All Forum Posts by: Bob Solak

With a long-empty upstairs office space and a first floor tenant whose lease will end within the year, I would be worried about finding a lender to agree to lend you the money without significant down payment.  And *usually* if you are after cash on cash return you will want as much leveraged as possible.

You have to decide whether this is an investment for cash flow or if you are going to own/operate, since as others have mentioned, that changes your calculations.

If cash flow is your game then you'll need to analyze the return on your investment that you'll need to make to modernize the spaces so that you can get the market rents that the brokers (but not potential renters apparently) think its worth. 

But if it were me, I'd be worried about the current tenant not renewing and being left with a totally vacant building, with no cash flow, that needs significant updates to lease again.  You'd best reserve a fair amount of capital. 

Courtney, I mean floor drains, if you have them, not toilets.  I understand you've done the toilets already.  But floor drains have their own p-traps that can dry out.  

Floor drains have p-traps too and can dry out over time.   If you haven't poured water down those yet, try that.  I've had this happen in a unit before.

So are you saying that you have four (City-allowed and approved) living units in the current building (basement, 1st floor, 2nd floor, attic)?    If so, I'd suggest that you not change the attic such that it cannot revert back to a separate unit when you go to resell.  There is value in that fourth rentable unit. 

Back to your original question about cost, it will really depend on whether that second floor unit is a total gut rehab or just a kitchen re-do and minor updates to other rooms.  It will also depend on whether you are having this done for you or if you are going to be the one swinging hammers, bending conduit, and hanging drywall. Lastly, it will depend on your expected finish level - are you a granite countertop guy or a Formica guy?   But I would budget anywhere from $120 - $200 per square foot.  Use the higher end for the attic gut rehab and on the lower end for the second floor unit unless you are in fact gutting it.  If you are talking top of the line everything (granite countertops, cherry custom cabinetry, crown molding, multi-head steam baths, etc. etc) bump that up $250-$275 a square foot.  

I think a lot of owners are trying to get out while they can from Cook County and the City due to skyrocketing commercial reassessments and very tenant-friendly laws.  The County Assessor is firmly of the belief that Commercial property has had it too good at the expense of residential and he's pounding reassessments (e.g. our non-MF commercial building saw a 30% increase in assessed value year over year).

 The For Sale listings tell the tale - hundreds available in the City proper, hardly any in the surrounding suburbs and counties.  Anything in the suburbs gets snapped up in heartbeat.  The City, not so much.  Crime is on the increase. Neighborhoods that used to feel safe (relatively) are starting to feel less so.  The Mayor and the police are at odds.  School parents are held hostage to the whims of the teachers union.  A lot of the service jobs in the Loop haven't bounced back because the office workers aren't back fully yet.  And the politics of the City will not be small-business friendly for the forseeable future.  There're a lot of reasons to be pessimistic about commercial in the City. 

But maybe that smells like opportunity to some?  

That's really going to depend on how long you think it will take you to get it leased up, how confident you are in doing so, what rate of return you are after, and your patience level on getting there.  

Your offer price should be based on what you feel the value needs to be to hit your desired return or cash flow.  If it's a "low ball", don't worry about it.  It is what it is.  And if they tell you to get lost, just move on to the next opportunity.  The value of commercial real estate is primarily determined by what the tenants are willing to pay.  It's 40% vacant for a reason, and the seller has to come to grips with that. 

100 years is a long time.  Your Phase 1 should include historical information about what was located there over the last 100 years.  Old phone directories, old aerial photos, old fire insurance maps, etc. etc.  I wouldn't freak out about anything until you get the Phase 1.  

Typically a grocery store and video rental place would not be causes for concern.  

No, a phase 2 is not automatically required in such instances.  

It will all depend upon what the Phase 1 uncovers, if anything, and then the lender may want (or you may want) a Phase 2 performed after that.  For example, if the Phase 1 finds that one of those other properties did indeed have a release and data shows that a plume was moving off site straight for your property, then the lender might get nervous.  

The price depends a lot on how much pipe you are talking about and how much concrete flooring they'll need to break up and replace. 

As for Schedule 80 PVC, I do not know if that is required or not.  Schedule 80 does indeed have thicker walls and can handle "more pressure" however you are talking about a sewer system, which will not be under pressure.  The tradeoff with the thicker walls is that the inner diameter of the pipe is smaller than schedule 40 of the same nominal size so, in theory, it can handle a little less flow.  The pipe and fittings are also more expensive than Schedule 40 on a materials basis.  Labor/time to install is pretty much the same. 

For grins, do a loopnet search for Chicago or Cook County proper and then do one excluding Cook County.  You'll see that there's a ton for sale in the City and not much in the burbs.  Folks are trying to sell and get the heck out.  Folks in the burbs see value in staying in their investments.