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What to ask when viewing investment property (Warehouse)


I will be viewing an investment property in the Chicago area that is a warehouse. This is a sealed bid sale, due to bankruptcy of a company and auctioning off a property that is now owned by the bank. The company was defunct for some time.
It is a part of sale of o ther assets of the company, such as manufacturing equipment.
This is a substantial size warehouse (16,000 sq ft) and minimum bid starts around $12/square foot.
Due to my inexperience with commercial real estate, I will be sure to submit a ridiculously low bid, which will surely hurt my chances of getting it, but will at least make sure that all surprises are good surprises in case if I get it.
Right now Chicagoland is drowning in vacant commercial properties and prices have tanked, and so far continued on a downward path. As a contrarian, I think that this is a better tiem to buy it than at the crest of commercial RE enthusiasm. Nevertheless, even in this environment, it is important to be discriminate and to get a great deal relative to prevailing prices.
I will be viewing this property tomorrow in the afternoon and am interested in what questions I could ask to uncover hidden problems.
Any advice from the more knowledgeable members will be appreciated.
i
Reply to
Igor Chudov

I think that you should have a tentative use for it before you bid.
Can it be used as a parking garage, possibly secure, for trucks or RVs? I know of one place that does that, but it's just fenced.
How much land comes with it?
Could it be converted into condos?
-- Ron
Reply to
Ron Peterson

30,000 square feet total land plot. It cannot be converted to condos. It can be used as an industrial , manufacturing or warehouse facility. I want to rent it out.
i
Reply to
Igor Chudov

I think the first question is for you to ask yourself if you can hold this property while vacant for what might turn out to be a substantial period of time. Can you pay the mortgage (if any), taxes, insurance, security, etc.? Can you tolerate no income (and cash outflow) for the cash you put down? What will this do to your tax situation? It is best to take losses against income, not have net losses. Note that different classes of income/loss may or may not be able to be used against other classes of income.
Look at the title report and all underlying deeds, easements, etc. They will affect any subsequent use and development.
What about hazardous materials? Any know spills? Any known uses that might have lead to unknown spills? Has there been a phase I (or higher) environmental report done?
What is the condition of the building? The roof? The utilities feeding it?
What is the zoning? What is the likelihood of a zoning change in your favor?
What about the neighboring uses? Is Al Capone operating nearby?
What has been the movement in leasing such facilities in the area? There may be a lot of vacancies, but has the bleeding slowed, and properties getting leased out?
What is the underlying land value? What was it a couple years ago (and thus what might it return to in a couple years)? It is always nice to buy a building for not much more than the value of the land it sits on.
What has been the result of similar sealed bid auctions in the area?
Good luck!
Reply to
Wallace

I was thinking of bidding slightly above $200k and yes, I could hold it and would not need a loan.
As for taxes, they could be substantial and I cannot say until I find out.
These are great questions, I appreciate them a lot. I will ask them all and will try to get independent verification.
i
Reply to
Igor Chudov

Igor, re: the commercial property -
I'm terrible at real estate, but Ron's environmental questions strike me as being really important! Check with City Hall (or relevant authority) on that and do not rely on what the auctioneer tells you. Do a thorough job on this, since any clean-up could cost you big bucks in legal fees alone to challenge liability.
While talking to the city, ask about regulations that may apply to maintaining OSHA standards or whatever. Not that a lawyer will answer all your Q's for you, but in your instance, a very expensive $500/hr would be well worth your money. You want to make sure your downside is known.
All buildings have maintenance costs - ask about this (including security guards).
How many books have you read on the subject of commercial real estate?
Reply to
dapperdobbs

My dad did commercial real estate most of his career...one thing I remember among many catch-phrases was that it can take 20 years for a commercial property investment to pay off. You may be competing in your bid against entities that can sit around for that kind of time (REITs, pension funds, insurance companies, leasing companies, real estate moguls, etc). And...that are willing and able to go bankrupt with a given project. This is nothing like having a second unit in your home that you rent out, and entering it with no experience sounds very risky to me.
You mention that this is in an area with a lot of vacant warehouse space. It's possible that there is permanent overcapacity and the value of what you're buying is the land value, minus the cost of demolition (which can include enviro cleanup costs). If the industry that required the warehouses moved, what are the prospects for it being replaced? Will lower vacancy depend on something slow-moving like basic population growth? And if so, is the population shrinking in this area?
[none of these questions are likely to be answered by the person showing the property, unless they're representing you]
-Tad
Reply to
Tad Borek

One thing strikes me about these many cautions that come into play in purchasing commercial real estate. They are not a lot different from the sort of information ordinary homeowners would find valuable when buying a personal residence. In that case too, it is certainly unwise to rush into it without researching the pros and cons. Many of the legal and technical issues are similar. Yet millions of people go ahead and do it when the main source of information is what the real estate agent showing the property tells them.
Reply to
Don

Chicago being Chicago you may be able to get the real estate taxes reduced substantially. If you want to investigate this before you bid contact Michael Madigan's law firm, Madigan and Getzendanner. This is their specialty and, for very obvious reasons, they are by far the most successful real estate tax firm in the state. I believe their fee is based on what they save you so if there is no gain there is no pain.
--
 .Bill.
Reply to
Bill

See my long reply to Wallace, but according to the seller, he just obtained a reduction in the tax bill. I will find the exact amount on Monday. Taxes used to be 30,000 per year.
i
Reply to
Igor Chudov

If you don't have a specific and accurate spreadsheet on this transaction, together with a realistic business forecast, you're really trusting the Gods, aren't you?
AT&T is yielding 6% and it has better prospects for liquidity than an empty warehouse in a troubled State.
Reply to
dapperdobbs

AT&T can also lose all its business in a few years. I am not saying that it will happen, but it can. The yield reflects that. This is no longer a bulletproof franchise.
At this point I am not looking, as much, for liquidity, as I am looking to create enough income streams to retire early. But I still have not convinced myself that I should enter this transaction.
i
Reply to
Igor Chudov

you might ask your insurance agent if there are any problems with getting insurance on a vacant property.
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Reply to
Pico Rico

You could ask the owner for a copy of the 1040E on it (if applicable). You may get an idea of the cash flow and costs.
Reply to
rick++

We are currently sitting on a 16,000 sq ft warehouse office in the western burbs, and it has been vacant for awhile.
A couple of additional things that the "village" is mandating before they will issue any permits....
1 - all bathrooms need to be made ADA compliant 2 - sprinkler system needs to be installed throught premise 3 - water main to street connection for new sprinker
YUP - lots of money for an empty building !!!
Reply to
ps56k

it was previously used for a T-shirt screen printer. It has an old beatup machine shop type concrete floor.
Looked at storing cars and snow plow trucks for winter. Again - the "village" wanted to see a special 3-step drain system installed...
SO - it really comes down to what the local fire, building, and maint codes dictate, along with what special uses might in the future require some new installs. In our case, it's been a royal PITA. This happens to be the near western burbs of Chicago - your specific area might be different....
Reply to
ps56k

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