Researching a new warehouse for my business. Cost to build appears to be less than half of the cost to buy. What am I missing?
The market is Tampa, Florida.

I want a 5000sqft+ warehouse. Generally, this will cost $600k+. Over 10k square feet and you're over a million dollars.


I've talked to a few places that do prefab metal structures, aka what warehouses are. I can build an identical 5000 sq ft warehouse for $75k. That includes everything except land prep and foundation. With those things it will be about $100k total.

I can buy, right now, a 1.2 acre lot on a main road, zoned for commercial use, for $199k. 

So $299k all in before AC (big ass fans) and electrical, and those things definitely wont make up the difference. The cost is not even close. For my purposes, a warehouse is a big metal box with a garage door and a loading dock.

Surely there is something I'm missing. Either the $750k warehouses dont sell or there is some massive cost I'm not considering, but I have quotes for everything mentioned.
[{"id": "hophrjh", "text": "I don't think you're being unrealistic by assuming that building it yourself is going to be more profitable than finding a building that already stands. Ground-up construction is, arguably, the most profitable form of real estate investing. Most people lack the resources, time, and connections to develop property. So if you can do it, you totally should!", "replies": [{"id": "hopi3a8", "text": "But is this much of a spread normal?\n\nIts the same percentage regardless of price. I'm looking at a 3500sq ft dumpy looking warehouse thats probably about to fall down. $500k. I could build this, with the land, for probably $100k. \n\nI get that warehouses sit for a while, but you'd think if the profit margins are this huge that people would be building them left and right. Thats a hell of a market inefficiency if I'm not missing something", "replies": [{"id": "hopj9kg", "text": "Some of this is going to be regional... What you're describing sound alike a grandfathered building.", "replies": [], "depth": 3}, {"id": "hopk041", "text": "Good point above about it being regional, to some degree. I'm a building appraiser by trade and I would say local markets have a 1-5% influence on price. You'll be constrained by both labor and material prices. However, I still think that up-front costs and, importantly, time is what prohibits most people from developing. Since you have the capital for the project, you don't have to worry about sourcing capital.\n\nFull speed ahead, captain. Just find a contractor that you can trust. And that could be a pretty tall order...", "replies": [{"id": "hoqvg4k", "text": "I\u2019d wager 1-5% is very low. Even where I am, the county to the west is heavily unionized and a high CoL while the county to the east is barely unionized and low CoL. I always call contractors from the cheaper county and they are significantly (20-50%) cheaper on labor. Materials is basically the same, but depending on the project, the savings can be huge.", "replies": [], "depth": 4}], "depth": 3}, {"id": "hopl2sk", "text": "Right now large industrial buildings and industrial approved land near transportation hubs is in short supply so there is more profit to build now vs when there is high vacancy in most markets. \nSome other factors you aren't considering. You are building for your specific purpose and sounds like all light industrial build out. A lot of buildings are flex industrial that can have a portion be office or retail build out or be large warehouse build outs with multiple truck docks and 20 foot+ clear heights.\nYour land location is probably a more rural area vs large warehouses wanting to be closer to various transportation hubs and population areas to have a larger pool of employees to choose from. This drives up land values in more desirable areas.\nTo ensure a profit for a developer there is also the interest cost between when land is acquired, development plans approved and tenant occupied. There can be a big lag in time between building a speculative industrial building and the time you find a tenant, the tenant build out is complete and they start paying rent.\nOther risks you aren't considering is that you have committed to having a static demand for warehouse space and could be struggling to sell your building close to construction cost if you need to find twice the space for your business operations.", "replies": [], "depth": 3}, {"id": "hopn78m", "text": "E-commerce is steadily causing a lot more demand for warehousey industrial properties.  