Help with building value

[thomascreation]

Hi all, long time lurker love the great garage ideas I've seen on the board. For the last year I've had my eye out for a personal use warehouse. I came across this 2,000sqft building today while walking my dog. Called the owner and he said he’s willing to sell for "best offer" because his business closed and he’s about to go into bankruptcy and wants to sell it off quick. I’m not naive about residential real estate but commercial is new to me. Comps in the area are listed for 60-70k but they’re NOT moving and most have been on the market for a year or longer. He said he would also be willing to lease if that’s all he could find. I’m looking for advice on figuring a close value before calling in an appraiser. The building is in Peoria IL. Thanks for the input!

 

[oilslick]

That building is cool is there any parking in rear? Take a chance offer 30k cash to close next week, I bet he counters @40 and you can meet at 35, that would be great.

 

[oilslick]

Is that sign neon?

 

[Scout Driver]

Being an assessor, I've seen quite a few bank repo properties get sold for about 1/2 of what they would be worth on a good day in the current market. Offer the owner $30,000.

BTW, welcome to the Garage Journal.

Scott

 

[tyjoja]

Love those old brick buildings, so much potential, and aren't those glass blocks? bob

 

[bczygan]

Find a comp that HAS sold and adjust it for any differences in time, location and anything else that is different. You try to get as close as you can, but a sold is much more important than a for sale.

 

[Stuart in MN]

It's not uncommon for old dry cleaner buildings to end up as toxic waste sites, from all the solvents and chemicals that were used over the years...I'd do some research before making any offers, it could cost you dearly.

This link is about an old dry cleaner a few blocks from my house that ended up becoming a Superfund site: http://www.pca.state.mn.us/index.php/view-document.html?gid=5594 Note that the date on the report is from 2003 - that site is still a vacant lot today.

 

[dlenkewich]

If you're in a position to buy and he's trying to avoid bankrupcy, I can't help to think "What goes around comes around", If your in a position to afford it, I'd throw the guy a bone and offer him a fair proposal (all things considered) rather then low balling him because he's stuck between a rock and a hard place.

Perhaps that's a little too idealistic, but it's something to think about.

 

[Charles (in GA)]

It's not uncommon for old dry cleaner buildings to end up as toxic waste sites, from all the solvents and chemicals that were used over the years...I'd do some research before making any offers, it could cost you dearly.

This link is about an old dry cleaner a few blocks from my house that ended up becoming a Superfund site: http://www.pca.state.mn.us/index.php/view-document.html?gid=5594 Note that the date on the report is from 2003 - that site is still a vacant lot today.

A friend had a old gas station that had been turned into a dry cleaners by his Uncle in the early '50's. When they sold it in the mid 2000's, they got lucky, the city bought the huge mall across the street (which had gone downhill and finally closed, even though in a excellent business area) and was going to demolish it. The city did drillings and soil tests and found nothing along the sidewalk in front of my friends business, so the buyer took a chance and closed with no further tests.............. but that was taking a chance.

Dry Cleaners are one of the worst kind of environmental messes if there were spills, and many were built from old gas stations, making them even more of a risk.

Charles

 

[Pure Oil]

I think you could remodel, recut the bricks & add 1 or 2 garage doors to the front....what a neat old building to make into a shop..I hope it comes together for you!

 

[stingry]

If you do get to the point where you have reached an agreement to purchase the property, be sure to use title insurance to protect you from any liens that may have been placed on the property, particularly since he is declaring bankruptcy!

Cheers
Steve

 

[brslk]

If you're in a position to buy and he's trying to avoid bankrupcy, I can't help to think "What goes around comes around", If your in a position to afford it, I'd throw the guy a bone and offer him a fair proposal (all things considered) rather then low balling him because he's stuck between a rock and a hard place.

Perhaps that's a little too idealistic, but it's something to think about.

I'm not a religious man but I do believe in Karma.
It may not pay off now but it will in the future.

I always try to put my self in the shoes of the person I'm dealing with.

