I am putting together to what I feel is a pretty lucrative deal and I would like some imput and some clarification on a few things. Thanks for your help in advance.
I am looking at a parcel that is 7000 square feet and is on a busy street. Roughly 45K cars pass every day. Asking price is 600K
I would like to build out a total of 3000 square feet with two levels. The 1st would be 2 1500 square foot retail spaces and above would be 3 1000 square foot office spaces.
I am estimating a building cost of 800K which would be around 266 per square foot combining first and second floor.
The loan would be for 1,400,000 assuming I pay full price on everything. I feel the appraisal would be for 2,000,000 roughly.
My combined rents for the location would be 13,500 which would be 3 dollars per square foot retail and 1.50 dollars per square foot office. Expensive town I know!
The questions I have are as follows
Is my mortgage going to be low enough to be covered by rents.
Is 3000 square feet of parking enough space for 2 retail and 3 offices?
Is my cost of building too high or too low for the california market?
Thank you guys in advance and if I need to provide further information just tell me.
& 2. - To be able to answer these questions we would need to know who the tenants are or could be. When dealing with commercial it’s the income of the building that determines everything, rather than what the building has to offer. The more income the building makes then the more the building is worth. This is why commercial owners try to get in tenants who pay the most. This is also why most commercial buildings come with vending machines and other services that produce a small income for the building.
The parking also depends on who the tenants are in the building. Lets say you have a pizza shop in one of the bottom retail spaces. This kind of business needs about 3 to 5 spaces for employees a spot or three for the delivery vehicle(s) and the pickup orders. For the most part the majority of this businesses vehicle traffic is only there for a few minutes. On this same token, if one of your tenants in the office space above is a doctor then your looking at triple booked appointments on the hour from 8 am to 5pm almost every day. This kind of tenant means more parking spaces used for longer periods of time. My person rule of thumb when working on small projects like this one is to shoot for the p=plenty formula. It’s better to have a bigger parking lot than too small of one. With a bigger parking lot you have the option for expanding the building, or adding a small structure in a remote spot of the lot for a drive through coffee shop or film place or something along those lines. That also will greatly increase the value of your property.
I don’t know about the cali market all that much. I have no idea what the going rates are. But a $1.50 & $3.00 per square foot is extremely low regardless. I know in Cleveland low cost retail space is going for around $5 per square foot and high is as much as $30+ per square foot. I know in NYC and Chicago I’ve seen it as high as $70 per square foot. And I’ve heard of higher, over $100. For office space I had $16 per square foot a few years ago, and about $10 most recently.
Have you done your research? How much are other retail and office spaces going for? This is kind of a key point in the valuing of commercial real estate.
