Developoing the strip mall

[investor123]

Hi,

I am interested in finding out everything required to develop a strip mall. Is there any resource or book I can use for this purpose. I would like to find out.

1. What type of permits are required. I understand that it would vary from county to county but I want the general overview.

2. What are the different types of construction.

3. What to look for in the location.

4. How to go about renting the unit out to their maximum potential.

5. How to calculate the complete cost.

6. Different type of financing options for project like this.

I will appreciate any advice.

[crusadercommercial]

Hi Investor123,

Just need a clarification...

Are you looking to be the investor or the developer?

If you are looking to be an innvestor of a construction project for a strip mall I can help you with that information.
however, if you are looking to be the developer I can answer some of your questions but not all.
As you surmised, permits vary from county to county and you should contact the county office for that, but if you are using a local contractor, that is their job, not yours. They will handle all of that.

What to look for in a locations is relatively simple... TRAFFIC & ACCESS are the two key factors.
Also, sewage and utilities are other factors.
There are so many variables that it is too broad a question to answer without more information. Like, is it in a develped or undeveloped area. Rural or suburban, average income of area residents Lots more.

I would suggest, that you start with something a little simpler.
It woul dbe a much better investment starting with an existing strip mall so you can get the hang of it.
Developing a strip mall from the ground up is a really involved project for a newbie in that arena.
It is also, no small undertaking financially, before you can even find out if you can build it where you want it.
 Just the filings, blueprints, permits etc etc, are going to run into beaucoup bucks.
There is no book that can tell you what you want to know.
I would suggest, that if you are really bent on doing a strip mall development project that you find a local developer and pick his/her brains. A simple compliment and an offer for a nice lunch out will actually get you more info than any combination of books you could find.
When I was just starting out in business, I would find someone who was fairly successful and call then and tell them how awed I was at how they built their business and that I would love to take them to lunch and hear all about how they did it.
You would not believe how often they were absolutley thrilled.
As a matter of fact, they usually paid for the lunch too

Jeff

[investor123]

Thanks for the information. I agree that it would be better if I start with the existing strip mall. It will give me lot of experience. I want to do it close to my residence (central nj) as I know the area very well. Population is growing very fast and lot of new strip malls are coming up. I do not find anything on sale and if I find something price is very high. Cap rate is around 5-6% and I am not convinced that all the expenses are accounted for I only see taxes, snow cleaning etc in the expenses, lot of them do not have any maintenance included. I will keep looking but If I am looking for the existing one I have following questions/comments:

1. Are there different types of construction for strip mall. If there are what are the advantages/disadvantages for each.

2. How involved is the maintenance. I think once it is leased and snow cleaning is contracted out it does not need much.

3. If I use the management company, usually how much it costs.

4. What to look for in the paper work. Leases are easy as I can get attorney to make sure it is good. How would I make sure that all the expenses are reported properly.

5. I thinks roof/air conditioning/heating is the major expenses. I think I need to make sure how old it is.

[crusadercommercial]

Hi Investor123.

There are different types of construction styles, but all construction has to follow your states structure code including fire, structure, access, etc.
Today, most buildings use metal studs. Wood is rarely used for commercial construction. There are codes regarding concrete fire stop walls between entities and things like that.

For maintenance I would just call some local commercial maintenance companies.. same thing for management. There is no universal rule of thumb. Each state is different and each area is different depending on the affluence or lack thereof of the area.

The heating and colling system is a major expense.
The best type of property is one that has an individual unit per store and your lease puts the onus of maintenance and repair on the lessee. Initially, you would hire a hvac contractor to do an isnepction of the unts before you sign the final purchase papers, unless there is some sort of clause warranteeing the HVAC systems for a specific period of time.

Maintenance after that point should be mainly snow removal and garbage pick up. The rest is borne by the store owners.

Hope this helped.

Jeff

[investor123]

Jeff,

Thanks for the info.

Looks like if all the units have there own heating/cooling and tenant is responsible for them then I do not have to worry about it. Only major maintenance then is roof, I will make sure using inspection that it has enough life left.

Actually I do realestate part time only. Currently I have office condos which are easy to maintain as tenant is responsible for the maintainence of the heating/colling and condo association takes care of the garbage/snow/landscaping (but costs lot of money). I was just making sure that strip mall is no more time consuming. So far I thing that it is no more time consuming.

[crusadercommercial]

Under normal circumstances it is no more time consuming.
the only difference may be exterior maintenance due to vandalism and/or grafitti.
Your liability insurance for the grounds may be a little higher than the condo but that's about it.

