All Forum Posts by: Matt Dorsten

@Douglas Dowell- most important objectives- (1) a successful redevelopment that (2) stays within the budget while (3) achieving 100% occupancy and (4) an 8+% CAP rate.

@Jimmy Klein- I'm not sure I understand your first comment regarding assuming no vacancy.  In putting together a rough pro forma for the property, why would I assume vacancy?  Sure vacancy happens but, I'm not going to approach a project that I don't believe can attain 100% occupancy.

@Nick L. yes, an 8+% CAP rate in Denver is not heard of in the market right now, those kind-of returns don't make it to the market. That's how tight our market is right now.

Oh man, just realized how bad I butchered dilapidated! 

@Nick L., thanks. I think the remodel plan is simple flex space with minimal office (1 lobby, 1 private) for a tradesman, so a TI package should be minimal ($2/SF which is nothing more than paint and flooring for tenant turnover). Operating at 100% occupancy and you'll have good returns but, that's always the story in commercial real estate. What's going to keep the CAP rate up on this property is that billboard- tail wagging the dog? Perhaps.

@Nick L.

Raw Land Value would likely be in the $20/SF range.

Highest and best use for this area is currently industrial.  This would be prime location for a small trades business (plumbing, HVAC, electrical) or a residential remodel type use (cabinets, granite, flooring) because of the central location and easy access from major thoroughfares and currently industrial zoning designation.

Current zoning is Industrial with Industrial Mixed-Use across the street.  The Mixed-Use would allow for a residential component but, the property/area is not in any condition to go residential.  But, you could probably rezone the property while reworking the site with any zoning conformity issues.  A rezone may get you to $25/SF for the land.

Wow!

I can't believe Denver Fire is making you sprinkle a building that size!  Denver Fire is really making things hard around town and just don't seem to understand how the financial impact & timing of having to install fire suppression systems can really kill a great project.

Good luck, I'm going to try to do a drive by of your project.  I was working with somebody on a property up the road on Federal but at $288/SF plus major rehab, the numbers just didn't make sense for this owner/user.

I wanted to get some input on a piece of property that keeps coming across my desk...

This property (about 1/4 acre) is in Denver and has about 5,500SF of building on it, about 4,000SF are old row-homes and 1,500SF is a 2 story building that looks like and old office building.  The buildings are in terrible condition and I don't know if they are even worth remodeling, maybe demo'ing is the best option.  I've walked the property but the windows and doors are boarded up. The zoning is already in place for industrial.  BUT, this property has frontage on a heavily traveled arterial road and so the billboard on the property is the real income potential (even though the billboard is under-marketed due to lazy ownership).

Expense:

• The owner will sell for $425,000-$450,000.
• IF the building's could be salvaged, it's going to be about a $250,000-$400,000 remodel (this includes paving and grading for a parking lot).  
• Total (worse case scenario): $850,000

Income:

• The billboard could lease today for about $2,500/month
• If the buildings are salvageable, net rents could be in the $8-$10/SF range (let's say $9/SF average for the 5,500SF) or $4,125/month.
• Total: $79,500/year or 9.35 CAP rate (nice!)

This would definitely be a very involved project.  Should I put this pipe dream to rest or do you think there might be some real potential here?  Am I trying to polish a turd?

@Peggy Liu I would suggest teaming up a with a broker.  I may be biased in my answer because I am an industrial real estate broker but, it's my job to listen and research information about the market in my area.  If you're trying to figure out if there is a "need" in the market take a look at a few simple stats- VACANCY RATES in the segment your interested in (not just "industrial" but more specifically <5,000SF warehouse, 5,000SF-10,000SF of warehouse, 10,000SF-20,000SF of warehouse, etc, etc; the <5,000SF users are dramatically different in their needs than a 50,000SF user), AVERAGE RENT/SF (rate of return on an existing warehouse versus a new build), COST OF NEW CONSTRUCTION/SF (including land acquisition price).  These three indicators will give you a good start on whether the market you're interested in is primed for development.

Good luck!

Doug, I'm in Industrial Real Estate in Denver and while our market is very healthy and outside of the norm for the rest of the US, manufacturing is coming back to the US and other factors are increasing warehouse demand.  Marketwatch.com put out a good article on the increase in manufacturing jobs and some supporting reasoning why "Made In America" is coming back (http://www.marketwatch.com/story/us-flips-the-script-on-jobs-reshoring-finally-outpaced-offshoring-in-2014-2015-05-01).  Another aspect driving demand is urban redevelopment with warehouses being turned into a plethora of uses ("open loft office" warehouse conversion, indoor trendy mini-malls, and lofts).

@Don Johnson, welcome!

This site has a ton of great information, as you already know since you've been lurking.  Good luck in your quests!