Industrial Flex 1- day in the life building a location

Primarily do Self Storage. As I have looked around several cities, I have come across Industrial Flex, Contractor Garages and Contractor Incubator buildings.

We have 4 acres set aside on a 4 lane road with 15,000 Vehicle Traffic Count per day. This is an 8 acre site. We built Phase 1 as self storage 230 units on the back side. Phase 2 will be 200 self storage units. However a mix will be 12 x 40 with electricity to support our Contractor Incubator buildings. Phase 3 which is along the road will be what I call Contractor Incubator buildings.

Site selection:

Normally you would select a site for a particular investment. In this case we could do 630 Storage units in this location, but we do not feel the market will support that. Thus we saved the road frontage and a separate access for this endeavor. We are lucky, this is a perfect site. 4810 South 35th street, Council Bluffs, IA if you want to Google. Veterans highway which is the 4 lane in front of us goes East (Council Bluffs) and West (South Omaha and Downtown Omaha). Interstate 80 and Highway 75 which are tied to Veterans run North and South. The actual location does not have a street light, but has two turn in/out lanes both to cross the street and to get off the street. The entrance to the location is on a slow dead end street, giving you a chance to approach the highway. With the internet, Contractors (electricians, plumbers, hvac, landscapers, etc don't need a location on the main drag anymore. Plus they don't bring their customers to their shops. Another big plus for this location, is the major Electrical Supply house and Welding Supply house are on our highway nearby, thus we get a lot of contractor traffic. Just need to clean some brush and move the Orange Storage container we are using during construction. Otherwise we have access, zoning, water, sewer, electrical and Ground project ready.

Market:

I will document the market next time. This will be harder, since I have a "proven" method for Self Storage. I need to come up with one for Contractor buildings.

Product (building/services):

1. Insurance coverage- recommended companies and any specific types of coverage beyond normal Liability and property.

2. Electrical- build to suit, or install ahead of time. 200 amp services?

3. Rent terms- I want as little work as possible. Should I go short (1 year) or long (3-5 years) NNN. Also want a clean operation on the outside. Want terms that keep me in control of the external property, to where I can terminate the lessees if they keep falling short on cleanliness.

Overview:

a. 100 by 400 ft building; 16 foot high.

b. 14 x 14 door, with walk thru steel door. Insulated.

c. Metal frame; seamless roof. Heat transfer barrier to beams.

d. 6 inch concrete, moisture barrier,

e. Building will be "able" to be segregated on the two ends. 25 ft wide by 40 ft deep. 4 of those along each end.

f. Middle will be along the front 25 by 60; (400-40-40=320). Will be 8 bays across the front with 20 ft extra in one bay, with extra 14 x 14 door. Back of building will be the same but 40 ft depths. Bays can be combined as needed. example: two 25 x 40's; can be leased as a combined 50 x 40 and so forth.

g. Water and Plumbing to each. No office space built out to begin with, build to suit.

h. Current market running $1 per sqft per month. Lowest I have seen is $.85/sq ft. 1mm metro population.

Below are some pictures of the types of buildings.

Zoning:

The property we are using for this project is part of the same 8 acres we are using for our Storage location.  It was collateralized under that SBA Agreement.  Unfortunately SBA does not finance these types of contractor buildings, where someone else works in them.  So we are having to subdivided the 8 acres and go through the City.  Attached below are the City notes for an upcoming council meeting for approval.  For your info.  Summary, key thing is all utilities go underground.  And a sidewalk along the street needs to be installed.  I have deleted most of the non-information data. For the Quick Read, just look at the Bold and Underlined.  I will attend the upcoming Council Meeting to address any quesitons.

City Council Development Notes:

Subject/Title
Request: Final plat approval of a two-lot minor subdivision to be known as Clark Storage, LLC Subdivision.
Clark Storage LLC Subdivision, as shown and legally described on Attachment ‘A.’ The subdivision contains 8.24 acres more/less of land and is located at 4810 South 35th Street. Proposed Lot 1 will contain 3.93 acres and proposed Lot 2 will contain 4.31 acres of land. The applicant’s commercial storage operation will be located on Lot 1. The applicant will retain ownership of Lot 2 and intends to locate contractor incubator buildings on this lot.
Zoning/Land Use
The subject property is zoned C-2/Commercial District and has nine (9) existing storage buildings and one (1) existing office building on the northern portion of the property. The proposed final plat shows six (6) additional proposed storage buildings. 