Jeff

[GAB31]

Hello Investor 123. I am also looking to purchase a property somewhere in the NJ/PA region. I see that you have already been in touch with some of the owners and I was wondering how did you get a hold of these people? I am having alot of trouble trying to locate the owners of certain strip malls and other potential investment properties.

[crusadercommercial]

Hi Gab31,

the easiest way to get the name and address of a strip mall owner is to go to your local county property appraisers site and enter the address.
It will give you the name and address of the owner and where to contact them as well as the last sale price of the property and at times even an appraised value of the property, however, I would take that market value as a low grain of salt as it only deals with appraised value based upon tax rolls and not the actualy market value based on comps and things like that, but it is a great way to do comparative value if looking at different properties of a similar nature.

Jeff

[investor123]

Hi Gab31,

My main resource is loopnet.com. Whenever I see something on sale there I contact the realtor or owner and get the details. Keep in mind that information on loopnet is not verified. It is the best resource I have found so far.

[investor123]

How easy it is to reconfigure the spaces in stip mall. Lets say I have a strip which has 6000 sq ft rentable area Divided in 4 separate stores (1500 sq. ft each). Now if I want to recnofigure it as 500, 500, 1000, 2000, 2000 sq. ft.. How easy it is to reconfigure the spaces and how much it usually costs ball park. From earlier responses I understand that there usually a concrete fire stop walls between entities. How easy it is to move these walls.

Basically if I am buying the exists strip how would I make sure that it could be easily reconfigured.

[crusadercommercial]

Investor123,

That's a big question.

Much of that is dependent on how the local code is written.

For instance, a structure requiring concrete fire stop walls between each store would be more expensive than a code requiring fire stops every other bay.

Also, dcode requiring bx cable instead of romex and steel studs instead of wood would make a difference in the mix.


In a simple multi bay structure without concrete firestop walls, it isn't exhorbitantly expensive, but the alterations are in the thousands, not in the hundreds.

You have the knockdown of one wall & make repairs then construct the build out wall.

Most contractors will charge you based on time & material.

There's a difference between a 56' deep bayand a 75' deep bay.
Also, you have to take into consderation that you cannot take away a rear fire exit from one bay to fit the build out needs of the other.

stuff like that.

Jeff

[investor123]

Jeff,

Thanks for the informative reply. Looks like you do not really want to sub-divide unless it is neccessary. I think when I see the sign saying owner will sub-divide. It basically means one of the following:

1. Owner really cannot fill up the space so willing to spend extra money to sub-divide.
2. Owner is offering to divide but will charge tenant for it via higher rent or up front.

[investor123]

Another question I have is about environmental issues. At buying time I can have the environmental inspection done to make sure there are no existing issues.

How do I prevent myself from anything happening in future. Lets say if I have tenants like Dry cleaning etc. Do I need to get the special insurance for this. Does all the landlords usually have this type of insurance.

[crusadercommercial]

Good Morning.

Actually, the environmental is part of the appraisal process and would be a requirement.

If there is a dry cleaner on premise and they use a chemical called Perk (which is very common but used less and less because of env. issues), you are going to  have a lot of trouble financing the project. We have a couple of sources that will fund dry cleaners that use perk, or properties that have a Dry Cleaner that uses them, but environmental insurance is a requirement in those instances.

Jeff

[investor123]

I am looking at a small retial strip. I want to find out what you guys think. Is it a good deal or I am completely off base.
Following are the details:

Size: 6800 sq. ft.
No. of stores: 6
Price: 800,000
Age: It was build about 100 years ago but burnt, So was completely rebuild about 25 years ago.

It has the cap rate of about 7%. I think I can negotiate the price and bring the cap rate up little bit. It is completely rented and has good tenancy history. I am planning on doing the following for due diligence.

1. Make sure income and expenses quoted are true. (Income is easy to confirm, How do I really make sure that all the expenses are reported?).
2. Get the appraisal, inspection and environmental as it will be required by the bank financing.
3. What else ?

I have following questions:
1. What else should I be looking at as the property is pretty old. It looks good as was completely renovated.
2. What type of maintenance I could expect, it does not have a parking lot. I was told that only thing I need to do it to get the snow clean off the side walk. It have municipal parking across the street.
3. What kind of financing I can get for this. So far I have got one quote which is 6.75% to 7.00% (5 year fix with 20 year amortization). Can I get financing for 30 year or it is too long for something like this. With financing at this rate, I cannot have the positive cash flow with 20% down payment.