All Forum Posts by: Bennet Sebastian

I may be a little late to the game but I've been hearing about how hot flex space is for a few years now and currently considering undertaking a new flex development project here in central Florida. I've identified a 2.25 acre properly zoned greenfield parcel with offsite retention that looks like will yield around 20,000sf of buildable area across multiple buildings. All utilities and power appear to run adjacent to the parcel. 

I think the market for small bay flex space is right around $15/SF NNN and I would want to achieve a 10% cap rate going in and an 8% cap exit. Therefore I need to be at $150/SF all in including land. I don't think that's doable unless its a bare bones metal building which the city may not allow and which would also not command $15 rent.

Here is my expected cost:

Land: $475k

Acquisition Costs (Environmental, Survey, Geotech, Traffic Study): $25k

Soft Costs (Engineering, architect, impact fees, permit, legal, closing costs, taxes, interim interest): $300k

Site Development Costs: (Earthwork, underground utilities, curb cuts, fencing, stormwater, paving, landscaping): $800k ($400k/acre)

Subtotal before vertical costs: $1,600,000 ($80/SF). 

This only leaves $70/SF for vertical costs which I don't think is feasible. The metal shell package will only be $30/SF but by the time you add in foundation, slab, MEPs, doors/windows and framing and any sort of architectural facade I think the vertical cost will be well over $100/SF. Maybe developing flex space made sense three years ago when construction inputs were significantly less but not sure it really works today. I have been speaking to the folks at Hamza Invests and they are confident that it can be delivered for much less based on my land costs but I don't want to fork over the money for their program and find out my instincts were right. 

Anyone here able to shed some light on this?
 

A personal guarantee obligates the principals of the company to the terms of the lease, so if the company ever goes under the principals are personally liable to cover the rent payments. Talk to your attorney about this and ask for personal financials. As for the building sitting empty, if you are buying it with underlying lease rates that are comparable to market I wouldn't worry too much about it. With inflation being around 7% right now lease rates are only going higher for the next few years, especially for industrial. Even if your tenant goes dark in a few years you will be well-positioned to offer a below market lease rate to new tenants that still allows you to pay your debt service and provide cash flow. But your deal almost sounds too good to be true so I would just keep investigating and asking questions without losing the deal in the process.  

Hi @Ethan Bruland, a 15-year lease back plus options, at 7% cap and with a strong company sounds like a no brainer. But often times when deals are this good the lease rate is artificially inflated to get a higher sale price. Are the owners willing to give you a personal guarantee? Tell us more about the property, (type, age, size, price).  What is the going cost/sf for comparable properties in the market? What you don't want is a property that will be worth substantially less than you paid for it when your tenant leaves. 

I am a general contractor and a CCIM/MBA with a background in CRE brokerage and investment. I started my company a year ago because I really want to focus on development and building my own projects. To keep the lights on I've acted as a pure GC for other clients and even did a brokerage deal but am planning my first development next year. It's a small ground up medical office building on a pad ready site. Seller is providing 50% financing on the land and I am taking it through design and permitting and marketing it as a build-to-suit.

I'd like to line up a few more projects for next year but I am working with limited financial resources at the moment. So I am curious what are some ways I could joint venture with the land/property owner that limits my out of pocket expense/risk but allows me to control the project and still be a win-win for both sides.

Thanks in advance.

thanks! 

So…I spoke with three different banks and I wasn’t able to get around the personal guarantee requirement from the larger investor. The good news is this investor would prefer that I not bring on any more investors to dilute his interest and he is going to be Okay with guaranteeing the note. In exchange for his guarantee I offered him the first 10% of profits as a loan guarantee fee which is in addition to the preferred return and profit split. Win-win all around. 

Thanks Ken. That’s good to here. 

In essence I do need to develop my equity investor base. Now that I have a deal under contract it should be a little easier and I have plenty of due diligence period to raise the money. 

I am a GC and that’s what I spend most of my time on. I’ve done several medical office acquisitions and renovations but this is my first ground up project. The parcel is pad ready, is a hard corner and has a 10/1000 parking ratio. I expect to get $25/nnn which will yield a 40% return on equity at exit. 

Hey Ken, hope you and the wife are doing well. As it stands my financials aren't strong enough for me to be the sole guarantor so just bringing everyone down below 20% would not be enough to make the loan. I'm asking for 35% loan to cost which I felt was pretty conservative and would reduce the perceived risk by the bank but apparently not enough. I either have to find another lender that would be comfortable with the deal or I would need to get one of my investors to guarantee the loan. In the event of the latter, I would give them additional equity in exchange for the guarantee but being this is my first project with them I really don't want to have to ask them to A: put up most of the equity and B: guarantee the loan.