Surrounding zoning in the general vicinity of the request includes R-1M/Single-Family Manufactured Housing District zoning to the north, A-2/Parks, Estates and
Agricultural District zoning across South 35th Street to the east and Veteran’s Memorial Highway to the south, and R-3/Low-Density Multifamily Residential District and C-2/Commercial District zoning to the west.
CASE #SUB-20-008
Staff Report Page 2
Existing land uses in the general vicinity of the request includes a residential neighborhood, Trailer park, to the north, and undeveloped land to the east, south, and west. xxxxx, a residential subdivision, is located across Memorial Highway to the southeast. The future land use plan of the Bluffs Tomorrow: 2030 Plan designates the area as Rural Residential/Agricultural.

Comments
1. The proposed subdivision is consistent with the Bluffs Tomorrow: 2030 Plan (comprehensive plan) as well as the purpose and intent of the City Subdivision and Zoning Ordinances.
2. Both lots in the proposed subdivision exceed the minimum C-2/Commercial District lot size requirements and have direct frontage on public roadways.
3. All development in the subdivision shall comply with the standards stated in Section 15.15 C-2/ Commercial District of the Municipal Code (Zoning Ordinance). Proposed Lot 2 is considered a corner/double frontage lot as the lot has frontage along both Memorial Highway and South 35th Street. Chapter 15.03, Definitions, of the City Municipal Code (Zoning Ordinance) defines the ‘front lot line’ of a corner lot as “the shortest lot line along a street other than an alley (§15.03.430)”. Based on this definition and the lot dimensions shown on the proposed final plat, the lot line adjacent to South 35th Street shall be considered the front lot line for proposed Lot 2 for zoning
setback purposes. The property line abutting Memorial Highway right-of-way shall be classified as the street side property line for zoning setback purposes.
4. A sign permit was issued to allow a 128 square foot pole sign in the southeast corner of proposed Lot 2 in June of 2020. The proposed minor, two-lot subdivision would not result in the creation of a nonconforming off-premises pole sign as Mr. Clark will retain ownership of both Lots 1 and 2. If Lot 2 is ever sold, at such time the pole sign would become non-conforming.
5. Public water, sanitary sewer and storm sewer utilities are available to service both lots in the subdivision. Any cost to construct, extend, remove and/or relocate any utilities within or to this subdivision shall be at the sole expense of the applicant and/or developer, and not the City.
6. All electric, cable and communication facilities shall be installed underground. All costs to construct, remove and/or relocate any utilities in this subdivision shall be the responsibility of the applicant and/or developer, and not the City.
7. Section 14.14.040, Sidewalks/Pedestrian Ways, of the Municipal Code (Subdivision Ordinance) requires that sidewalks be installed in all subdivisions and they be designed and constructed to comply with Public Works Department criteria. Proposed Lot 1 has frontage along South 35th Street and Proposed Lot 2 has frontage along both South 35th Street and  Memorial Highway; however there are no existing sidewalks along South 35th Street adjacent to the proposed subdivision. A sidewalk designed and constructed to comply with all Public Works standards shall be installed along South 35th Street adjacent to the proposed subdivision. Installation of the sidewalk shall occur in two
(2) phases. The first phase of the sidewalk shall be installed along Lot 1 prior to issuance of a certificate of occupancy for the proposed additional storage buildings. The second phase of sidewalk installation shall extend the sidewalk along the entire length of Lot 2 and shall be completed at the time proposed Lot 2 is developed.

