Purchased commercial 12000sf warehouse to rehab. Now what?

Question

I am seeking advice from those who have experience or know a little about commercial real estate.

My Father and I purchased a large 100ft x 120ft (12000sf) warehouse a couple months back. The building's foundation and structure as a whole is solid, however there is much to be done in terms of TLC. (ex - random brick replacements, minor roof repairs, paint, etc).

We were able to purchase the property along with the adjacent building through owner finance w no interest. The no interest came as a result of us allowing the seller to store his remaining items for a period of two years in the other building.

I should also mention that we own a business across the street so there is always a set of eyes on the property.

Currently we are patching up and remodeling the 12000sf warehouse section. Our main concern is that we want to ensure the building is best utilized and serves a good purpose for the community, as well as make it worth the investment. The only vague thoughts that have come to mind are various storage ideas (cars/selfstorage).

I am hoping some people from bigger pockets might have some suggestions on what we could do with a building of such size.

Pleasant Hill, MO 64080 (Population - 8,218)

This will be our first property that we hadn't put much thought in as to what to offer (service/product) or who (as in tenant) we should solicit. It was simply a deal that could not be passed up.

Any suggestions or ideas will be greatly welcomed. Thank you in advance Bigger Pockets community!!

-Rob

Duke Marquiss · Answer

We purchased a first and second defaulted mortgage on a 13.000 SF warehouse in a nearby city. We were able to negotiate a deed in lieu of foreclosure. The first thing we did was gut out everything back to a core and shell, had new roof screws put in and metal over old fiberglass skylights. We had leases for two spaces of about 3,000 sf each ready to sign and a buyer came in and purchased the building with him doing the build out for the tenants and he is using the balance for a robotics shop. You don't know where the buyer is but i think it is important to clear out the building, do minor repairs asap, and remove old landscaping that has overgrown the property in the past. We hire a good commercial agent to market and handle showings and contract. Total profit was $485,000 in just under 11 months start to finish.

Discounted notes is a good way to get into any rehab commercial buildings. Really get to know your market. Distressed office buildings in our area are fun to do. Most of the buildings are 10-20,000 sf that were single tenant (usually medical) thatwe repurpose by dividing into smaller space and condo out for the smaller companies.

You are on the right path. Keep it up.

Discounted notes is a good way to get into any rehab commercial buildings.  Really get to know your market.  Distressed office buildings in our area are fun to do.  Most of the buildings are 10-20,000 sf that were single tenant (usually medical) thatwe repurpose by dividing into smaller space and condo out for the smaller companies.

You are on the right path.  Keep it up.

Michael Hicks · Answer

@Kathy Henley hit the nail on the head.  Warehouses can be split up and used as flex space by letting the tenant lease what they need.  It makes it more affordable and allows a smaller business to be in a larger space.  I'm not sure how your property lays out but you could run a wall down the center of the building and then put walls up from center to front and center to back separating into 30x50 units and let the tenant build out to their needs.  This is assuming there is access all the way around the building.  You would also want to add a roll-up and walk through door to each unit.  These types of units are very popular in my area and there is a waiting list to move in.  Electricians, small maintenance shops, etc that have outgrown their basements.  Good luck.

Kathy Henley · Answer

Warehouses are the Bomb!  My day job is in commercial property management.  We love warehouses because they are so changeable.  We clean it up to a vanilla shell, when we first take over.  Then we are ready to show it to a new tenant.  WHEN THE LEASE IS SIGNED,  we take care of the build-outs, as promised by the landlord in the lease (great negotiating tool).  As a neighborhood changes, so do the tenants of the warehouse. Rents are set by the market, do your research.

In our metropolis, owners get NNN leases.  Owners pass on the property taxes to the tenants by percentages of the whole, unit repair costs, common area maintenance and full insurance.

