Industrial Basics – Roll-Up Door Considerations

If you are interested in buying a warehouse or industrial building there are a few critical items to familiarize yourself with. Roll-up Doors are a defining feature of  industrial buildings, and it’s important for users and  investors to know some the details regarding their selection, use, and construction.

What are different kinds of industrial building doors?  There are a few different types of industrial doors; overhead doors, roll-up doors, and scissor doors.   Here’s an overview with some pros and cons for each type:

  • Overhead Doors (Or Sectional Doors)–these doors fold or bend to open, and slide into an overhead track.  They don’t coil, and they may have multiple sections, like residential garage doors.  When these doors are open, they hang overhead in front of the opening.
    • Pros: Often the panels that make up an overhead door are much wider and thicker than the small slats of a roll-up door, and can be heavily insulated.
    • Cons: Because the track hangs in front of the door, they limit the ceiling height of a building, and are seldom used for industrial buildings.
  • Scissor Doors (or Scissor Gates or Security Grilles) open to the sides, like a mesh, and often function as security measure in front of a storefront or opening, and can be used as a movable fence.  Often these doors are closed during operating hours for air flow and visibility.
    • Pros: These doors are easy slide open, and don’t take up much space. You can also easily see through them.
    • Cons: Generally used as security gates, often in conjunction with roll-up doors, and not usually used by themselves.  They also are not insulated and don’t block the elements.
  • Roll-Up Doors (Coiling Doors).  These doors are series of slats in a coil that pull into a drum with an enclosed greased spring.  They can be insulated or non-insulated.  These are are the industrial doors that probably come to your mind: ubiquitous in self-storage facilities and warehouses.
    • Pros:  Dont’ swing out (maximize space in warehouse), open and close quickly, are difficult to penetrate, and when open provide clear and open visibiliy.  Roll up doors coil into a drum, and provide maximum use of interior space.
    • Cons:  More difficult to insulate as they roll into

What size doors do you need?  That generally depends on what size vehicles will be using the door, what size the loading dock is, and how high the materials are that you will be moving.  For loading doors, trailers tend to be 8′-8’6″ wide, so a 9′ door will accommodate a 8’6″ trailer, and 10′ high door should provide unobstructed access to most trailers.

What have been your experiences with the selection and operation of industrial doors?  Are you satisfied with your current doors?  Do you have a certain type or size of industrial door and have regrets or lessons learned?  We’d love to learn from your experience!

This post originally appeared on Jonathan Aceves’ Blog.

Why 3D Virtual and Video Tours are Critical in Marketing Commercial Real Estate Right Now

In the post-pandemic world, ensuring that your commercial property can be toured and understood remotely is essential for it to compete in the marketplace.  Due to the Pandemic, tenants are increasingly wary of letting strangers walk through their buildings–this is especially true for multifamily and office. 3d and virtual tours are the best way to accomplish that, and we’ll discuss reasons why and the different kinds of tours in this article.

Reasons for the increasing popularity of 3d Virtual tours:

  • Social Distancing Requirements
    • Showings are more complicated now than ever—many buyers are hesitant to view space, and many tenants do not want strangers in their buildings.
    • During this time, commercial properties with 3d virtual tours will stand out against their competitors.
  • 3d Tours create More traffic
  • 3d tours Help tell the story of the property
    • 3d tours create virtual spaces that a buyer or tenant can use to understand the layout and feel of a property.  They help convey the visual information that can be difficult to explain in text or in still photos.
    • Some 3d tours also create floorplans or “Dollhouses” that help make it easy for a prospect to visualize the space.
  • 3d Tours help with Out of Town Buyers/Tenants
    • Prospects are often looking at many options from far away, and you have just a few moments to capture their attention. A 3d Tour makes it easy for them to understand.
    • “Decision makers aren’t always able to tour every property, 3d tours give them a feel for the space and ensures that your building is in consideration.” Peter McGuone, CBRE, SVP

What different types of tours are there?

