Flex Project in Johnstown, CO

[Sergio Guzman]

Hello y'all!

After doing dozens of multifamily and SFR (and very little commercial) I stumbled upon industrial flex space. Of all the assets types, I chose industrial flex because:

a) Better cost / benefit ratio = higher ROI
b) Simpler to rent (residential tenants get more legal protection and adds risk to landlord/investor)
c) Can be sub-rented in small spaces 
d) Huge demand to support online sales and last-mile operations.
e) Asset type has not been noticed by institutional investors. Space to grow.

I'm under contract to buy a 1.8 acre site to build a 30,000 SF tilt-up wall warehouse starting 3rd quarter of 2024.

Construction cost / SF: $175 (includes development and all associated fees)
Construction Cost: 30,000 x $175 = $5,250,000
Land cost: $500,000
Total cost: $5,750,000

Construction type: Tilt-up wall construction up to 24' high

Market rent: $18/SF NNN
Revenue: 30,000 x $18 = $540,000
Vacancy: 5% = -$27,000

Net rent: $513,000. ~ ROI: 8.92%

This are the preliminary numbers I'm using for my UW.

The $175 per square foot cost of construction is estimated as per my talks with GCs and experience in the area. Adding to this, the location of the new build inside an important regional development called 2534 (www.2534colorado.com) in Johnstown, CO which means there is offices, hospitals, retail and housing in the adjacent blocks. This property will have the ability to host many business tenants including office, warehouse, and retail trades allowed by code.

Thoughts? Comments?

Thanks in advance.

[Derek Bell]

I’m in the flex commercial/industrial space. The cost per sf for your build looks about right. Looks like you got a deal on the land at 500k. Only thing I would caution you on is checking to make sure you have the correct and necessary utilities on site. Also make sure you check fire suppression requirements on min square feet per buildout. The biggest thing I see is the ratio to land to build size. With only 1.8 acres, thats not much to build a 30k sf warehouse. Really just no way to do that size of warehouse with only 1.8 acres.