140,000ft Industrial - Dilapidated But Cheap - What Would You Do?

Question

Here's a what-would-you-do scenario. There's an ex-manufacturing property near me that is for sale. It sits on 25 acres near a small town of 9000 people. It sits away from other industrial areas, and consists of 140,000 square feet of industrial warehouse broken up into multiple buildings. Some buildings are brick/stone, others are steel buildings. It's been sitting vacant at least 20 years, so ALL buildings need work. Some will probably need to be torn down eventually, say 25%. For calculations sake, figure 100,000 square feet of rentable space.

Asking price: $500k negotiableProperty tax: $30,000 / yearComparable rental rates: $1 - $5 per foot depending on condition

Some options are:1. Clean up the grounds, leave the buildings as-is and try to rent NNN at reduced rate to tenants who want to repair the buildings.2. Clean up the grounds AND get the buildings functional 25,000ft at a time, rent at higher rate to multiple tenants. Use the income from each partition to continue fixing more and more of the space, eventually renting out the entire 100,000 square feet.3. Convert one portion to finished office space, and rent at an even higher rate.4. Apparently the property has a power transmission line, which could allow for a solar farm, so that's a bonus option. 5. Turn the whole place into a haunted house.

Info about the area: The immediate area has (-)2.2% population growth years 2010-2014 and is not a heavy industrial area. However, it's 90 minutes from New York City via a major interstate located 10 minutes from the property. There's a good sized hospital in town which serves NY, NJ, and PA residents. However, there is a concern that there's not enough of a demand for commercial space due to the distance from other industrial areas and large cities. However #2, it's 30 minutes from the construction site of a $1B casino project to be completed in 2018. They're expecting 2000+ new jobs and 2 million visitors annually. On paper, this should boost the area - but will it affect commercial/industrial property?

So - what would you do?? Is it a score at such a low price compared to it's potential, or is it a definite pass?

Aaron K. · Answer

Thanks guys. Many good points listed above. I agree - environmental may be an insurmountable hurdle. I don't know what was there before, still doing research on the history. Population is also an issue. We have about 30,000 people within 30 minute drive of this property, which is probably about as far as they'll drive for a warehouse space without already having one closer to them. I had also considered using the unrented portions for some sort of attraction like paintball, snowmobile, indoor go-kart, haunted house, etc. but again, the population probably isn't there to support it. I don't think I'd have much luck grabbing the casino traffic either since they'll have their own amusement parks in-house. Not unless I did something exceptionally unique. Other issues mentioned above like asbestos and obsolete buildings are also cost-adders.

Hugh Ayles · Answer

@Aaron K

$4/sf is not nearly enough for a cold, dark shell. Not including abatement I would guess more like $10-20/sf.

And count me as another vote that remediation will be required on this property.

Now for a positive example:

I was working with a regional hospital that bought a 500,000 sf former computer company plant/office for $1/sf. My role was estimating the various finish outs.

It was a huge win for the hospital. They were able to parlay the property into office space and a joint venture research space with a university. They also had significant land in the deal for other development.

You would need to know you have solid targeted tenants before proceeding.

Fred Weinkauff · Answer

I am from the Poughkeepsie area.

Fred Weinkauff · Answer

The fact that it has been vacant for 20 yrs is not a good sign. You would think that if there was a great opportunity there another investor or business would have tried to make a go of it. MORE DUE DILIGENCE.

Lee Smith · Answer

I am not sure you have the population to support the investment.

I was thinking turn it into commercial warehouse, or shipping hub.. Semi truck docks, repair facility, etc, but I don't think your population would support it...

When I first read the idea I thought you could do Paintball wars, but that definitely would not pay for it...

I have heard of converting old large commercial spaces into year round aquaponics/hydroponics gardens, but again, I am not sure you have the population to support it.

I think @Brandon Sturgill also struck on another issue, and it was one I also thought of immediately.. I bet there is environmental issues with the space.. I know of several commercial buildings that sit vacant because no one can pay for the EPA cleanup of the site....

All this being said, nothing wrong with offering up a crazy low price and seeing if it sticks.... Downside to this though is that your city is going to want to know your plan before they will probably sell it to you...

Aaron K. · Answer

I was figuring a $100k renovation per 25,000 square feet of space. That would go towards delivering electrical and plumbing to the space, repairing superficial and minor structural damage to the space, building partition walls, and cleaning/painting of the space. Any major structural or environmental issues would be a deal-breaker anyway so I'm not adding those into general renovation costs. At $3/foot, it's not such a bad return unless I'm missing something. I'm posting this to get feedback, so please, tell me if I'm completely off base with my line of thinking.

Brandon Sturgill · Answer

Do you have $5mm cash to begin the renovations?...and other $2-3mm to finish?...

How can a town of 9,000 support a Chicago sized renovation project...

Just speculating, but there are likely some insurmountable environmental issues with this property.

140,000ft Industrial - Dilapidated But Cheap - What Would You Do?

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