Help evaluating a unique commercial deal

[Jamin Eastman]

Hello everyone. When I started listening to BP a few months ago I began doing what they recommended: learning, practicing, making specific plans. The first two I still work on daily and our plan was to be patient. I am in insurance and building a business with my partners so that is my primary focus and I wanted to take the time to save some capital and maybe wait for the market in my area to slow down a bit. However, I'd always said I'd be willing to consider any great deal that might come along. Well here's an interesting one that I could use your thoughts on.

There is a piece of vacant commercial property on a major road with a side street that has direct access to the primary highway in this city. It was purchased 7-8 years ago by a businessman who had paid all the impact fees, had an architect design a building (2 units totaling about 6000sqft), pulled permits and then, when his contractor told him steel could take 3-4 months for delivery, ordered all the steel. Almost immediately he got involved in another project and decided not to pursue this one. He's been trying to unload the property for the last 7 years, asking around $200k, but it's possible I could get plans and steel as part of the deal because unless someone is going to build the exact same building, it's scrap value. 

At the same time I'm talking with a friend of mine who invests in commercial properties, and specifically medical buildings because this is right in the middle of a medical park. It is mostly class B office space, around $12/sqft (no CAMS) and there are no vacancies in the immediate area. 

The reason it could be a great deal for me is because it would be a way to get into commercial real estate with no money out of pocket. I would split the deal with my friend who would provide the capital and some expertise, I would either manage the project, or possibly bring in a third partner who is a commercial contractor, to manage the build and to provide ongoing management. 

I'm talking to anyone I know and they've provided some great advice on additional information I should gather to make sure my numbers are as accurate as possible and to minimize the number of surprises that are bound to pop up at some point. So here I am looking to glean from my broadest source of wisdom. If you all have any advice, I would greatly appreciate it!

[Sean Walton]

@Jamin Eastman there is a lot to break off there and I will only comment on what I know as an architect.

1. Has he been paying to renew the building permit. They generally expire if no construction starts within a certain time frame and if construction isn't completed within a certain time frame but most cities let you renew the permit. If it hasn't been renewed you will probably need to hire an architect and structural engineer to update it to current code. That might even mean the steel members need to be bigger but I doubt that.

2. Construction project management is not for a novice. I highly recommend partnering with someone you trust who has experience with it or hire a project manager or construction manager to oversee things and teach you along the way. They will save you money in the long run avoiding pitfalls.

3. I would talk with 3 local commercial brokers and see what rents you can realistically expect. 

4. Talk with a few local contractors who do this type of work with copies of the building plans and see roughly how much it will cost. Steel is  more expensive to build with than wood so you can't just use cost per sf based on other construction types.

Good luck