Who is developing small warehouse space?

Question

I currently rent a 1000 sqft unit in a larger metal warehouse building. Simple design, nothing crazy. Each unit has a 100sqft "office" with a bathroom attached to it. In my particular building, there are 14 equal sized units in that building, so a 14k sqft shell of a building subdivided into 14 units. These are perfect shops for woodworkers, paint companies, rental companies, etc. I've got my eyes on some land to do a building like this, but not sure where to start. My investing in the past has been single family residence. I've never jumped into the commercial side.

If you have done this type of development in the past, are there any "you should avoid this at all costs" lessons you could throw my way? I've attached a photo to the style of building I am looking at.

Thanks

Marc

If you have done this type of development in the past, are there any "you should avoid this at all costs" lessons you could throw my way? I've attached a photo to the style of building I am looking at.

Thanks

Marc

Cole Bigbee · Answer

@Marc Gaskins

This type of development is right up my alley. @Greg Dickerson covered all of the fundamental development aspects from A-Z.

As far as some of the items to keep in mind on the metal building, stay with a 16' eave height or taller. This will allow you to put a 14' tall garage door, which will open you up to more potential tenants. You will also want what is referred to as a 'clear span' building. This is a building with no interior columns. You want this option as you might have a tenant that wants to rent 5,000 sqft with no interior partition walls. Having an interior column won't keep you from opening the walls up but it does keep the space open completely.

Depending on what size building you go with and the location of your building, you might be required to put in a sprinkler system. For the types of tenants that rent the smaller space, they will not want to pay the upcharge, nor do they need a sprinkler system. Check with your local building official once you find a suitable location to see what the size threshold is for a sprinkled building.

My families business, Bigbee Steel Buildings, has been a metal building manufacturer since 1962. Our primary market is the southeast where we provide pre-engineered metal buildings for warehouse, religious, retail, self storage, government, educational and commercial type buildings . Feel free to shoot me a message and we can talk in more detail.

Greg Dickerson · Answer

These types of buildings are fairly simple to do. Basically site work, utilities, slab and then the metal building company takes it from there. You can have the GC handle the entire process for you.

First step is to determine demand for your product and highest and best use of a piece of land. You do this by analyzing the market, talking to realtors, property management companies, appraisers, builders and developers in the area to find out of there is a demand for the product you have in mind. You can also check with the city or county planning and development department to find out what types of projects are in the pipeline for approval.Next step is to do a quick feasibility analysis to determine if the project will work financially. You do this by calculating the NOI to help determine value and work backwards. You also need to look at the comps as well to validate your assumptions. Start with the potential gross income then subtract the operating costs to determine NOI, divide that by the CAP rate in your area to give you the value, then subtract development costs, building costs, commissions and interest expense. You want at least a 30% margin above costs and the NOI needs to be enough to pay the debt service after stabilization and then some.

If the project looks feasible from a financial standpoint the next step would be to find a suitable property and get it under contract contingent upon getting all entitlements for what you want to build. Once you have control of the property you begin the due diligence and entitlement process. You do not want to close on the land until you have all your approvals to build what you want. Check with the city or county planning and zoning department to get an idea if your concept will work, if you can build what you would like to build and what is required for all approvals including site plan, building permits, proffers, water/sewer tap fees, bonding requirements, inspections, setbacks, lot coverages, parking requirements, height restrictions, C/O process and time frame for all approvals.

You also need to check with the utility companies and get an idea of availability and cost estimates from them for water, sewer, power, gas, cable, installation and connection requirements, tap fees, hookup charges, transformer location and relocation, power line and power pole relocation issues. Check to see if you have to install any manholes, fire hydrants, curb, gutter, sidewalks, street signs, street lighting any specific street design or access requirements, Check DOT requirements for access, stop lights and permits, traffic studies, DWQ requirements for permits, permit fees and time frames.

Once you have an idea of what you can build and what is required in terms of permitting and infrastructure you want to talk to some civil engineers, architects and commercial general contractors that do the type of projects and build the type of buildings you want to build so you can get an idea of costs, time frame and requirements.

This is  a brief and broad overview of how the development process works what's required before you get too far down the road or purchase a property.

Marc Gaskins · Answer

@Greg Dickerson @Cole Bigbee

Gentlemen,

This was far more information than I thought anyone would post. I appreciate all the knowledge. Greg, everything you laid out was what I was looking for. I am starting from scratch here (land & knowledge), so this was extremely helpful.

Cole, I will look into the Bigbee buildings. Through my google searches in my initial research, the name sounds very familiar. I will certainly reach out, if a project gains some steam.

Cheers

Marc

Cole Bigbee · Answer

@Oshea Jephson

You can clear span a building up to 200'. I would not recommend that though due to the costs. Usually a good rule of thumb is anything over 100', needs an interior column. Let me know if you need anything else.

Oshea Jephson · Answer

@Marc Gaskins @Cole BigbeeI was wondering if you kept going with this project! I was also curious reading your post, were there any available units in the building where you rent? I'm looking to do something similar starting with something a little bit smaller (up to five units).

I was also wondering what the max span could be for a simple span building before you start needing some columns. Following this conversation closely and would love to get an update!

Who is developing small warehouse space?

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