Hello,
My father owns a fantastic commercial RE zoned property and he has thought about developing a strip mall on the land for some time. Due to the risky nature of development projects, we would like attempt to sign tenants before investing a significant amount of money and starting construction.
Ideally, we would like to get franchised tenants like Starbucks, 7-11, or Subway, but were not sure about how to reach out to them. If anyone here has had any experience or basic knowledge of how to go about signing tenants before developing a piece of commercial real estate, I would appreciate it if you could provide some information about what you know.
Thanks in advance.
I doubt anyone is going to sign up with you unless you got some development deal going on.
And also if you’re not in a prime location it wouldn’t matter.
the property is on a prime corner location with heavy traffic. we’re currently working with contractors and architects.
once the initial plans are drawn and written, how can we reach out to potential tenants and try to get them to sign before construction?
Hi,
I am going to put the steps in order for you to follow and understand.
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Take a look at your overall market, I would look at everything happening within a minimum 5 mile radius. What are the rental / lease terms and conditions? What is the average rent / lease per square foot.
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Sit down and do a theoretical design on paper and project your parking, access, trash, fire / life / safety issues and where everything sits. Make sure your allowing proper parking per xxx square feet and including handicapped parking.
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Once you completed your rough drawing project your square footage and campare your market rents to the number of square feet you project to build?
This will give you the projected gross rents / leases and tells you what to expect from the project for income.
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Project your expenses against income and include a vacancy factor, remember to include utilities or cleaning service depending on the type of lease? Remember trash, maintence, taxes, insurance, snow removal, landscape maintence and a future big items reserve (IE - Roof)?
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Your working at coming up with a number that projects your ability to service debt? Remember if you project to have to leave $100k for example of your own money in the project, you project some cash on cash return?
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Now talk with a lender about the permenent commercial financing and what kind of rate and terms you can get for the project? Remember to ask about what happens and whats required when you refinance your construction financing?
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Once you get the rate and terms take your projected estimate of income to service debt and project a gross amount you can reasonable borrow against the property for permenent financing. Remember your permenant finance lenders amount against value (IE - 70%, 75% or 80%)
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Now take this amount and divide your buildable square footage and determine what you can spend to build the project per square foot?
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Project and estimate your hard and soft cost’s based on your projected square footage and the development as a whole? Project your carrying cost’s and overhead for the project? Remember any unrented space and your projections to get the property rented out?
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Now project a schedule taking in mind where the project sit’s now and project a critical path schedule showing every part of the process? Planning and zoning approval? Plans and engineering? Permits process? Building time line?
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Now look at the issue of whether your building shells or whether you will have to specifically finish units to rent? Are there contributions to tenants to build out units?
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Now with this all said do you need to turn around and revise the size or finishes to match income and expense?
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Now as a developer you should have your approvals and be in the process of getting permits to pre - rent / lease space. This way you can assure potential tenants you will have a finished building by xx/xx/xx date and tenant will be able to take possession.
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You need to be close enough to make it reasonable for a tenant to sign a lease and wait on completion and move in!
Good luck,
GR