How Similar is An Office Space Build Out To A Full On Development?

Question

I have a 12k SF gutted office space available for lease in a great part of town. When we go to build it out, there will be permits, the city, engineers, architects, etc involved. I've had empty spaces built out a few times already, but have always wondered are there similarities between building out an empty space compared to a ground up development.

I am sure there are a ton more issues involved with ground up developments, but just wanted to see what could be noted here - thanks!

Karen Margrave · Answer

Tony Nguyen Most people don't realize that by the time a project breaks ground, the hardest part of the project has usually been done. Kyle Zaylor is correct in saying it's like herding cats, because there are so many different agencies, departments, professionals, tradespeople that have to be dealt with, and if you run into any environmental concerns, it multiplies.

We have a family owned company, and have been doing this for over 25 years. We are licensed in construction and real estate, and have developed projects from office/medical office buildings, small office parks, medical/dental clinics, office/retail condos, SFR subdivision, etc., and with each project you learn something new, or have new regulations to contend with.

If you want to learn development, start with something small, like a house, or small office building (which is much the same as a custom home). If you can find a property that has improvements already to the parcel, roads in, and curb/gutter/sidewalk, etc. that would be even better. But... KNOW your market.

Tony Nguyen · Answer

Karen - No, I'm not considering it today, but it is a long term goal of mine; to become a developer. Your explanation of the major difference (building and site layout) really hit the nail on the head, thank you for that!

Kyle -  that makes a ton of sense, thank you for that response.

Kyle Zaylor · Answer

Hi Tony,

Great question because it touches on many different aspects of the development process.

Risk from financing and entitlements are two large hurdles that are usually much larger in ground-up developments.  Because a ground-up project doesn’t exist yet, the developer generally takes on greater risk early in the development process to raise equity/debt and manage entitlements.  Because of the higher risk that’s involved, much of the due-diligence, planning, and design  have to be done very early on in order to communicate to financial partners, city officials, and the public that the development is a viable project.

I hear many developers refer to their day-to-day as “herding cats” because of the scale to which they are pulled in so many different directions (from architects, engineers, lenders, city officials, consultants, etc.). However, this also adds to the excitement factor of the process!

Karen Margrave · Answer

Are you considering developing a project from the ground up?

Some of the differences come before the project starts. You would deal with many of the same agencies (planning, zoning, building, etc.) architects, engineers, etc. In addition, real estate brokers, sellers of property, etc. Depending on the location of the property, you could have to deal with State or Federal agencies, but usually not.

One major difference is in building and site design/layout. With a completed building shell you are dealing with what you have to work with. In new development, you design a project to fit the site, and choose everything from the style, to finishes.

If you have specifics let me know and I'd be happy to help. We have developed several office buildings.