We use a use a listing agent to find tenants.  We pay them a fee.  Here are a list of some of our warehouse tenants:

Custom door manufacturer

Mail order retailer; expanded from someone’s home business into small unit with lots of shelving

Local brewery, a start-up company

Maker of pop-up displays

Awning maker

Moving company, storage until home is ready

Mini-blind curtain maker

Shoe designers

Engineering firm; tall unit divided, they got top floor with offices/carpet

Rob Milligan · Answer

Shane,

Yes the building is "incorporated" and registered within an established historical society along with many other buildings in the area. and is eligible for tax credits.

Its funny you should mention large property storage. Our town does has a monthly car show right in front of the warehouse. At least for the time being, we are fixing it up and preparing to offer exotic/classic car storage. We are continually repairing all the minor flaws the building has and we expect it to be available for occupancy no later than November 1st.

I'll keep you and the BP community posted on the updates and provide pictures upon completion of the progress throughout renovation.

Thanks for chiming in!

-Rob

Shane H. · Answer

You look like you might be in a rural area?  Much development going on there?  My folks presently live in Blue Springs, so I'm more familiar with that part of the KC Metroplex besides the KS Side.

Would you county/local or state govt have any sort of municipal funds or incentives to offer?  Any sort of tax credits or historical credits the building might qualify for?

Looks like you're close to several lakes/parks and close enough to the KC Metroplex -- RV or Boat storage?

I know as you mentioned classic cars are a big thing in our part of the country -- could  you start some sort of Guys/Car hangout - use the front office as a clubhouse - lots of old auto memorabilia there and in the warehouse (plus you'd have the fun of shopping for it), maybe install an automotive lift or two, great lighting - fire suppression system (would definitely make your insurance cheaper)?  Theres an old warehouse like that in DT Wichita - charges $100-200 or so a month (cant remember how much exactly) and almost always has a waiting list.  Last time I checked they had 1 opening and probably should have taken it for my Trans Am.  They never advertise and it's known through word of mouth/local grapevine.  I'm sure if you made the place affordable and a cool place to hang out you'd have no shortage of customers from KC wanting to get away from their wives on the weekends and tinker with their expensive old cars or store an old Shelby Cobra or Plymouth Superbird.  Probably wouldn't cost a lot to set up - would take some time to advertise and network amongst the car clubs/shows though, once you filled up, could probably set the place on autopilot.

Sounds like you have a fun project on your hands.

Kathy Henley · Answer

The leases on warehouse build-outs vary.  You are correct to bring it up. @Rob Milligan

The party that needed no additional improvements signed for 3 years. The mail order company that needed lots of work signed for 10 years, with an annual rent increase beginning in year 3 and continuing through year 10, with an option for 5 more years.  The negotiations for the lease can go on for weeks, but there are deadlines so that it doesn't drag out too long.

James W. · Answer

I like OP's style so I'm just following along. I have a few similar opportunities and want to hear what others have to say :)

Rob Milligan · Answer

Jay - I am not sure about the industrial vacancy in my area. There is only a couple industrial operations currently in our town. As far as average occupancy for self storage, we have a three self-storage units that I am aware of in the area. Each are usually at or just under full capacity at any given time. I need to do some market research/networking to see if there is a market for climate-controlled storage. I know there are numerous classic car owners in the area.

Kathy - I like your description as a "vanilla shell". Regarding build-outs, that may be a possibility. Given that you are accommodating the builds, what do you usually require in lease length? Thank you for providing some examples of different market/industry tenants that would be a good fit for such property.

Michael - We had thought about something along the lines of what you were thinking as well. While the only access into the property is from the front, the front already contains what looks to be a reception/lobby/common area. I should not that there is also two large 14ft bay commercial doors on each far end of the building. We will look into some possible "trade" tenants that are looking to expand out of their homes/mobile-only business. T

Thank all of you for your input and questions. I'll be on bigger pockets from time to time to continue learning and ask questions. -Rob

Jay H. · Answer

Wow, brave.....

What is the vacancy in the area for industrial?

What is the average occupancy for self storage within the market?

Is there a need for climate controlled self storage?

Purchased commercial 12000sf warehouse to rehab. Now what?

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