Never hurts to feel empathy.

 

[thrifty bill]

Environmental quagmire, run away from that one.

thrifty bill
licensed chemical engineer
35 years in the chemical industry, running factories (and closing several of them, triggering all kinds of clean up issues).

 

[Steve from Socal]

I have to agree with the super fund sentiment, not many things worse than industrial buildings for ground contamination except gas stations and dry cleaners. This could be why he going BK.

Steve

 

[thomascreation]

All good info. This is exactly why I wanted some opinions on this one. I've known that gas stations hold a large risk with the epa but wasn’t aware that dyr cleaners can have the same issues to look out for. I'm going to meet with him on Thursday to check the building out.

 

[thomascreation]

Love those old brick buildings, so much potential, and aren't those glass blocks? bob

Yes, glass blocks on one side of the building.

 

[thomascreation]

Is that sign neon?

No its not but it would be cool if it was!

 

[GarageEnvy]

I won't pass judgment on whether or not you should buy the place. You should definitely do your due diligence on getting any possible contamination checked out.

I work as an appraiser and you are on the right track. You've found listings that haven't sold so you know the upper limit. Finding the sold properties and adjusting for the differences is great if you know how to pair out the value of the difference. The problem with commercial properties is the availability of data. Also, in many cases the value of a commercial property is derived from the income potential. Essentially you need to capitalize the income (convert it) to a value. Quick example would be a property that rents for $1000 and has a "cap" rate of .10 or 10% would be worth $10,000. It sounds like the commercial market is depressed so you might have weak rents and low value using the income approach. If getting this number right was really important to you, I'd recommend hiring a commercial appraiser. The down side is that would probably cost $2,000 to $5,000 and may take 6 weeks to get back. For the sake of making an offer you might be better off just shooting from the hip with a low-ball offer. The concern would be unknown costs, like bringing up to current code or contamination.

There is a 3rd approach to value (Cost Approach) where you depreciate the replacement or reproduction cost but it's highly unlikely that it would be relevant or more accurate than the other methods.

 

[bczygan]

One more thing. An written offer is an agreement to purchase. An oral offer may also be binding. Once made and accepted you have bought it. My experience is that having a real estate attorney, with experience in this type of property, write up the agreement, and include addenda and phrases and clauses to protect you, the buyer, is well worth the cost. Can protect you from hidden items, even things like underground tanks.
If buying on a land contract, put the title in escrow with a title co.

 

[nehog]

Run, Forrest, Run!

More red flags than one can shake a stick at...

1. If he files for bankruptcy it is likely the courts will want proof this was a hands off transaction and above board. Risky, they'll put the burden of the proof on you.

2. A cleaning building is almost certainly going to be (or become) a toxic waste site. Looking at that building, I'd guess sooner rather than later. In fact, I doubt that he'll be able to sell it at all as a survey including and environmental study will cause the state to condemn it.

3. I doubt the building is in good enough condition to be usable for anything.

 

[dlenkewich]

I'm not a religious man but I do believe in Karma.
It may not pay off now but it will in the future.

I always try to put my self in the shoes of the person I'm dealing with.

Never hurts to feel empathy.

Well put, and I agree.

Run, Forrest, Run!

3. I doubt the building is in good enough condition to be usable for anything.

Not saying your wrong, but I'm curious how one could make these assumptions from a picture.

 

[thomascreation]

Run, Forrest, Run!

More red flags than one can shake a stick at...

1. If he files for bankruptcy it is likely the courts will want proof this was a hands off transaction and above board. Risky, they'll put the burden of the proof on you.

2. A cleaning building is almost certainly going to be (or become) a toxic waste site. Looking at that building, I'd guess sooner rather than later. In fact, I doubt that he'll be able to sell it at all as a survey including and environmental study will cause the state to condemn it.

