When Is Bargain Commercial Real Estate a Steal?
Commercial real estate at bargain prices can seem too good to be true. Here's how to tell if you're getting a steal.
Bob McCain, PE, Principal, Division Manager of Industrial Facilities, SSOE Group (June/July 10)
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Timing the Transition
Schedule constraints may dictate the renovation of an industrial building. An existing building has already met planning and zoning requirements, which eat up new construction time. If long lead equipment for some manufacturing has already been ordered, it's likely impossible to construct a new facility in time.
Also consider total project cost. Initial purchase price is only one part of the decision. Building renovation costs and new capital equipment must also be factored in. Operating costs of the renovated facility are usually not included in a purchase decision, but they could sway the decision pro or con. Compare the combined project total (acquisition, renovation, equipment, operations) to the price of new construction versus renovation.
Bargain industrial property prices may be enticing, but cost alone is not enough. The building houses a process that generates profit, and it can help or hinder profit-making. The savvy owner will consider the total cost to retrofit a building for a new use - the company's business use. Companies must thoroughly assess existing building systems for new uses. Depending on the business purpose, schedule requirements may override other issues. The total project cost can help decide between new construction or renovation. Building suitability, schedule, and total cost will result in an informed, successful decision.
Why don't some businesses consider the total project cost when it can add a significant amount to the initial purchase price? Also, have you noticed if companies today are more likely to move to an existing facility and renovate or build a new facility? Why do you think one is happening more than the other?
There appears to be a greater amount of companies looking to renovate facilities nowadays. But, when companies do acquire new facilities and land, total project costs are often under-estimated. More
- Bob McCain, PE, Principal, Division Manager of Industrial Facilities, SSOE Group