Industrial Property - Commercial Kitchen Conversion?
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[{"id": "ilrr5d4", "text": "Who will be responsible for making sure utilities are adequately sized (i.e. water/sewer lines, electricity/gas lines) and if not, who will be responsible for bringing in additional/upgraded service.  All the utility work could trigger increase in property tax or other levies so you'll need to figure out how this needs to be reimburse.  Also, industrial kitchens will need a lot more ventilation and if penetrated through the roof, you'll need to figure out who will be responsible for maint/repair of roof.\n\nAlso, does your property have sufficient parking for TT?  Industrial properties generally have low parking ratios.", "replies": [{"id": "ilsgpxm", "text": "Thx for the reply.\n\n1. The tenant hired an architect to come in and map out a construction plan.\n2. They will take on all costs associated with getting the property up to standard\n3. Noted on the property tax\n4. Is this all too much trouble than it's worth?\n5. Noted on the ventilation - I will cover this with them.\n\nIs this all too much trouble than it's worth?In your opinion, does converting to an ommercial kitchen make the property more desirable or less desirable?", "replies": [], "depth": 2}], "depth": 1}, {"id": "ilsj8vu", "text": "I admittedly don\u2019t have experience with industrial properties in that small of size ranges, but without knowing more it seems undesirable to convert a more industrial property (hottest, most valuable property type in todays market, especially in SoCal) to one of a more retail use. \n\nHow does the rent they would be paying compare to other traditional industrial users who have inquired on the site? I would imagine they would have to be paying substantially above market to make this worthwhile. Do you have an idea of the cost of the improvements and what the cost would be to remove the improvements to make it usable again for an industrial tenant? I would factor that into the equation.\n\nAgain without knowing more about the building and where in SoCal I can\u2019t give you more info but this is how I\u2019m thinking about it.\n\nIf a traditional industrial tenant would be $2/SF/month, using a 5% cap rate (ball parking both the rent and cap rates conservatively based on where larger buildings are going), that would value your building at around $4.8M. For a catering company on a 10 year lease I would say that it\u2019s probably valued less being a retail business, say a 6% cap (again ball parking this could be better or worse), would value it at $3.3M. So to achieve the same value, I would require the catering company to pay at least $2.40/SF/month. I would push for much higher because SoCal industrial is seeing insane amounts of rent growth, so I would say a 10 year lease is actually detrimental because rent growth has been at 15-20% give or take each year in industrial real estate in the LA/inland empire market. Even if it moderates to 5% (which is very conservative given the lack of supply and anti warehousing sentiment arising), you would be below market very quickly.\n\nWho is the real estate agent representing in this transaction and what is their experience? Will they be getting paid only if this tenant signs? Do they have experience in sales or more just representing tenants? I understand there\u2019s a relationship there but if this is a tenant rep agent that is representing the catering company and doesn\u2019t have experience selling industrial real estate then frankly they might not understand the market dynamics enough to inform you of the right decision even if they are being genuine.\n\nMy take is that industrial real estate is so hot, just find a tenant that can use the space as is and make it easier to relet should they vacate. This seems like too much stress that limits your long term upside with a long lease, UNLESS they are willing to pay substantially more in rent than other users would pay (as in 25-30% more).", "replies": [{"id": "ilswjmb", "text": "Thank you sue.  Exactly what I was looking for.", "replies": [], "depth": 2}], "depth": 1}]