3. I doubt the building is in good enough condition to be usable for anything.

The building is in good condition but you have a valid point about the bankruptcy issue

 

[oilslick]

Dont let epa issues scare you, this is the usa if all we can do is worry about what could go wrong maybe we should all stay home and do nothing!!! Get a good contract and go for it. As long as the neighbors are good I cant see a problem with epa ever arising.

 

[NUTTSGT]

It's an interesting point of the waste clean up of a former dry cleaners. I have never thought or heard of those places being that bad.

 

[nehog]

Re: waste cleanup at cleaning establishments... OK, we have one here in town that was just this (long time dry cleaner's shop). A true horror story, with the pollution spreading out in the ground water and causing some massive expenses. The property owners quickly lost the building to the town (they simply elected to not pay their taxes...) but the clean-up costs are in the seven figure range right now (including demo of the building, and outbuilding, and clearing the lot, drilling of monitor and cleanup wells, soil removal and cleaning, etc.)

It is a very real issue, a very real expensive task. Problem was that for many years these establishments didn't have any controls on what they dumped, and the most cost effective was to usually dump on the ground (they didn't, at the time, realize just how bad it was, they thought it would just 'evaporate') or go away.

Seriously, you couldn't give me that building considering what it was before.

As to condition, I suppose I should say I was looking at it as a commercial property/investment and not as a hobby or home shop/garage. If used commercially, you'd probably have to do substantial remodeling to make it attractive to a prospective tenant. I also doubt that much maintenance has been done on it in the last few years if the current owner is, shall we say, short on cash!

BTW, the laws on hazardous waste sites are extremely complex especially regarding liability. At one time any owner in the chain could be held liable, however that has changed (generally) as it was realized that interim owners likely didn't know, and could not have known about conditions. An hour with an attorney would be a good investment if you were serious about buying it (actually any commercial property...)

 

[GarageEnvy]

NEHOG may be correct but if the environmental contamination is a big concern, and I believe it should be, you could write your offer subject to the satisfactory findings of a phase 1 or phase 2 environmental study. Would they go for it? Maybe. Probably more likely they'd agree to the phase 1. Commercial is definitely a different world than residential. Hire professionals to write your contracts, review your offers and investigate the property. Yes, I know it will cost thousands of dollars and you may end up not even getting the property. But what's worth spending $10k on all the reports and professionals and buying a property with tens of thousands (or hundreds) in clean-up, remediation or hidden defect costs? I'm not trying to talk you out of it, only into treading cautiously and intelligently.

 

[Nighttrain]

What are the tax records hold the value at? Maybe a good place to see what the county says it's worth. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-comfficeffice" /><o></o>
<o> </o>
Good discussion on the environmental issues. One of the bases I was stationed at in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-comffice:smarttags" /><st1:State w:st="on"><st1lace w:st="on">Michigan</st1lace></st1:State> was a superfund site. $12 million and counting. Problem I saw though that they had test wells on the boundary of the property and the test wells on the up stream were showing contaminates in the ground water also. (Benzene) from aviation fuel. So was our property the issue? Maybe not but the US Gov had a bigger checkbook than the small aviation fuel depot next door.<o></o>
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Good luck.<o></o>
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[Dale Rogers]

The only thing I could add to Garage Envy's advice would be to figure in the costs of various repairs. You should be able to get all of the recent commercial solds at the County Court House and while you are there you can check to see if there are any Liens on the property. What will happens if Atlas Shrugs and Caterpillar moves from Peoria?
Don't even get me started on the EPA and I do appoligize for being negative.
DR

 

[Dale Rogers]

The only thing I could add to Garage Eny's post would be to get estimates on the repairs you want done to get the property in the condition you want it in and what resale could be if the repairs are done.
DR

 

[oilslick]

I am no expert but a phase one around subjects area starts at 2500, all they do is check history of owners use of site, big deal you know already, so then what spend another 10 drilling wells looking for trouble on a property only worth in the 30,s, get real. Same stupid **** I have hear of house inspections missing stuff and come to find out the inspection isnt worth the paper it is written on much less the 400 you spent on it!!! We are in a slump and I would like to think the EPA has been told not to kill whats left of the realestate market .