Industrial is do hot right now!", "replies": [], "depth": 3}, {"id": "hoq5nxe", "text": "Are you including parking, landscaping, utilities, etc. in your building cost?", "replies": [{"id": "hoq6j2r", "text": "Parking and landscaping, yes I considered those in the overall cost. I wasnt planning on a \"real\" parking lot and just go with gravel, but if I choose to build a larger unit and rent some of it out that will change. Utilities are the harder ones. I'm waiting to hear back from the county about tapping fees right now. I think getting hooked up to city sewer is going to be ~25k, but that should be the largest cost not mentioned in my original post. I've found a few warehouse development projects in Florida that came out to $25/sqft for a basic warehouse. A nicer one with offices and loading docks hit $40/sqft. Seems like it would be pretty hard to build this and come anywhere close to the cost to buy an existing property.\n\nI'm about as green as you can get with commercial, though, so have to triple check everything.", "replies": [{"id": "hoqhs1r", "text": "I would draw up all your assumptions re: parking lot, fire suppression, etc ... and run them by your local building officials. \n\nI like your gravel parking lot idea. Gravel, installed correctly on properly prepared grade is cost effective and environmentally friendly. My local jurisdiction had other ideas, outlined in the city building code. I had to install concrete at significant additional expense. \n\nI like your idea, just make sure you aren't missing any costs mandated by city code.", "replies": [{"id": "hoqi4ml", "text": "I'm probably going to consult with someone about that. I'm not totally sure how the order of things is supposed to work with buying and getting approval. I dont want to buy and then have the county deny the building for some reason, but I also dont want to waste time getting approval before submitting an offer on the land.", "replies": [{"id": "hoqjatr", "text": "No, no you don't. \n\nIn small jurisdictions the city zoning / code / permit office can be super helpful, and the rules / regs can be pretty minimal. In bigger and or more regulated jurisdictions the rules and costs are legion, subject to interpretation and contingent on the whims of some schmuck that sits in a cubicle all day. \n\nIs what it is. I'd talk to someone in your market that has built something similar to start. Some jurisdictions will hold your hand, others, intentionally or unintentionally will drive you crazy and cost you a lot of money. I speak from experience. A local commercial broker can probably facilitate an introduction.", "replies": [], "depth": 7}, {"id": "howrzr5", "text": "Tie it up with a long DD\u2026that\u2019s pretty standard for Land since there\u2019s so much that goes into developing the land alone", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}, {"id": "hoqzlhy", "text": "In certain jurisdictions building department might require you to provide paved parking and street landscaping, sometimes you'll have to do some street improvements too, i.e. sidewalk. You will need to provide access to fire apparatus and waste removal trucks. Commercial construction is little bit more involved than building a house. Certainty verify with building department and schedule a pre-development meeting with them. They will tell you  everything you need to do. Shop/warehouse buildings are cheap, but commercial construction is more than just buildings.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hosej8l", "text": "&gt;I don't think you're beig unrealistic by assuming that building it yourself is going to be more profitable than finding a building that already stands.\n\nThis is very interesting because in my market (think very north) new construction is like 20%-50% more expensive than existing and pre-eng buildings are now 12 months delivery window.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hopid40", "text": "Prefab metal is not a warehouse. But if it suits your needs and meets local building code, sure, go for it.", "replies": [{"id": "hopisw9", "text": "It appears to be the same thing from my googling. A lot of the warehouse I see look identical to the prefab metal warehouses being offered online. I also had a prefab garage built which seems to be the same thing. What is the difference? The only distinction I'm seeing is that some buildings are red iron, but the prefab guys offer those too and the cost increase is not that big.", "replies": [], "depth": 2}, {"id": "hor9zkq", "text": "Pre fab metal is definitely a suitable warehouse if the context of the word \u2018warehouse\u2019 is to be used for commercial use. Why would you say otherwise?", "replies": [{"id": "hos9fqi", "text": "In my world, warehouses have dock doors, truck courts, are ctu construction with office space but it looks like op wants a metal shed for a lawnmower.", "replies": [{"id": "hosm3hg", "text": "Hahaha\u2026. username definitely fits", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hopnmzw", "text": "This doesn't surprise me, b/c demand for industrials is bonkers right now.  \n\nFor example, some industrial developers are scared to lease new construction too quickly b/c the rents could increase significantly in a month or two.  \n\nSo while I can't say if there's a hole in your plan or not, it wouldn't surprise me at all if you could make a huge profit doing this.  \n\nWho knows, maybe someone would offer you a sale leaseback if you crushed it!", "replies": [], "depth": 1}, {"id": "hops4s7", "text": "In Connecticut I\u2019m paying 400k for a 7,000 sq ft building that has a replacement cost above the purchase price so your experience is not universal.\n\nThere are more costs than the 75k you are pricing out. I encourage you to ask the prefab companies for a building they put up locally and go look at it and talk to the owner.", "replies": [], "depth": 1}, {"id": "hopxpzx", "text": "A lot of industrial real estate is valued on the basis of the potential income it can generate as opposed to cost-methodology. So if you\u2019re seeing that type of spread, lease rates are probably high enough to support the purchase price\n\nQuick example: client of mine is building an industrial park with total costs about $30M, and is leasing it all out. Income value comes in around $62M", "replies": [{"id": "hopy0z0", "text": "I suppose I'm mostly surprised that there arent developers throwing warehouses up everywhere right now. I'm going to get some more solid quotes put together and I think I'm going to go this route. Even a lot of the data company are putting the cost to build between $20 - $40/sqft depending on region. Stuff is selling in my area for $100 - $150 on average. Nuts.\n\nBiggest problem is getting a loan for it. I would imagine thats the hard part.", "replies": [{"id": "hopyw79", "text": "Entitlements process getting development permits might be holding this up. Can\u2019t build industrial just anywhere, but I understand what you\u2019re saying. \n\nAnd loans are as hard to get as how strong a sponsorship is behind the deal. Strong profitable business gets a loan easily, possibly with little to no down payment. New company, or a sponsor with no experience, or no funds for DP/fallback, will be more difficult to achieve.", "replies": [], "depth": 3}, {"id": "hoqi2nc", "text": "I think developers ARE throwing up warehouses. In locations where they yield the highest ROI - near intermodal transfer terminals, railroads and interstates, within 100-150 miles of major metros.", "replies": [], "depth": 3}], "depth": 2}, {"id": "hor9scx", "text": "What state is this in?", "replies": [{"id": "hos9vg9", "text": "Vancouver Island, in British Columbia, Canada\n\nI should add, this is 251k sq ft, spread across several acres of land. Not a small site by any means", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hopzr6s", "text": "I think your general margins are going to be 50% of exit. Depends on the in place lease. \n\nYou\u2019re definitely excluding soft costs, interest, time and opportunity cost. But go for it. I represent builders in FL and no one would build such a tiny building so that\u2019s also why your opportunity exists.", "replies": [{"id": "hopzzzr", "text": "I see. Originally I was looking at 5000sq ft because thats about all I need, but if the margins stay the same even into larger units it would make me consider something much larger just to sublet out the space I dont use. Have to do a lot more research regardless, but this looks like the path I'm going to take rather than just buying.", "replies": [{"id": "hoq0jsj", "text": "Yeah do it. How much equity are you considering ?\n\nThe prefab is just a shell right? What are local costs for running a panel, wiring, etc. plumbing? Will you have any water?", "replies": [{"id": "hoq13ug", "text": "I have never gotten a loan for land or a loan to develop a property before, so I have no clue how that works and I'm afraid it may be an issue. I'd probably have to put up at least $100k of my own money if I wanted a 10k+ sq ft building.\n\n&gt; The prefab is just a shell right? What are local costs for running a panel, wiring, etc. plumbing? Will you have any water?\n\nYeah, the prefab company only does the shell. You are fully responsible for land prep, foundation, everything else. Since I plan to work out of it I'm going to need electrical and plumbing/septic. Definitely will need an office. I think I should estimate the total cost to be ~$30/sqft after all of the services and utilities have been installed. Just started looking into this today though, so a lot more to dig into.