Whats the best course of action?

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The other 2 strip malls from 12 and 16 years ago next to the land did you said you built them.If you built them you should know as a retail developer that a lender for a spec build today will want certain percentage of pre-leasing before they give you a construction loan.They generally loan to value or loan to cost whichever is less.I know some developers who do not have the pre-leasing requirement but they build 20 or more a year for decades now and the lender knows they will perform but most lenders will only do that for the extremely experienced developers.It sounds like you might own the land free and clear.Building another strip center with regional to mom and pop tenants tends to be non-optimal and a third choice. In regards to ground leases there are only a handful of tenants that agree to ground leases versus NNN or NN requirements. NNN absolute STNL depending on tenant,location,etc. usually dictates selling cap rate.Generally gas stations, pharmacy, banks pay the most money if it is a corner site.Other option is a 2 to 3 top strip such as Aspen Dental, T-mobile, and a Starbucks in one spot.Overland Park generally has a low end area and then on the other side a high end demographic over 100k income on the other side. I have looked in those areas before.Also keep in mind average rents for mom and pop to regional tenants are different than national credit tenants. Those average rents tend to be much higher as the national tenants generally drive much more sales per sq ft.125 a foot sounds about right. It will depend on the city or counties architectural requirements for gingerbread exterior finish to approve site plans. If they want fancy,schmancy it can get expensive. TI on the inside is generally about 35 a foot for new builds.So it might look something like this.National tenants 3-top:Land: Own it zero costConstruction Exterior: 125 a foot X 10,000 foot = 1,250,000Construction Interior: 35 a foot X 10,0000 ( Starbucks can be 50 a foot sometimes) = 350,000Rents say conservatively 25 a foot national tenants X 10,000 = 250,000 NOIThere will be base rent plus cam reimbursements and then backing down of some cap on cam with leakage and market vacancy. So let's say 10,000 sq ft and market vacancy of 5% so 500 foot.9,500 sq ft X 25 a foot = 237,500 NOISay they are 10 year primary leases with 10% increases every 5 years.Leasing commissions are 4% say for example:250,000 X 5 years = 1,250,000 X .04 = 50,000 LC first 5 years250,000 X .10 percent increase in rent years 6 to 10 = 275,000 X 5 years = 1,375,000 X .04 = 55,000 in LCTotal leasing commissions paid at time of leasing 105,000Legal and site work say 500,0001,250,000+350,000+ 105,000 + 500,000 = 2,205,000 all in3,600,000 is about a 6.6 cap rate for resale3,600,000 X .06 = 216,000 broker resale commissions100,000 legal costs to close and providing owners title policy to buyerSo 2,505,000 all in - 3,600,000 = About 1,095,000 profit If you are getting 10 to 12 rent per sq ft only for a new build with construction and labor costs the project does not pencil.Again this is just a broad example. You would have to run a deep analysis to see what make sense.At 2,505,000 all in your cap rate to cost on 237,500 NOI is about 9.48 which is about right. Developer aim for about a 9 and up cap rate to cost.If you could ground lease or get a STNL national tenant with advanced lease in place before you build that would be optimal. The STNL could feed off the other tenants in the 2 centers for cross traffic without having to go back out into the main road.

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@Joel Owens Thank you so much! I'm going to read this over and over again until I understand it all and theres a couple terms I need to look up but so much here to digest. I have 10 more questions for you but I need to think about what you said first. Thanks again for all the numbers and thoughts.

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If you decide to go the 1031 route, I'd love to discuss your transaction.

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@John Nachtigall FYI, that $11/sf would be per year, not per month.

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If the ground is prime enough for a national tenant to come in, if you subject the property to a ground lease, they will build on the ground at little to no cost to you. Having a credit tenant in place allows you to sell the lease structure based on the tenant credit, and the income from the ensuing lease. This will raise your property value much higher than the 400k you previously mentioned. Just food for thought! Hope it helps

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Thanks so much for your input guys. The other two strip malls are ours but were built 12 and 16 years ago. We did build them and I do currently manage them. I called a few commercial builders and ballpark figures are coming back at $112-125 per sq ft for grey shell. Does that sound right? I'm realizing that by selling I'm also giving up control of what will be next door to the other two buildings so that's a factor and makes me think building is the way to go. I'm nervous investing with no tenants in place but 4 months of build time will give me time to hopefully prelease at least part of the building.

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Market the ground for a ground lease to a national tenant, then NNN sell the asset

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John's spot on. If you've got the bandwidth to carry this project and the analysis backs the potential rev I think you'd be golden.One more thing - how long ago where those other malls built? I would check the construction costs in your area because the other guys might turn a profit but if construction costs have increased you might not.

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Hello @Michelle Lutz . 2 issues:1. Land development is complicated and expensive. There is plenty of risk.2. I am not a fan of retail space (see AMAZON.COM).Personally, if you think $400k is a good offer for the real value of the land, then I would prefer to take the capital and re-invest it into something I know better.Bob

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I dont know about strip malls, but this seems like a math problem8000 sq ft x $11 = 88k a month or right at 1 million a year (NNN according to you). an NOI of 1 million a year at a 7% cap rate makes the building worth ~14 million. You say it is less than 1 million to build. If all those numbers are correct it is a no brainier.I would recheck your numbers because 1400% profit is questionable.