CASE #SUB-20-008
Staff Report Page 3
8. The cross access easement between the two (2) proposed lots shall be extended to the far west property line to ensure no access issues arise in the future between the two parcels.
9. The City Fire Department stated that they have no comments in regards to the proposed minor subdivision.
10. Cox Communications stated that they have no issues with the proposed minor subdivision.
11. The following technical corrections shall be made to the proposed final plat:
a. Revise the side yard easement for each parcel to state five (5) feet, as opposed to the 10 feet, stated on the plat.
b. The full metes and bounds legal description for the overall subdivision boundary shall be stated on the final plat.
c. The following standard easement notes shall be included on the final plat.
a) ERECTION OF STRUCTURES PROHIBITED: Grantor shall not erect any structure over or within the Easement Area without obtaining the prior written consent of the City Engineer, provided however grantor shall have the right to place and maintain a surfaced roadway over and within the Easement Area.
b) CHANGE OF GRADE PROHIBITED: Grantor shall not change the grade, elevation or contour of any part of the Easement Area without obtaining the prior written consent of the City Engineer.
c) RIGHT OF ACCESS: City shall have the right of access to the Easement Area and have all right of ingress and egress reasonably necessary for the use and enjoyment of the Easement Area as herein described.
d) REMOVAL AND REPLACEMENT: The cost of removal and replacement of any unauthorized
improvement or structures within the Easement Area, necessitated by the exercise of the rights under this easement, shall be borne by the Grantor or their successors or assigns.
e) SURFACE RESTORATION: City’s liability to restore the surface within the Easement Area shall be limited only to grading and seeding, and replacement of grantors surfaced roadway.
f) DUTY TO REPAIR: City agrees that any drain tile, drive or access way, fence, or yard or other improvements outside of the Easement Area which may be damaged as a result of any entry made through an exercise of the City’s right of access shall be repaired at no expense to Grantor.
g) EASEMENT RUNS WITH LAND: This easement shall be deemed to run with the land and shall be binding on Grantor and on Grantor’s successors and assigns.
h) GRANTOR RESERVATION: Grantor reserves the right to use the Easement Area for other purposes provided however these purposes shall not interfere with grantees use of the Easement Area under the rights of this agreement.
d. All building renderings shown on the final plat are not necessary and shall be removed.
Recommendation The Community Development Department recommends approval of the proposed two-lot minor subdivision to be known as Clark Storage LLC Subdivision, as shown on Attachment A, and subject to the comments above and the conditions below:
1. The final plat shall be recorded within 90 days of City Council approval or the plat will become null and void unless an extension has been requested and granted by the Community Development Department Director.
2. Conform to all City standards and specifications, the zoning and subdivision ordinances and the Department of Public Works Standards for Public Improvements.
3. All comments and technical corrections stated in the case staff report shall be addressed on the final
CASE #SUB-20-008
Staff Report Page 4
plat prior to execution of the document.
4. All utilities shall be installed underground. Any costs to construct, remove and/or relocate any utilities shall be the responsibility of the applicant and/or developer, and not the City.
5. A sidewalk designed and constructed to comply with all Public Works standards shall be installed along South 35th Street adjacent to the proposed subdivision. Installation of the sidewalk shall occur in two (2) phases. The first phase of the sidewalk shall be installed along Lot 1 prior to issuance of a certificate of occupancy for the proposed additional storage buildings. The second phase of sidewalk installation shall extend the sidewalk along the entire length of Lot 2 and shall be completed at the time proposed Lot 2 is developed.

Competition:

Facility Costs:

Revenue Stream:

Financing:

Marketing:

Insurance:

Pros/Cons:

If I'm missing a topic, just let me know to add.

09/15/2020

Noted above we were having to segregate this land through a subdivision process for Financing purposes (SBA doesn't finance projects where other companies will be operating out of them). Had the City Council meeting last night. Did a brief reason on why this subdivision is occurring. Passed.

Now just waiting on Appraisal. Then go back to SBA show them they have enough collateral and to get their sign off on releasing this portion of the land.

Kind of anxious on the appraisal. Bought this 8 acres for about $20,000 per acre as "farm ground". Should appraise a lot higher since it has been cleared, levelled, filled in, and Water/Sewer/Electric are now on site; and put to commercial use. This will account for a good portion of our Collateral going into the next phases of both of these properties.

