Converting single tenant to multi-tenant building

[Robert T.]

We acquired a 4300 sf restaurant building that sits on a one acre lot on a major freeway in Houston Because of the size and hence the cost, we had difficulty finding a strong enough single tenant (we marketed at $1.90/sf modified gross). Our proposal is to divide the building into 3 seperate Units (1000 sf, 1500 sf, 1800 sf). We have a new roof, building is in good condition and there is no asbestos. HVAC is sufficient. Currently, there is only one electric & water meter, 2 bathrooms. Besides having to add one more bathroom, we will need to build the walls, redirect the AC ducts, plumbing, electric, new doors and windows etc. I know we have to visit the architect to get a feel of the cost; but has anyone done conversion form STR to MTR before and what are the pitfalls? Any ideas of an approximate cost psf? Is it cheaper to tear down and re-build? Thanks!

[Amit Patel]

@RobertT - I did this in NJ for a commercial floor that was 2,000 SQ feet that we split and we had a bunch of issues that I didn't expect that you should/shouldn't be aware of:

1. Had to get a variance to do this. Process took several months and cost 7K in attorney fees and an extra 2.5K in architect fees (vs. if there was no variance)

2. We had to put in ADA bathrooms in some areas as well as a sprinkler system (This was expensive. almost 10K cost)

3. We had to plant 3 trees on the sidewalk (added cost of 2.5K)

4. Had to keep store front look. (Special Windows for front cost - 1.3K)

These may be only specific to my municipality but just an FYI. We will get $3,800 in rent from those two apartments with almost 100% occupancy rate vs. 4K for the commercial with a much lower occupancy rate so it was a no-brainer for us.

Hope this helps and good luck. I would make sure you find an architect that has done this before and also discuss with a zoning lawyer and township on all the requirements so you have the true costs. Also, keep in mind that you want a zoning lawyer that knows that area well. Even within one city, the requirements for historical district, development district, etc. is very different if its a large city and what the township will make you do or let you get away with will be different. Hope this helps.