All Forum Posts by: Eric Lefteroff

The highest and best use of the land is the use that 1) affords the highest investment return, 2) is physically possible, 3) a reasonably probable use, and 4) is supported by market dynamics.  Therefore, I would research each of these categories with the appropriate analytical tools.  If your analysis and research shows that the highest and best use is something other than what the property is currently zoned for you can rezone the property if you can justify your proposed change.  This is by no means easy nor cheap but can be much better for the community and very lucrative.

Have you started on your project yet?  I would be interested to know which direction you are taking.  The following is a very cursory list of how I would approach this.

1) Work with a real estate agent to do thorough research on sales prices (comps) for similar properties in the area.

2) Work with an experienced RE consultant or developer to create a pro-forma based on solid research for your development that includes 1) a pre-development and development budget that includes a) soft costs like architect and engineer fees, geotech, permits, survey, builders risk insurance, legal, etc. and b) hard costs (construction costs); 2) sources and uses of funds; 3) cash flows; 4) sales (absorption) projections; and 5) a capital accumulation model for your different development scenarios to help determine which alternative would yield the highest investment return.

3) Find a reputable architect and engineer to create drawings and help you through the permitting process.

4) Submit drawings to GCs for bid.

5) Update your pro-forma for the estimated construction costs and take it to several lenders to determine what the loan terms would be.

6) Secure a loan, hire a GC, and start building.

Again, the above is just a simple general overview and is not meant to be comprehensive by any means.  At any rate, I hope this helps.

@Brian Wheeler Since you would be asking for something of value from the tenants I would be prepared to offer something in return (i.e. a slightly lower rental amount, a month of free rent, etc.).  I would start the conversation by asking them questions about their future plans for their business and taking the approach of how you can help them while also improving your situation as their landlord.  You are after all, giving them more stability as well in that you can't terminate their lease and make them move their entire business on short notice.

Also, it costs tenants to move and it is a hassle.  Therefore, as long as the deal you offer them in a new lease is competitive I would think that you could greatly mitigate the number of tenants that vacate, if any.  Additionally, I can't think it would be very easy for them to find another landlord that would offer them a month-to-month lease.

Finally, you mentioned "annual" leases, just to be clear I would enter into multi-year leases to the extent that they make sense with your business plan for your building. Lenders like to see long term leases at or above market lease rates.  So, if you ever decide to refinance or sell, long-term leases would be a plus for you.

@Andrew White I would definitely hire a retail broker, get copies of all the leases, and have your broker perform a cash flow analysis at a minimum (assign a vacancy factor per your broker's advice even though it is currently 100% occupied).  Your broker should understand the market, lease comps, sales comps, competition, cap rates, etc.  It is also important to understand the seller's motivation for selling.  It could clue you in on valuable information when you are considering your offer.  A good broker will help you will all of the above.  Good Luck.

Unfortunately, it sounds like you haven't had very hungry brokers working on your leasing.  I would recommend that you do an analysis of competing centers in your area. A broker worth his or her money will figure out what tenant's leases are going to terminate soon in proximate centers and target them.  Also, your broker should figure out what the gaps in service are in your area and also target those types of tenants to fill the gap.  

Interview your brokers and include the above, at a minimum, in the description of services in the listing agreement.  Then, keep on your brokers to make sure they are delivering the services that they agreed in writing to deliver.  If they have a weak description of services move on to interview a different broker.  Make sure their pitch is specific to your center and your specific unique needs.  If they don't take the time to tailor their pitch and services to you specifically then it reveals how much effort they will put into working the listing and you should move on to interview a different broker.

@Jeffery Kuhl What kind of commercial?  For office and retail you would consider different things. 

For office you would consider the parking, submarket vacancy, rental rates, typical landlord concessions, proximity to workforce, just to name a few.  

For retail you would consider, vacancy and rental rates, area demographics like household income and household size, age, etc. You would also want high traffic in front of your building, good signage, good ingress / egress, ample parking, good visibility, good tenant mix, unique stores that are not over saturated in the area, etc.  

@Chris M. Not meaning to be intimidating at all with my questions but very glad if they are motivating you in any way.  Hard costs are basically the site prep costs, construction costs, tenant improvement costs, etc.  Soft costs are costs such as A&E, legal, accounting, survey & geo tech, title, insurance, loan costs, leasing commissions, fees, etc.  Hope that helps.

@Chris M. Very interesting deal.  Good luck with it.  Does your pro-forma include a development budget with all soft and hard costs included as well as an operating budget, equity cash-flows, sources and uses of funds, lease-up time table, sales proceeds analysis, etc.?  Are you syndicating this deal?  Do you have a broker advising on the market and potential lease rates?  Have you spoken with potential lenders yet?

@John Vanhara

Big picture...I would look at ways to decrease scope and/or value engineer (use cheaper yet acceptable materials).  

Are you considering the cost of the land in the costs that you mentioned?  If so, if you are in a higher land cost area with good linkages and zoned for warehouse I would also look at building higher ceilings to accommodate more volume so that you can charge more rent for the same amount of land. This is the trend in industrial.  Upward (accommodating higher racking systems) not outward. 

Carrying costs can also add significant costs to a project.  So, instead of taking your time to finish the project I would look into compressing the schedule through fast tracking (doing work in parallel to the extent possible) which can help reduce carrying costs by facilitating a shorter time to market for your industrial building.  Of course that assumes that the type of industrial space you are considering is in high demand in the location you are looking to build and would lease up quickly.  

If you can provide more details I may be able to offer more suggestions.  I hope this helps.

@Angeline Mentor 

I have used Microsoft Project for commercial projects before and it had everything I needed.  I used it for retail development projects in the 15,000 SF range.  In my experience a lot of professional commercial contractors use Primavera.