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hoq559y", "text": "I would check your costs again.   I think you are WAY low at $25ft.   \n\nI would get the ground under contract with a due diligence contingency and take the project to an AE firm for some rough numbers. \n\nI have experience developing industrial in Florida although it was about 12 years ago.  Permitting is insane although you may get around that with such a small building.", "replies": [{"id": "hoqpbkf", "text": "Also in development and in FL. This thing is really light across the board, IMO. \n\n$200k for an acre of well-located commercial dirt is way below market, so I\u2019d be curious to know if it\u2019s truly zoned/entitled or has a deed restriction or the like. A thorough DD period is surely in order.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hoq6msn", "text": "What does  warehouse space like this rent  for in  that  market?", "replies": [{"id": "hoq79ur", "text": "Looks like the range is $8.5 - $15.5/sqft per year. Average for a place like this comes in at ~$11/sq ft, so for the property posted above it would be $55k/year. Not bad at 795k, but thats *awesome* for something that could conceivably be built for less than half of that.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hoqc0hm", "text": "Site work, specifically draingage.\n\nOn top of that you have asphalt, curbs, inlets, engineering, architecturals.", "replies": [{"id": "hoqebjd", "text": "Asphalt, engineering, architectural is included in the 100k estimated overall. Unless there is a second engineering/architectural charge common with commercial property. The $75k building price includes every single thing to get a building put on the piece of land that you point to aside from land prep/foundation. I didnt have to get any engineers or architects out for the prefab garage.", "replies": [{"id": "hortyjx", "text": "&gt;Asphalt, engineering, architectural is included in the 100k estimated overall. \n\nFor the building. \n\nThey said \"site work\", is what you are missing. You are going to be required to have drainage, permitting, parking, and access (etc) for your already ~350-500k building. That is going to be a whole nother set of engineering design, paperwork, concrete and maybe even more land.\n\nI'm also going to point out zoning and entitlement.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hoqdlos", "text": "Does that metal building cost include the full cladding? Or is that just the frame?", "replies": [{"id": "hoqe33d", "text": "Full cladding and 175mph wind certified for FL hurricane standards.", "replies": [{"id": "hoqrbhd", "text": "Interesting. Who is the manufacturer?", "replies": [{"id": "hoqrlep", "text": "\"Rhino steel building systems\". I also had quotes from others for pretty much the same price. Also, some vendors have these cool things for getting a rough ballpark: https://carportdirect.sensei3d.com/\n\nBuilding a warehouse is going to be a bit different, but its close enough to estimate. Still need to do your due diligence before buying a prefab. A few of these vendors had product which did not meet permitting requirements in my area, so i would've had to spend a bunch of money getting new designs approved and engineered.", "replies": [{"id": "hosp4yi", "text": "Thanks. I\u2019ll look into it", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hoqg32p", "text": "You\u2019re describing more of a Quonset hut/butler building. A warehouse these days is pre-cast concrete usually", "replies": [{"id": "hoqhebv", "text": "Butler buildings look like all of the warehouses near me. I dont see a lot of concrete warehouses. Might be regional? Theres a few, but they're mostly the huge complexes of offices and flex spaces.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hoqgzg2", "text": "It depends on what your city requires.  But where I'm at, they're going to dictate everything, from how many parking spaces you need (paved), to what you need to do to treat stormwater runoff on site from said parking lot to how much green space needs to be landscaped.  You're going to need an enclosure for trash/recycling dumpsters, loading dock hardware and concrete ramp/walls/railings, hvac, plumbing, bathrooms, fixtures, ect, sidewalks, fire sprinklers, warehouse lighting, electrical work, ect.  \n\nBy the time you're done, paying for the actual shell of the building isn't the most relevant cost.", "replies": [{"id": "hora15q", "text": "Spot on and 100% correct!", "replies": [], "depth": 2}], "depth": 1}, {"id": "hoqhmkr", "text": "Projects are currently taking about 50% longer then typical. Material shortages are transitory between trades meaning uncertainty for your schedule. The costs not considered are those of finance (generally add 5-8% to the cost of the project for carry and upfront - more on smaller deals) plus the time generally. In Atlanta it takes 12-18 months to build something like you describe from identifying the property to CO. If you have the time and can carry it, you do better building. If you need it quick, better to buy. Also, you are not identifying a cost for your time to manage this. That's fine if you own it 100%. But it's still an opportunity cost where you will spend considerable time throughout the process. Developer and cm fees on a deal this size should run 10-15% min. Other soft costs to consider are property taxes, architects and engineers, marketing and commissions, contingencies, tenant allowance, insurance, intangible taxes, appraisals, etc. Based on what you outline, the margin dwindles rapidly. Good luck OP", "replies": [], "depth": 1}, {"id": "hoqnl2a", "text": "Yes u r right agreee", "replies": [], "depth": 1}, {"id": "hoqsptb", "text": "Talk to a general contractor that dies construction management at cost plus a predetermined profit margin.", "replies": [], "depth": 1}, {"id": "hoqyxlw", "text": "Values for industrial and multifamily are definitely above replacement cost. You\u2019re not missing anything. This is typical in a real estate cycle.", "replies": [], "depth": 1}, {"id": "hor5rtm", "text": "These structures aren't the only improvements you need to add. You need climate control, plumbing, security, utilities etc, all are not included in your quote. You may need occupancy permits etc. Probably building permits, probably development permits, and pay for plans to be checked although maybe your steel building dealer provides help. You may need to perform environmental studies or even remediation on your property.\n\nYou will need pour a floor, foundation, and apron around the perimeter of the building, maybe a paved parking lot for the remainder of the property.\n\nAlso, your choice in steel building might be expensive to heat/cool and keep lit, if necessary. These long term cost savings or business requirements might impact your choices about upfront HVAC and windows, etc. On the other hand,  steel buildings can be extremely versatile and are great warehouses.\n\nYou may need specialist labour to erect the building, welding etc, crane rental etc.\n\nI think that steel buildings are affordable and economical, but realistically the total development costs are is going to be higher than the sticker price you saw, but it depends on what you are trying to build.", "replies": [], "depth": 1}, {"id": "hor9qad", "text": "You should factor in insulation to your pre fabricated metal building(I just purchased one with out insulation 9 months ago. Holy shit, here in California, this building has gotten so cold this past few weeks that you could blow smoke and is the coldest building I have ever been in. this past summer, it was so hot that I couldn\u2019t stand being in there. It was a sauna. I am putting up R25 throughout the warehouse next week. Without insulation, there is no protection from the weather). This insulation is going to cost me $50K for 14,000 sq feet of warehouse. \n\nBeyond that, have you factored  in additional costs that the city would likely force you to get in order to be compliant. Lighting around the complex? Parking? Landscaping? Utilities? Etc. \n\nAnother thing you could consider is getting an SBA loan and acquiring commercial property with a 10% deposit. Perhaps you might find it more attractive, easier, and efficient to buy it fully done and have the entire building leveraged at 2.7% interest and using 90% of the government/banks money to acquire commercial property vs trying to save $200Grand, spending more then a year getting this project done, using all of your own cash, and risking shit goes wrong or gets delayed through your own inexperience. \n\nShit, if you have enough capital, you could finance a building for your business using SBA funds and use your other funds to develop! You could use the second building that you develop as potential cash flow from renting it out or use it as expansion for your business if you ever need it. That\u2019s what we are doing!", "replies": [{"id": "horb5ef", "text": "&gt; Shit, if you have enough capital, you could finance a building for your business using SBA funds and use your other funds to develop! You could use the second building that you develop as potential cash flow from renting it out or use it as expansion for your business if you ever need it. That\u2019s what we are doing!