Quick Analysis for Commercial Development?

Question

Hello All!

I'm a licensed agent and this will be my second foray into commercial real estate acting as an agent, first for a seller, now with a buyer. My client is wanting to develop a 4 - 6 story mixed use. My question to veteran developers out there: does anyone have a 'first glance' or initial proforma they use to identify which properties are worth doing a deeper analysis on?(I have access to great software that will do all the calculations for me on a full blown proforma).

Thanks! Penny

Bill Gulley · Answer

Nope, there is no short cut that I know of nor would I rely on one if there were.

You need to start with a market analysis to justify the selection of alternatives.  You'll begin with the assumptions of the highest and best use and it's usually best to adapt to current zoning.

I'd suggest you not rely on some program either. Garbage in = garbage out. No reflection on your abilities to chew what you have bit off, but asking the question, to me, seems to indicate a potential issue. You may have gone elephant hunting and got one, now what?

A 4 to 6 story mixed use project is not something for a "newish" agent to cut teeth on. Sometimes it's best to admit honestly your experience level and get a seasoned commercial agent involved (splitting  commissions).

I may be wrong, you might be an attorney or an engineer or a CPA or have other professional experiences that will lend to such a project, but that's my initial reaction. Mixed use, commercial and residential can be difficult to assess, especially if it's not common in the area.

I'm not familiar with RE issues in BC, but I'm familiar with pro forma accounting and financial issues.

You may be able to take another team approach to this project with other professionals and consolidate or manage the findings of your experts as needed. Nevertheless good luck! :)

Don Konipol · Answer

@Penny I. , if I understand the situation correctly, you are seeking a way to screen land sale offerings to see if they would be a correct fit for a specific development type?  
	 If this assumption is correct then it is up to your buyer to provide you with specific guidelines for what he is looking for, including specific property attributes.

If he can not do this, or do this sufficiently to provide you enough information to proceed, then what he is looking for is a real estate broker or agent with enough experience to guide him in this area.

If you do not have the experience to do this, then you best bet is to recommend a broker who does.

BTW, CCIM, the commercial affiliate of NAR, has a full program of courses in commercial real estate leading up to certification.  These provide the equivilent of a graduate level degree in commercial and investment real estate, although in a condensed version.

Even if you do not wish to spend the time and expense for education on what is currently a "side" business for you, they do have a short, inexpensive introductory course which is well worth taking.

I am sure with persistence you will be successful in commercial real estate; just realize that learning and experience in this area is a lot more time consuming and expensive than residential.

Penny I. · Answer

Haha! Yes not so new but new to commercial Bill. I guess the experience I do have, more than anything, teaches me...that I don't know what I don't know. There are a few comps for similar projects in the preferred area but most of the development in the past two years have been big projects by two developers with long track records. No set plans for the commercial space - I'm going to city hall next week to talk to the planning dept. My own expectations are that I learn everything I can over the next few months....chunking out part each day. If I can be a part of finding my client a good property that will be a bonus. Thanks for your time!

Penny I. · Answer

Appreciate your comments Don. The parameters I've been given are either raw land, or square footage retail not currently highest and best use, ie, one story block now zoned for 4 - 6 stories.

Thanks for your encouragement. Best, Penny

Bill Gulley · Answer

LOL, more applicable information is always a good thing, so you're new, but not so new. As to your pro forma, be conservative as it's always better to error on the plus side.

What type of commercial is considered? It's great that it's zoned already, are there comps of similar projects?

It sounds like your developer is seasoned as well. What are the expectations? :)

Penny I. · Answer

Thanks Bill,

I appreciate your comments. My related background is project management in high end residential and multi family, always on raw land. The OCP's in the three areas I'm researching specify areas for mixed use with zoning in place. In one area, all applications in the past year have approved 2.5 FSR to 4...and higher. My client is halfway through his first development and looking to purchase a second property 6 -12 months from now. So, I'd like to learn as much as I can and be able to introduce properties with the highest potential for profitability (also have a colleague in commercial real estate and would be happy to split commissions). Here to learn ;-)

Best, Penny

Quick Analysis for Commercial Development?

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