From Abandoned Shell to $1.1+ Million Valuation in 4 Years

[Joe H.]

I started investing back in the bottom of the recession or, as I like to call it, the Great Turkey Shoot of 2010. I was snagging some pretty incredible deals back then, but the jewel of them all was a beautiful brick six unit building that had been abandoned mid-construction. This property was actually damaged in a fire in the 2000's at which point the owner decided to take the money and complete a totally unpermitted renovation and expansion. Of course the project involved adding a masonry addition to the rear of the building within a few feet of an active Elevated (Chicago "L") train line. Naturally the city isn't too keen on this kind of behavior and the owner was slapped with a stop work order. As if that weren't enough, the bank followed suit by foreclosing and then totally neglecting to secure the property. It quickly became a drug den inhabited by homeless people who proceeded to literally crap all over the place. 

About this time I was scouting the area knowing that Lagunitas Brewery, Cinespace Film Studios, and a few other big name businesses were about to redevelop a nearby abandoned steel mill and improve the area. I ran across the building (which at the time had a beautiful copper cornice) and was obsessed. The asking price was $125,000 which was pretty steep considering the all the hair on the deal. Then, a few weeks later, I noticed a price drop to $25,000 which really piqued my interest. I drove by and noticed that all the windows had been smashed (to get the aluminum frames), the cornice was stolen, and apparently all the plumbing was gone as well. I called the broker and he said "make us any offer", So I did, I gave him an offer for $5,000, quick close. They countered at ZERO dollars if I was willing to let them quit-claim it to me and transfer all the liabilities from the city court cases to me. Best negotiation of my life.

The reason the bank was so motivated to sell was that the city had moved the building to demolition court and basically told them either fix it up, sell it, or demolish it or we will demo it for you and send you the bill. The property had multiple building court cases against it and was basically totally open to the elements and vagrants.

I spent the last four years repositioning the property and doing just about every legal maneuver you could possibly have to do to the building. I first had to get all the court cases under control which meant totally buttoning the building up and literally shoveling foot tall by three foot in diameter piles of dried feces out of the place. If you know anything about Chicago, the city is, well, less than helpful. So the next step was to attempt to get permits. Of course the zoning no longer allowed commercial spaces (and this building has a wonderful brick garage and corner retail space) despite the fact that my building had a commercial space since 1893. So I had to go through the process of securing a zoning change which in Chicago is a monumental task. That took almost a year to complete. After the zoning was taken care of I finally worked my way through the permit process which took 364 days as I had to clear both the stop work order and all other city complaints along the way. Finally I secured the permits and was able to close a hard money loan with only this property and one other I owned as collateral, no cash in. I've spent the last six months finishing rehab and, low an behold, my baby is no longer a terrifying abandoned crackhouse, but has emerged as a beautiful mixed use rental asset. 

I spent over $500,000 on construction, but now have a $2,000/mo NNN lease on the comercial space which takes almost a third of my taxes off my hand. I am getting upwards of $1400 for 2BD units and as high as $1750 for 3 BD units. My monthly NOI is just shy of $10,000 and, given the total gut job, my expenses are super low. At an 8 cap the property is now valued in excess of $1.1 million and I am in the process of refinancing to a longer term commercial loan to lock in these low rates for at least the next five years.