*************************************

10/09/2020

Got the appraisal back we need for the SBA to determine they will have enough collateralization to allow me to subdivide the Self Storage off, from the front ground. Appraisal cost $2,500 but definitely worth it. Again, they won't do the loan on the front property where I am going to do Contractor buildings, since they don't finance where other companies are operating out of.

Current: Bought 8 Acres for $200,000; then spent about $50,000 clearing, filling in low spots and bringing water and sewer into place. We only have $200,000 into this ourselves. Built 3 rows of Self Storage on 4 acres and opened in Feb. In the rent up phase at 30%, which I'm happy with, considering Covid slowed rent up in the spring.

Financing- Have a loan of $1.4mm; plus the $200k we put in for a total of $1.6mm. On Interest only during construction period and Rent up phase (18 months or 65% full); then we will convert to the SBA loan and lock in interest rates. Last rate 3 months ago was about 2.3% for 20 year fixed term for SBA 1/2. 2.3% for the banks half which is on a 10 term (SBA required), with 5 year increment renewals.

Appraisal:

The storage with the 4 acres is valued at $2.05mm at 30% full; and $2.25mm filled. The spread seemed unusually light, but I'm not arguing since we have a total investment of $1.6mm.

The 4 extra acres up front was appraised at $580k. To think 2 1/2 years ago in the middle of winter I was cutting trees down and pulling stumps. Griping that the appraiser at that time would only do $225k for the land. I thought all 8 acres was worth $400,000 total. Adding a commercial facility on to the property helped increase the valuation.

Total appraisal of $2.63mm at 30% full on the storage. With only $200k invested. Plus a lot of sweat equity and executing.

Summary:

SBA loan- Have enough value to cover for the SBA's 10% on the $1.6mm loan total. $160k versus $450k($2.05mm less $1.6mm loan). Banker will discuss with SBA and move forward to get them to release the front 4 acres.

Contractor 4 acres- $580k valuation, should be enough collateral to build and fit out the Contractor buildings we want to build, so we should not have to bring any of our funds into the deal. Since this will be a Non-SBA loan, collateralization will probably be at 25%, thus a total potential loan of $2.32mm for the total project. Might could pull $180k cash out, since our project will be in the $1.6mm range; but will leave in. Might use this excess collateralization with this same bank on another property we are looking at. This bank has a Loan cap rate of $8mm; thus they can do more projects with us, versus farming out any excess loan amounts.

What's Next:

Too late to get any construction going this year. My plan once loans and Subdivision are final; is to start laying out the Contractor facilities, deciding on a building type/configuration and then at the same time start running the numbers. Would like to get a Building identified, ordered, contractor selected, and engineering plans by February. Get building permits by Feb/Mach and start dirt work in May/June with a Late summer/Fall opening.

This is a new market for me. Thus will figure out rental contracts, best practices, marketing/pricing, insurance, NNN or?, etc. Will seek your input.

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Nov 11, 2020

Been doing paperwork to finalize the subdividing of the 8 acres:

1. City Economic development review- completed

2. County GIS review- finalize Thursday.

3. County Assessor signoff.

4. County recorders office- copy of plat, certified resolution, then record the subdivision.

Although this property is in the City, for whatever reason, need both City and County review/approval.

At this point the local Banker will work with the SBA, to get them to release the front 4 acres so I can do the Contractor buildings. Again, SBA won't loan on properties where someone else is running a business, which this will be 100% contractor rentals. Should not be an issue as noted in the post above. SBA portion of Self Storage, has roughly $400k value extra per appraisal than the 10% $160k equity required for the loan. But we will see, government and bank project.

Key is to remember why you are doing these things, on such long projects.  Pay for your house or college for your son.  A bigger "number".  Just pure success.  

We just planted our 10,000 Teak trees down in Belize.  Keeps me pumped working on our projects.

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Dec 24

Received all City Subdivision paperwork and Subdivision is now recorded.  Documents to bank to work with SBA to get them to release excess collateral.  Based on Appraisals they have about $1,080k collateral, and they only need $200k.