\n\nDing ding ding. This is exactly what I plan on doing. I dont think I plan on occupying for 10 years, but a 2% fee is nothing considering the margin. I've been looking for a warehouse to get a 504 loan on for probably 6 months now and just recently realized the huge opportunity in building instead of buying . \n\nI'm not 100% on all the things the county will require like lighting and whotnot. Thats what I plan to figure out tomorrow. I dont think its much, though. Maybe if it was a customer facing storefront, but there are some super garbagey looking warehouses around here, so they must not care all that much.\n\nYou're right about insulation. I found that just insulating the roof in florida was good enough, but I think 5000sqft+ may be different. Right now my plan is to do the roof and then see how well that works once fans are added. It is honestly unreal how well these work bigassfans.com", "replies": [], "depth": 2}], "depth": 1}, {"id": "hos7lf1", "text": "Here, in Houston, flood control regulations will eat your lunch. Detention and permeable ground covers. Sometimes the ponds equal the concrete footprint. Also, check local fire codes. Sprinklers are not required for this size here, but regs vary by municipality. Proximity of other improvements could result in fire-slowing walls, etc. Pouring a parking lot for emergency access will significantly increase prices.", "replies": [], "depth": 1}, {"id": "hosp7kt", "text": "Around here (Hawaii) what you'd be missing is the time and cost of dealing with obtaining the necessary entitlements: in Hawaii it can and does routinely take years to get your plans approved and pass all inspections in order to receive a certificate of occupancy. Time is money; when your project stalls out not once but many times because the paperwork was misplaced, ignored, failed to pass review you'll find out why buying something that already exists and is conforming beats building it yourself. This is especially true during the pandemic when nobody answers the phone, comes into the office, or cares that it's your money at risk.", "replies": [], "depth": 1}, {"id": "hosw9rv", "text": "I'm UK-based, but you can soon be paying 100k just to get a decent sized industrial three phase supply to the site.\n\nDoes the site have good road access suitable for commercial traffic (HGVs, etc), or will that need to be added / upgraded.\n\nAnd don't forget your planning &amp; conveyancing costs &amp; fees.", "replies": [], "depth": 1}, {"id": "hot0hvc", "text": "Common sense, you can buy a steak at the grocery store and cook it yourself for half the cost of a restaurant", "replies": [], "depth": 1}, {"id": "hot80eu", "text": "The costs you are not considering are mostly your time and effort, and paying for mistakes you make along the way. Also site work (land prep) and foundations can be up to 30-40% of the overall cost of the building, so excluding those in costs is silly. Even a big metal box requires design to fit on your lot - no matter how simple the structure, its the process of working through the entitlements and permits where you will waste time and money. \n\nEven with a prefab structure you will need to design the site, which will require hiring an engineer. You will also need to apply to the city, pay for application/review escrows, attend meetings with a land use attorney you hire and pay for, then pay for the building permit once you want to start construction. The construction is likely to take a minimum of 6-8 months with a prefab building from start to finish - if all materials are available when you order them, which at this moment in time, they are not. If a builder does all this and delivers a \"big metal box\" without a tenant, they have paid for all this already, likely had to pay interest to a bank for the loan in addition, and they want to make a profit for the risk they took. If you are willing to take the risk yourself, you deserve the discount!", "replies": [], "depth": 1}, {"id": "hotaoxw", "text": "Don't fall for the \"general steel\" stuff. There is a ton more parts and pieces to construction than just a prefab steel package. I would guess you'll be closer to $100 per s.f. when you get all the real costs and code considerations done. Get an engineer/architect/design-builder involved ASAP.", "replies": [], "depth": 1}, {"id": "hotksq8", "text": "Holy Shit. Building out a new site with a commercial building that requires occupancy and insurance is a lot different than throwing up a shed in your backyard. You might be looking at $100k in site prep and fucking around for months trying to get permits before you can even start. You need to talk to a go. You can even tell him you want to go with the prefab as they sub at the work anyway. I bet it comes in at least 3x your estimate not including land acquisition.", "replies": [], "depth": 1}]