redeveloping mixed use property

[Faye R.]

This is my first BP post!  I've got two parcels  (.37 of an acre total) centrally located in the pedestrian area of a small but growing town in Southern Oregon. (Pop. 6k but it's not the complete boonies as 100k+ people live in close-in communities.) About half of it consists of four individual buildings that are leased to various retail tenants. The remaining half has an unnecessary (per existing city code, though they are considering changing that) parking lot and two very old residential units. I would like to understand the highest and best use of the property as a whole and to come up with a long-term plan to get it there. I'm hoping that the long-term plan will allow for an intermediate step of replacing the existing residential units and developing the parking lot.

If there is one thing that I know it's that I don't (yet) even know what I need to know. The city is great but I speak only the most rudimentary planning language. They suggested that I hire a land use consultant but couldn't refer one. I'm waiting to hear back from my lender to see if she can. Is this the best first step? If so, how do I vet potential land use consultants? Are they some sort of magical unicorns who speak planning and contractor-ese and will provide a detailed, specific, and GOOD plan? Do they reduce my role to crunching numbers, choosing designs, and hiring and communicating with the contractor and lender?  Does this naive suggestion elicit uncontrollable laughter from the experienced developers who are reading it? 

Will someone tell me exactly what I need to research, understand, and to take on myself, in order to make a project like this successful?  (I do have a decent understanding of investing. I've bought, sold, and hold multiple SFR in addition to these commercial units. I don't have much experience with rehabs, contractors, codes, or planning departments.) 

Thank you! 

[Rodolfo Canon]

I would not hire a "land use consultant." You must become that professional. Begin by learning what the zoning would allow you to do with the property. Is it zoned for commercial, mixed use, residential, industrial, hospitality? Depending upon what the zoning would allow, do a deep dive into the surrounding area and examine what would be competing properties. The objective would be to learn how to position your property in relation to the competing properties. Look at the condition of the other properties, the businesses that are tenants, try to discover rents paid, how long they have been there, etc. What type of asset is in short supply? Are there retail services that are lacking? Is office space in short supply? Is the property on a highly trafficked street? You are, in essence, trying to develop your own market assessment by utilizing shoe leather, door knocking, and some technology. 

Once you have done that, then determine the going cap rate for the type of property you have determined is a needed resource.

Once all that is done, sit down with your banker and find out what type of financing package would be available to construct the asset you have determined is the best fit for your spot. Since you are taking a long-term planning horizon you might as well begin to chat with contractors. Seek contractors that have extensive experience in building the type of asset you have determined is the best fit. Don't hire a home builder for an office building. 

My emphasis is for you to become the expert and not to rely upon third parties. You have already done this with your SFR investments. Just expand your horizons.