Retail strip mall development - San Antonio, TX region - Looking for consultant

[Account Closed]

Hello,

I am building a retail strip mall about 45 minutes south of San Antonio, TX. 

This is my first venture in retail, i'm wondering if there are any full-service companies out there that can help pre-lease, and also handle the construction of the building.

We own the land outright, it's 2 acres right next to a HEB grocery store and I'm trying to get some idea on construction costs to build a 6000-9000 sqft building.

Trying to do as much prep and planning before committing to construction.

I've heard of Hunington Properties and Retail Builders Group, wondering if anyone has had any experiences with these companies.

Thank you!

[Joel Owens]

Yes I know the companies.

Be careful who you lease up as tenants. Some leasing brokers like to (fill them fast) with weak tenants that are not properly vetted so they get paid quick. You have pre-lease to show the lender and they give the construction loan. You finish the project out in 12 to 18 months and the tax assessment is orginally low because dirt value only, then building 50% occupied, then 90 to 100% occupied (hopefully) but then gets fully reassessed.

The reassessment pushes your base rent plus CAM super high and shocks your mom and pop to local tenants. They start defaulting or wanting help from the landlord with adjustment period. Meanwhile you have to fight the high tax assessment.

When you are new developer the lenders want at least 50% pre-leased to start funding. When you are developer that has done it long time and proven yourself they often do not require this because of track record and experience with strength of net worth and liquidity compared to the project being built.

You have to determine if rents are even viable with a strip center. Often those tenant cannot pay much rent per foot versus a single tenant business model.

Example a 3,000 sq ft Chick Fil A might pay 150k to 200k ground rent for strong sites and construct building on their own dime for 1 acre site. Even if you need to build single tenant maybe 200 a foot to 250 a foot so 600 to 700k costs before TI, leasing fees, and legal fees, etc. 

9,000 sq ft center likely 2 million plus to construct. All fees in maybe around 2.6 to 3 million. Let's be generous and say you get 35 a foot before cam costs.

315,000 NOI - 10% vacancy underwriting = 283,500 NOI

283,500 / 4,350,000 = 6.5 cap 

3,000,000 / 4,350,000 = About 31% gross Margin

These are very loose numbers and not at all meant to be absolute there are tons of other things that go into development. Developers can charge fee for development services where they handle the building and everything but can add 100k to 200k or more with fees to the project versus doing it yourself but without experience you can make tons of mistakes whereas the experienced developer hopefully just makes a few tiny mistakes that impacts the projects very little so it's still a success.

The developers have construction crews and processes proven over time and because they do volume can often get costs lowered for the project which can sometimes negate their fees you have to pay.

It's really about what life you want to live. Personally I did not want to be a full time retail center developer. Instead I like brokering as a principal broker and owner of my company clients buying existing properties and then I buy value-add to reposition myself mainly single tenant.

Doing that I make 7 to 8 figures a year profit to myself. Depends on equity upside positions in my properties after stabilization and also how many broker deals I do that year. One is immediate income to the bank and the other is upside equity and some of the cash flow ongoing.

If there is not an association you are part of or deed restrictions it can help make it easier to develop the land because then you are getting county or city approval for zoning type and site type. Some parts of Texas do not have zoning but other hurdles to cross.