishers to come. Our contractor had chosen a floor refinisher, but after a couple of weeks of excuses, we arranged our own, who jumped quickly on the job for a good price. The floors are original 1940 industrial - complete with gouges and stains from old machines. We also had to patch in new wood - where the old wood was too damaged to keep. So, it's a real patchwork floor.
I was nervous about the wide variation in floor color - although I liked the history that shows through. I polled everyone I knew and they all agreed that the natural finish was the best. When we discovered that it'd cost an extra $1500 to stain the floor, the decision was made for us.
We had a terrible storm during the sanding process, and a couple of the old windows leaked all over the floor. So, now I need to get going on replacing those windows. I had hoped to wait a few months, but they are now a priority.
The finish is looking great - a couple more days while it dries and more coats are put down.
It's been a bit since I posted. The big excitement has been completing the floor refinish, and also finaling out the contractor. We are set to close on the construction loan next week (convert to a permanent loan). In the meantime, I've been working on finish paint - which is going much slower than I hoped (real life and my business have been occupying my time). I'm getting nervous about renting - really need some cash flow - and thinking long and hard about converting units to residential (artist live/work). This is relatively affordable ($10-$15K per unit) and has the opportunity to potentially double the rent per SF, giving a payback of 1 - 2 years. One of the units is much easier to convert, much more affordable, so I might work on it while still trying to rent the other commercially. Might also advertise as live/work, just to see if I can get any nibbles and feel out the market. Traffic for commercial rental has been very poor.
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