 

[Steve from Socal]

Your are delusional ^^^^^^^^^^^^^^^^

The EPA doesn't care about the economic climate or the local economy. For that matter neither would the state or county. Advising somebody to ignore the very real issues of contamination is caviler at best. Just because the value of the parcel is low does not mean that the liability is equally low, if the new owner has assets they could be taken to offset the cost of clean up.

Steve

 

[GarageEnvy]

Comparing environmental inspections to home inspections is pure nonsense and the requirements for the people doing them are very different. That's especially true in my state (California). Yes, phase 1 doesn't really do that much which is why I mentioned phase 2. However, as you noted, the cost is a major factor so that's why I didn't open the can of worms in my first post. I simply wanted to make the OP aware of the option since everyone was raising environmental concerns.

You can get the sale price amounts from the county but with commercial properties there are almost always factors influencing the price. If you buy a property that is in year 5 of a 15 year lease that is way under market, the price you pay is going to be low. That's why it is so critical to research those sales and know the details. Most commercial appraisers have full time researchers just doing this. Assessments might be accurate but, at least in California with Prop 13, they might be a country mile away from the actual value.

 

[thomascreation]

I'm going to look at the building tomorrow after work. I'll let you guys know what I learn when I talk with the owner. O ya, I'll take some more pics to!

 

[oilslick]

I take all of my advice back. I hope I have not affected anyones opinion. From now on I will keep my advice to myself. I have my theory .

 

[thomascreation]

Took a look at the building today. The chemicals were stored in a separate room in the back of the building. The owner said the city never gave him a problem with the matter since they followed the city code. One thing to note about this whole chemical issue, there is an old gas station next door that has been re purposed and he said that building was grandfathered in and they left him alone when he sold it within the last year. Other building info: 30x60 with 10’ rafter high but open above to 14’. One garage door 10’ wide by 8’ high. 30x30 parking lot in the front and rear. No insulation in the ceiling and no real heating system in general. Has a small bathroom, no shower. Wire for three phase and 220V. Taxes are $1,400.00 and in general the building is in good shape. The owner is an older gentlemen that has a son that ran the store. He said he is willing to lease, lease to own or sell outright. I need to go to the city to see if there are any red flags on the building but he told me he owns it free and clear and there are no liens.

 

[oilslick]

Thanks for the update, it is very interesting to follow this. I just had a termite inspector do a job for me whose address was on forrest hill road!!! I live 45 miles away from peoria

 

[Klammer]

I've been lurking a while, too, but thought I finally have some advice to give that could help because I just had an offer accepted on a commercial property, myself.

First, I would be very concerned about the potential chemical/soil contamination issues. Make any offer contingent on passing an inspection (you decide what level of inspection you're most comfortable with). At a minimum I would have a soil sample taken for analysis. I am having that done on the property I'm purchasing because there was an underground fuel tank that was removed about 30 years ago (before good records were kept or proper care was taken). I've been quoted $100 for that (in WI). If something comes up in the soil sample, do a more intense and expensive (phase 1 or phase 2) inspection or walk away.

As for value, it depends almost entirely on location. Mine is in what I think is a good location. About a block off one of the main roads in town and only about a 7 minute drive from home. I'm in a town that I think is doing alright considering the economy. We agreed on a price that was just over half of fair market value on the tax statement.

Finally, I like the property - it has a lot of character. Especially if you're main planned use is a personal workshop/warehouse. There has been a lot of good advice on your question. Bottom line: I don't think I would run from it, but I also wouldn't run blindly towards it. There are some definite risks that should be evaluated.

Good luck, and let us know how it goes!

 

[oilslick]

Hey Klammer how about some pictures of your site.

 

[smalltruck]

Dry cleaners gas stations and Printers are all subject to problems. It really depends on where you are as to how bad the state regs get.

 

[Klammer]

Here are a couple of pix of "my" property. I plan on posting more once everything is official.