First Time - Retail Strip Center Development- advice, tips, etc

[Abbas H.]

Hi All,

My father and I are working on our first commercial development; a 20,000 Sq. Ft retail center. I wanted to get advice and tips from developers and anyone with experience in this type of real estate investment. 

We've currently got the steel up but now we have to make a lot of decisions in the coming weeks/months and wanted to make sure we are doing things accurately. Any advice would be greatly appreciated!

Thanks in advance. 

[Joel Owens]

How are you funding this so far?

Did you already own the land?

Banks typically will NOT give construction funds on retail center ground up development until you have at least 50% pre-leasing and sometimes 60%. Generally before starting construction or closing on the land you have leases in hand for a certain percentage of the project.

Lenders want to know that worst cases you have enough leased up to be about break even with debt service. They do not want to fund a project and then rent per sq ft does not equal projections or little to no lease up occurs. Now they might have to foreclose as no money is coming in to pay the loan.

Pearland,Texas has some good areas.

I imagine since you are building the shell you have site plan approvals already? Frankly the way you are currently doing it is 100% backwards and poses the most risk.

At this point you might want to bring on a site fee developer. They tend to have many years experience and you watch and learn as they take the project from start to finish.

Right now it seems you do not even know if the base tenants will be national, regional, or local in nature. Some national chains can take 6 months or more to commit versus local who will usually move faster in weeks to months. If local tenants it is very important to review liquidity and net worth. Also if this will be their first unit opening or they are a multi unit operator? When you build a new building cam per sq ft starts out low to tenants then as it gets fully stabilized the property taxes get reassessed. That is when the smaller tenants with not much experience get sticker shock when their cam above base rent shoots up fast.

Currently it appears you do not know the tenant nor the rent per sq ft they will pay. Before you sink anymore money into this project you need to know the conservative projections.

I know some developers where the lenders do no require pre-leasing BUT they have been doing it for 30 years and build 20 a year. Newer developers lenders tend to stick to the pre-leasing requirements to mitigate risk.