How Prioritize Improvements to my Commercial Building? [PHOTOS ATTACHED]

Question

How should I prioritize the work for this commercial building to get more for rent? Here is a list of things that need to be done:
1) stucco and faux stone sidings building to make it look new (not sure about cost?
2) painting ($8000)
3) new roof ($10000)
4) termite control ($4000)
5) new larger modern sign ($7000)
6) HVAC for all suites ($72000)

The back of the building is stucco but the front is wood panel sidings.  It has a old brown cabin look which I hate.  Do you think it is worth it to stucco it to make it look more modern or should I simply just paint it.

The suites are renting at $1.35/sq ft which is a bit below market rate but that is because there is no A/C in the building since it was built in 1975 and is next to the beach.  I got quotes which will be about $6000 per suite (12 suites total).

I got a good deal on this property because it has deferred maintenance.  Inspection report says it need a new roof ($10,000) and termite control ($4000) and the HVAC $6000 per suite ($72000 total), So I am looking at almost $100,000 in repairs. Should I do all this first before trying to renovate the building?

My main goal is to get more rent per suite.  10 out of 12 suites are rented out right now.  I get about 5500/month in rent right now after all expenses cost and $3500 goes towards the mortgage.

PHOTOS OF BUILDING BELOW
http://s1360.photobucket.com/user/molarband/media/building_zps68b454eb.jpg.html?sort=3&o=0#/user/molarband/media/building_zps68b454eb.jpg.html?sort=3&o=0&_suid=136867695256005613242336101308

Nuhan Demirkan · Answer

James, I looked into ductless systems. The number one complaint from the maintenance guys is they are a hassle to work on because of their compact size. They cost about the same if not more than the traditional systems. I am going with traditional for my rehab. If you do decide to go the traditional way separate each unit with their own thermostat and meter for billing. As for prioritizing the list I would first want to make sure my existing tenants are happy to shore up my cash flow. Then do the items that will help rent out the remaining two units.

Matt Devincenzo · Answer

James W. what part of SD is this in looks like maybe La Jolla/Mission beach area? I don't own commercial so take this for what is worth.

Don't let this be emotional what you like doesn't really matter, what increases NOI does. I'd do the HVAC and leave the outside alone for now. Those style offices are usually atty's, CPAs and engineers and generally their clientele aren't looking for a nice modern office, they just come once a quarter and meet and that's it. At some point paint and that should help it feel less cabinny.

I'd wait on the sign too, I don't see that as being a retail center where you need a lot of signage to draw in customers. Again most office type tenants have clients that are coming to them not just driving by and pulling in.

Again not experienced with commercial just my initial feel of things from pics ect.

Karen Margrave · Answer

James W. Though San Diego has mild weather, it still gets into the high 70's and low 80's sometimes, and the closeness to the ocean causes some humidity, which without HVAC it is uncomfortable, same with heating, it's a necessity. Using portable units is driving their actual rent rates through the roof.

We rented a really nice apartment in Newport Beach, close to the ocean for a year. Coming from an area where it got over 110 in summers, we didn't think to ask if a place had HVAC, we assumed every modern building did. The afternoons were miserable. We moved when our lease was up.

We have developed many office buildings, office parks, retail space, etc., and business owners want professional office space. Having happy tenants is good for business. Thinking that they won't notice until after they move in is the wrong attitude.

You didn't mention energy efficiency, but you might want to check insulation, etc.

You can put all the pretty dressing on a building, but if the foundational items are falling apart, and it costs tenants more to be in your space than another, they won't rent. I know this isn't what you want to hear, but, it's the nature of the beast.

Good luck!

George Paiva · Answer

Pest control should be something you should be doing fairly regularly.

The Roof would only need repair as needed.

Everything else I would hold off till you get some comments from tenants.

Personally I think the appearance of the building looks good to me.

James W. · Answer

The painting is for the exterior.  I was thinking of a light gray paint and white railings.  I dont want to mess with the stairs besides painting because of issues with ADA compliance.  The building is already grandfathered in.

The tenants #1 complaint is the HVAC in the summer and winters. The tenants have to use portable heaters and swamp coolers when it gets too hot or cold.  But this property is about 2 miles from the beach where the weather is pretty mild most of the time but should I do this first before anything else?

I got bids for a traditional duct system with forced air for $6000/suite.  Another bid is for a ductless system which will range from $5000-$10000 per suite.  Any suggestions about doing a duct or ductless system?

Do you think HVAC should be first?  It is the most expensive item on the list.  My thinking is potential tenants only notice the exterior appearance and signage of the building when they look for somewhere to rent.  They do not notice the HVAC issue until after they signed the lease and moved in which is why I was thinking maybe do the exterior first.

What do you think?

Karen Margrave · Answer

James W.  First, what are the comments you get from tenants? They are the ones that will help you make a decision on priorities.

In my opinion... on n painting are you talking interior or exterior? I don't see any big thing wrong with the look. If the area supports higher rents, then maybe down the road you can get rid of overhang, and remodel to a more modern style on the building, and at that time, change out the railing to a metal, cable or plexiglass type railing.

The top priority should be HVAC. Being miserable in and office makes for problems with clients and workers.

Unless there's a huge problem with roof, I'd move down the list, there's not a lot of rain in San Diego.

As for termites, I'd get more bids.

How Prioritize Improvements to my Commercial Building? [PHOTOS ATTACHED]

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