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01/19/2021

@Cole Bigbee ; @Brian m sweeney; @Brett Peter; @William Thresh; @Greg D; @Ronald R; @Zach Q; @Bjorik Mutize; @Shahriar Khan; Can't get addresses to show.

Please give input.  Highlighted fields did not come through.

************09/23/2021

Getting ready to gear up for Building our Flex buildings in 2021. Please give input, especially on the highlighted items and any items not listed. Will probably be 3 separate buildings. 1. 100 x 400 on 25 widths and 50 ft depths. 2. 50 x 50. 3. 30 by 100, with 25 ft widths. Want to stay away from Welding, Mechanics, etc requiring a lot of outside storage or parking. Thank you.

I'm a list guy, but like to fail on paper first. Any input on the below is great.

SBA released the front 4 acres. Won't get any building done this year, but starting to do planning. Below is an engineering plat of the buildings we plan to do.

The two long left to right building foot prints at the top are our 2nd phase of our self storage buildings. Have decided to make the bottom one into Flex buildings. 45 deep x 25 wide. 12 x 14 tall doors. Metal walk through door with window above. Will have some electricity and individually metered. No set parking out front.

The six square/rectangle buildings at the bottom will be the larger Flex buildings. 70x70 or 70x100. Will divide. At this time plan to use a building from Sukup. My Electrician is also a rep for them. Did some early quotes on different sizes and he was far less expensive than another company. Buildings are comparable quality and this contractor has done significant work for me. Will have water, sewer, electric. Stub out commode, bathroom sink, shop sink, coffee area sink and water.

Subject to cost estimates will probably build the long building above. Then the first three buildings below, since this is a new market and product for me. This will reduce the risk and anxiety as we rent up.

Have erected building quote, door quote ($10k per door, chain, insulated, installed. Have 48 drive thru doors. wow). Getting concrete pad and roads, electrical, sewer, water. The plan above has a lot of concrete driveway and parking. Have to see if the numbers will allow. Plan to give so many parking spots to the units, and then the rest have to be rented. We have Location/Location. The extra concrete driveways and parking should help set us apart.

As noted above, this 4 acres was appraised at $580,000. Banker says this collateral is good for project up to $2mm. So won't need to put any cash down.

Plan to go for a $1 per sqft/month. They pay insurance (us additional insured), water, electric, maintenance. Have to figure out if/what we do for deposit or early out charge. 3 to 5 year leases. We will cover Property taxes, sewer, grounds keeping (very little other than snow removal). Will split improvement costs with them (hvac, bathroom, offices, etc). They must leave in place.

Have to get actual building prints to submit, along with engineering for Electric, water, sewer. Want to get a Fire Marshall determination if Sprinklers are needed.

We added more buildings from original layout. Engineer said I need to dig out Storm pond 2 more feet. Will do that in October. Use for fill.

**********11/30/2021

Talked with Fire Marshall. Need to build at 5,000 square foot or below, or need to install fire sprinklers or 3 hour fire wall. Decided to make all of the buildings 50 x 100.

Just met with Engineer on redesign building layouts. Now that we have the final footprints, he will move forward drafting water, sewer, electrical, external sidewalk and road layouts.

Have excavation contractors digging 2 feet out of Storm pond to meet new building and parking sizes. Using this dirt on site to raise building sites 1 foot. This will help with drainage since this area of our complex allows surface run off versus storm sewer to the Storm pond. Not ready to build, but want this dirt work done while its dry in the fall, and will let the ground settle over winter with a freeze/thaw cycle.

My metal building contractor called and said the manufacturer is no longer going to do Metal buildings, they are going to concentrate on their grain handling side of the business. Need to find another building manufacturer. Right now, metal building prices are about 40% higher than a year ago.

