Building Shell Development Mixed Use

Multi-Family and Apartment Investing
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Building Shell Development Mixed Use

John FortesPro Member
Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes

How have you guys underwritten a mixed use... I just came across a great opportunity in my hometown and it's really priced accordingly well.

  • Building price $350k
  • assessed value $225k
  • 8 total units
  • 6 residential (two 2's, two 1's, 1 studio, 1 ADA studio) 5 units upstairs, 1 ADA studio main floor
  • 2 commercial retail
  • Residential units 6950 sq ft
  • retail 2700 sq ft
  • Cost per sq ft around me is $125-$140 (gathered from a builder friend)

Already zoned (C2) and approved by the city. Met with the seller and he's already come across buyers that want to buy it for the fast buck and change what the city already approved. He's balked on those offers. I plan to keep it as he has already planned for it because we share the same vision.

Deciding to do with the retail is what I'm tackling now. Mini mart? Co-offices (my favorite idea as the court house and revitalized down town is a skip away), ect. Any other ideas you guys may have due to experience will be very helpful.

I'm trying to underwrite this one as we would be going in with hard money and strategically refinancing out once stabilized. I have a great community bank relationship and already spoke to my contact there saying day one of full stabilized leased up on just residential units we would start the refinance process.

I appreciate any ideas on how to underwrite this one due to the commercial retail and units mix as well as retail component as well as total expense to develop this project. I just want to have an idea of the budget it would take to complete this from other resources that have tackled such a project. Thank you in advance!

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  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    @John Fortes I assume this is an existing building you are going to renovate? If so this is one of my favorite types of projects.

     Tenet mix is critical for the success of this development and the overall value at the back end. You want to make sure you have solid tenants willing to do long term leases. Look for the demand drivers and fill the gap.

     You should be able to finance this project with a commercial lender instead of hard money if you can get at least half of the space leased up prior to beginning. 

     Underwriting is similar to any other type of value add project. make sure your developement costs are dialed in. There are a lot of things to look out for like utilities, infrastructure, foundation, structural integrity, mechanicals, permit fees, contingencies, interest reserves etc.

    I would be happy to discuss more offline. That would be easier given the complexity of the project.

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  • Jordan Hainsworth
    Dallas, TX · Member since 2018 · 8 posts · 3 votes
    7y

    John - I have worked with a few people who have done work of this nature and I personally recommend turning those retail spaces into a consumer-focused retail spaces e.g. coffee shops, mini mart (as you suggested), diners, bookstores, ect. The underwriting aspect of this calling it for what it is a  mixed-use property so you're focus will be having a strong P&L once you're ready to refinance. 

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