Historic District Vacant Commercial Property Purchase and Rehab

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Historic District Vacant Commercial Property Purchase and Rehab

RaeLena Morrison
Amelia, OH · Member since 2017 · 10 posts · 5 votes

Looked through BP and could not find an answer so here goes ;). 

I am looking at a property located in a historic district in a small town in Ohio. The property is from the 1830/1850s and has been so many things no one seems to know anymore. 

https://www.sibcycline.com/Listing/CIN/1563276/13-...

The space on both floors is huge with about 2840sq ft per floor. I walked my contractor through and we think we can easily do 4 studio apartments on top and either 4 one bedroom units on the bottom or 2 units and a retail space. The local community has a USDA loan they are offering me at 3% as they are desperately trying to get this historic buildings rehabbed and re-purposed. However, I don't believe the funds they currently have available are going to cover the cost of rehab and constructing units. We know the following;

Roof needs replaced  (gravel slant)

Back wall needs restoration work and windows replaced

Several Joists in basement need to be replaced (new concrete block posts were put in 5 years ago)

Second floor corner flooring needs to be repaired

The electric has already been converted from knob and tube and plumbing is currently available on the 1st floor

I have been researching the Ohio Brownfield Fund which provides a grant to cover the cost of a phase 1 assessment and have reached out to the state requesting information about other funding sources. 

Our contractor believes it will cost $25-$30K per studio apartment and $45-$50K per 1 bedroom to build out. (These seem a little high to me but haven't gotten a second estimate yet)

I have run the analysis based on average rents for the area converting the whole building vs building out the top floor and running a business from the ground floor. We would love to be able to fit out the whole building with apartments though both strategies are above a 10% ROI with the numbers we currently have.

Does anyone have experience using HUD or other government loans/guarantees to fund a project similar to this? I believe that these funding sources put restraints on who can be tenants but unsure of other pitfalls.

We are also looking into multiple sources to cover housing/historic/low-income community/small business/micro-enterprise/rural area/anything else to off set some costs. Also would like more information on selling off the tax credits at the beginning of the project to bridge the gap in financing.

I am liking the idea and numbers of the project are promising. The area is desperate for new rental units as all the current units have no vacancies and have waiting lists. I have reached out to the local government and need to find new resources and ideas. If we can create a good strategy then I would be inclined to look at the other buildings in town later on.

Sorry for the length but I am trying to branch into a new area here and trying to get my feet under me. All help is appreciated.

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  • Cody DeLong
    Gorham, ME · Member since 2018 · 280 posts · 186 votes
    8y

    I have nothing to add but this is awesome.  I love old historical buildings and seeing them with new life into them.  Only thing I would say is make the bottom retail.  It sucks when you see an old building like that in what looks like retail next door and it's just turned into apartments.

    And Also holy crap, I wish a building like that was $25k around me.  I'd buy it in a heartbeat, even with no immediate plans for it.

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    8y
    RaeLena Morrison I only know a teeny bit about this but there’s a difference between state and federal tax credits, funding isn’t “assured”, and (from what I remember) tax credit “stuff” has to be used for restoration. I could be wrong, I just remember reading up on it a while ago. So I’m not sure if running plumbing to a second and third floor would be eligible. Maybe it would be, I don’t know, but I’d look into it. The same with conversion of office/retail space to apartments. Three overarching thoughts: 1.) If I were in your shoes I’d want a contractor who had done this before, can hold your hand through tax credit application processes, etc. 2.) 10% ROI post-rehab for a small 3,000 person town in Ohio doesn’t seem that great. I’d hope for a much better spread given the process you have in front of you. 3.) If this was remotely easy, someone would have paid the $25K to lock up the building already. This strikes me as a long painful process :) Not to say that it won’t be worth it but just to manage expectations.
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  • RaeLena Morrison
    OP
    Amelia, OH · Member since 2017 · 10 posts · 5 votes
    8y

    @Andrew Johnson So I talked to the contact for the tax credits today and the building does qualify for the 20% and the 25% together for federal and state. She explained they can be used to "bridge the gap"on funding as well. She also stated anything related to the building and the current structure or "envelope" of the building perimeter would more than likely be covered. 

    It is a long process from what we have discovered so far, however she let me know that NO ONE has ever received tax credits in that district or the whole county! She explained that since most buildings in such a historic county are more "common" most people don't bother and many aren't officially on the register or in historic districts. Because there have been no other awards, our application, if approved would receive the maximum credit allowed. 

    This project is scaring the s&#* out of me but I cannot wait to see if we can pull this off. I'm thinking of all the sleepless nights and gray hair while watching this building come back to life for a new purpose (to make me money). There are a lot of empty buildings in the town and the county and most investors out here go for SFH and MH. Not sure if I'm going for it yet, have to talk to the team ;) and go from there!

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    8y

    @RaeLena Morrison Sounds like you're going down the right path when it comes to diligence.  I know that the path (regardless) is a long one.  I think it your shoes I'd be explicit as I could be (at the formative stages) with the your plans for the property with the contact that you've made for tax credits.  I'd be shocked if she was the sole arbiter of these things.  I would guess that you'd have to put together plans and potentially some sort of plans and get those passing through state and federal review processes.  And if you want to get both you'll have to deal with whomever the most restrictive agency (or committee) is that's reviewing those plans.  

    Now, personally, I think I'd have a heart attack if nobody in the county had done this before.  That means there are zero contractors in the county that have gone through this process.  There's nobody that can let you know about issues, pitfalls, etc.  And to be really, REALLY granular they don't necessarily know where to source period-correct materials.  And to get more granular, if you break a window it's not like you can replace it with the white vinyl windows you likely have in your house that you can order through 50 suppliers or your local Home Depot.

    Anyway, it sounds like an ulcer-inducing adventure! Just be sure you ROI is better than a 10-cap for the hassle, effort, time, money, etc. in the deal.

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