This project will be built in 3 phases over a period of 3 to 5 years. This is to test this Flex building market out. Also to make sure we don't overextend financially, especially during this economic period. All of our Storage locations are in the positive cash flow stage, with our last location in the Rent up phase. We have also paid down a lot of debt this last year, through our Subdivision sales. So we can take on a little more risk. Have been asking all of my realtors, contractors, Steel contacts and bankers what their crystal ball looks like. Most are pulling back buying new equipment, starting new developments, or contracting further out. They plan to see what happens next year. We plan to build 2 of the 6 buildings next year. Each building will be potentially divided for 2 to 4 tenants. Have 4 different types of businesses/tenants I want to focus on, to start with. Also at three of our Storage locations demand is high and we are 100% rented. We have or will buy extra ground, thus will add storage at two of these sites next year. Will raise rental rates to compensate for higher building costs. Can do this since all competition is at 100% occupancy. Customers would have to drive 20 to 40 miles away for less expensive rents.

Short-term 1 to 3 years thought process. Let's say interest rates are around 4%. I'm okay investing up to 7% with a sharp pencil. Stop investing at 9%. Right now Inflation is more of an issue than interest rates. Inflation being around 40% on my materials, plus long lead times. All of my contractors are short staffed right now and having to pay more. They are busy into the foreseeable future. When supply chain straightens out, investors stop backing off investing, interest rates stay moderate; my next concern will be finding contractors once the economy comes back with pent up demand. My decisions are based more on our personal Risk management, with the overall economy as a backdrop.

Longterm thought process. The US is a financial powerhouse because of the following simple items: a. Rule of Law, versus Rule of Man; b. Property rights; c. Patent/Copy rights protection; d. Natural resources.; e. Stable Government comparatively. These items might sound simple, but most countries don't have these. Don't see any of these changing. The only one I see being significantly threatened is the Patent/Copy right protection overseas. So definitely keep investing. Plus with our Storage business we have about a 3 year timeline where we will have more than enough equity to take any Financial Collateral issues should the economy go down (40% recession).

Usually I say:

Start small and Make Your Big Mistakes Early.

Now, make sure you are doing a Risk Assessment both on the investment you're looking at, and also your overall Financial position.

*************03 12 2022************

Got quotes in on Buildings, Sewer, water, roads, electric, everything else. We were going to do just the first two buildings out of the six. Although the project comes in profitable, not enough for us. Have other projects that have a greater return and lower risk factor. Long road to get to this stage. Thus, we are not going to do this project or this type of investment for now. Will look at another alternative.

We got two quotes for the metal buildings. Ranged from $530,000 to $630,000 for the two buildings "total" of 10,000 square feet. This only included the buildings erected, pads and doors. 16 foot ceiling, 50 x 100, 25 foot divider walls, Commercial steel ADA walk through doors, 5 inch concrete floor no rebar, Garage doors 14 tall clear height x 12 wide and Insulated roof and sidewalls. Both builders would be clearspan steel, national mfgs.

The Electric ($139k) and Sewer ($107k) ran $245,000 which really blew up the project. Sewer was a little higher since we were going to have to put a "Grinder" lift station in, since the sewer line was elevated to high coming into our property.

You see the drawing above. We are going to do the long white tube above. This is in three sections and will use a traditional Storage building scheme. Without Water or sewer. Electric plugins will be on the outside. We won't meter. Thus I want control outside how much electric and lights get used. These will have 14 foot clearance at the doors. Insulated panel doors 14 tall by 12 wide, not the roll up storage doors. Steel ADA walk through doors, with window above. This achieved twice 19,000 square feet and about twice the revenue as the Traditional Contractor buildings above, thus they came in very profitable, since the buildings were less expensive and not the added Water/Sewer costs and less Electricity and metering. These won't meet certain types of flex building contractors, but we have less risk and a higher potential profit window.

*********06/10/2022

Update. Had final building designs, quotes, and financing ready to go. No down payment needed due to appraised equity in existing land. Decided to pull the plug on this project. Would be a year before we locked in final financing and not comfortable being at 7% up to 9%.

Also did an overall financial review of all of our assets, stocks/bonds, farm ground etc. Decided to start to reduce debt going into the next 2 years. Might miss out on 2 years of rent, but will not have added debt, and will be financially unconcerned for the next two years.