All Forum Posts by: David Switzer
David Switzer has started 7 posts and replied 16 times.
Post: Staging a Commercial Property?
- Posts 17
- Votes 5
Hey all!
I was watching a Masterclass on residential real estate, and it got me thinking.
Does anyone ever stage a commercial space? I know it makes more sense in a house where everyone wants the same stuff (bed, couch, TV, kitchen, etc), but how about virtually staging a commercial space?
Large and National tenants can obviously look at a space like a vanilla box and know the immediate potential, but smaller Mom&Pop/Local businesses may be more interested if you paint them a picture. Talking mostly about retail.
Post: Issue with the HOA Board (need advice!)
- Posts 17
- Votes 5
Quote from @Matt Devincenzo:
Something is missing...if there isn't a Board and the HOA (or I assume more likely a COA) is newly formed then why isn't the developer still in control of the HOA? The manager doesn't determine what they do and don't like, they 'manage' the HOA to comply with the law and guidance from the Board. So no Board, nothing to manage except State law...the organization docs for the HOA should have identified when the developer maintained control, the terms for it to be turned over and at turnover you would establish a legislative body which would be the Board...
Hmm that's a good point which I will look into! The units are all sold so the owners make up the HOA, but without a board the only person calling meetings right now is the Management company. I'm going to check into the HOA Organization docs!
Post: Issue with the HOA Board (need advice!)
- Posts 17
- Votes 5
Hello all!
I recently closed on a commercial condo unit (for retail), which is one unit in a building that also has 7 apartments. There is an HOA.
We have been working with the developer to make the unit ADA compliant, and the only way to do so was to add a door from the commercial unit into the common entry/lobby, as there is an ADA compliant ramp there. Our tenant would have a key and could assist people in through that entrance if needed.
We closed, and at closing the developer signed a contract to install a door and escrowed $20,000 in the event they did not end up doing it. So they opened up the wall to start the door, and immediately the HOA opposed it. We don't even a Board yet (it's a new build), and it's all being coordinated by the HOA management company for the building.
The developer offered to make the new door key fobbed on each side for entry, and would install a new security camera. The HOA (through the management manager) said OK, please provide a letter stating the door is the only way to make the unit ADA compliant, and I think it will be okay.
A week later the developer presents a letter from an architect stating the door is the only way to make the unit compliant. However, the HOA then said "we are still fully opposed to the door".
I am working with our RE attorney, but I was wondering if anyone had any tips or experience in this situation. I wrote a letter to the HOA yesterday explaining why the door was needed, how security would be very tight, and how the HOA itself could potentially be responsible for any ADA fines/penalties if they are found to the "barrier to access" for ADA as they control the lobby.
We have a tenant lined up and obviously this is causing a major issue. Is my only next move to threaten to sue the HOA to force the door?
Thanks so much!
- David
Post: Question about ADA (no one seems to be doing it?)
- Posts 17
- Votes 5
Hey Chris - thanks so much for the thoughtful response! It does seem to use a little bit of vague language I guess when it comes to "can it be easily/cheaply done".
Would you think a store that had a small step at the front would be compliant if they had a small metal portable ramp they could lay down over the stairs in case someone in a wheelchair were to come?
Post: Question about ADA (no one seems to be doing it?)
- Posts 17
- Votes 5
Hey all!
I recently bought a commercial condo (retail) and have been going through hoops with the seller (developer) to make changes to make the space ADA compliant. Putting in a ramp, adding grab bars in bathroom, raising the sink height, etc.
However, as I walk down the street in my city, I see tons of retail businesses that definitely do not comply. Stairs are the only way to get in, no grab rails in the bathroom, ramps that are too steep, etc.
From what I've read, all commercial businesses/buildings (including ones before the ADA was passed) have to comply with the rules, unless it would be outrageously tough to fix (like installing an elevator in an already built building).
Are all these local business just not complying and taking the risk, or am I missing something? The fines are huge.
Post: 10 x SFR cash out refi 60% to 80% LTV - Financing Survey/Review
- Posts 17
- Votes 5
This was a very good read Chris, thanks for posting!
Quote from @Chris Mason:
You strike the balance by looking at your goals.
If you want a risk big and win big proposition, that's Grandma Millie's Sewing Shop.
Low risk and low return, Subway's where it's at.
For maximum sales price in 2-5 years, you need to consult a combination of your broker and a crystal ball. Silicon Valley is not rural Ohio is not east Los Angeles. One thing that will remain true for all is the outlier buyer who would want it either vacant (perhaps for their own business), or easily turned vacant. That's where your lease terms come into play.
Thanks Chris!
Quote from @Evan Polaski:
To add more color:
Your cap rate is pricing in risk. Your risk here is
- tenant quality: who is guaranteeing each lease? What is the need for that tenant type in the market? Is sewing shop the only one for 30 miles?
Lease type: are some absolute NNN? Are some capped on certain items? Are they reimbursing POA? What about special assessments from POA?
Property Condition: when was it built? How is the POA? Is it well funded? Under funded? Are there common roofs? If so, does POA cover them? If not, what happens when neighbor owner isn't maintaining their roof and water leaks are impacting your tenant?
Market Risks: you said lots of new development. That sounds like a lot of new product entering your market that could scoop away your tenant. Also, investor interest in this market.
How do you strike a balance? Well, you can be fairly confident in your cash flow, at least for a few years. You have no real control over macro economic issues over the long term, which will have a higher level of impact on your building value. But ultimately, because of these risks, most real estate investors see most of their return from appreciation versus cash flow. So, you need to decide what type of personal risk you are willing to take.
This is excellent thank you!
Oh, what I meant was a single commercial condo, not an entire building. Somewhere between 1000-1500 SF, and the locale is excellent in a market with many people moving in and new developments coming in.
I should have said "unit" and not "building"
I understand that Cap Rates are not a set number in an area/property, and they depend on many factors. So here's my question:
How do you strike a balance between higher cash flow vs building value? Example:
-------------------
Tenant A - Grandma Millie's Sewing Shop
Been in business 1 year, decently profitable, signs 5 year lease.
Rent = $60,000/year
Tenant B - Eye Doctor office.
Been in business 5 years, quite profitable, signs 5 year lease.
Rent = $55,000/year
Tenant C - Subway
5 year lease
Rent = $50,000/year
-------------------
If I assign the following Cap Rates, I get these building values:
Tenant A / 10% cap rate
60k/.1 = $600,000
Tenant B / 8.5% cap rate
55k/.085= $647,000
Tenant C / 7% cap rate
50k/.07 = $714,000
(or even $45k at 6% cap rate = $750k)
-------------------
I just made up all of these numbers. What I'm basically asking is, how do I find the right balance between cash flow and increased building value? I.E. $15k more in cash flow per year vs $150k in increased building value