  •  3d Virtual Tours–these are rendered and allow you to virtually walk through a property.  Matterport is a good example of this sort.
    • With 3d Virtual Tours, lots of scans are processed to create a rendering of the space.  These are the most immersive, giving a user the ability to tour the space.  These are also some of the most challenging to create.  For an example see this video.  
    • Also, for an overview of all the major providers of Virtual Tour Software, see Ben Claremont’s video on the subject.
  • Virtual Tour–think Zillow’s tour feature.  These tours are not rendered, so they are more like a collection of 3d pictures, that are labelled.
    • You can still click on “Living Room” or “Foyer” and look around the different 360 pics, but you cannot virtually walk through the building.  On some platforms, you can click on an adjacent picture, and it will take you there, but it is not as smooth as a 3d Virtual Tour.
  • Video Tour–This is…well, a video tour.  They can be guided or unguided.
    • Guided – These are useful and often can be a great supplement to a 3d virtual tour.  The guide can walk through the space, describing the features and benefits of the space,
    • Unguided – Think of a video camera being taken through a property–Zillow has a video tour feature and most of the videos placed there are unguided video walkthroughs.

We would love to hear your experience with 3d Virtual Tours.  As a Broker–do you currently use them, and have they been helpful?  As an Owner–how important is it to you to have 3d tours on your listings?

This post originally appeared in Jonathan Aceves’s blog and is republished with permission. 

The Basics of Historic Tax Credits

What are historic tax Credits?  Historic Rehabilitation Tax Credits are available for developers who renovate historic buildings.  These include federal and state historic tax credits.  The federal tax credit is 20% of the qualified expenses over 5 years.  Most states (GA and SC included) have 25% tax credits, often with a cap.  Georgia’s tax credit is capped at $300,000 for the time being, and South Carolina’s is capped at 1,000,000. 

Which buildings qualify for this credit?  Buildings located in historic districts or individually listed in the national register of historic places qualify, also buildings deemed by the state historic preservation office to be historically significant. 

Historic Tax credits are incredibly complex instruments.  They can be used to make historic renovation projects feasible that otherwise would not make financial sense.  They can be coupled with other programs such as the opportunity zone program or enterprise zone programs.  This article will cover some of the basics and provide links to helpful resources. 

What are financial guidelines?  First, you must spend more than the adjusted basis in your renovation.  Make sure to talk with a tax professional to help you organize this calculation, but basically you must spend an amount greater than what the building is worth. Second, only certain expenses are eligible for the credit—these are “qualified rehabilitation expenditures” (QREs).  QREs include construction costs, taxes, consulting expenses, architectural costs, among others.  Generally, additions to the building do not quality, as well as furnishings, commissions, and appliances.   

Are there guidelines for the renovation?   Yes.  The secretary of the interior has guidelines for the renovation they’d like applicants to follow, repairing rather than replacing historic elements, preserving distinctive finishes and features, and maintaining the historic character of the building.  You can see their 10 principles here

Is there a requirement to hold the property for a certain amount of time?  Yes.  You must hold the property for 5 years. 

Who can use historic tax credits?  In many cases, application of the Federal tax credit is limited to passive income for taxpayers with adjusted gross income above $250,000.  Real estate professionals, short-term rental operators, and C-corps are exempted from this rule.  See questions 35-37 here.  

How do you apply?  We generally recommend that an applicant work with a consultant and an accountant to help them with the applications.  Reach out to us and we can connect you with expert consultants. 

We’d love to learn from you and hear your feedback!  Have you ever participated in a historic tax credit project?  Have you evaluated a historic renovation? 

This post originally appeared in Jonathan Aceves’s blog and is republished with permission. 

The Four Primary Uses of Sale-Leasebacks

The Four Primary Uses for Sale-Leasebacks

All business owners should be familiar with the Sale-Leaseback as a tool for raising capital and potential exit strategy. As opposed to bank financing, the Sale-Leaseback can have some advantages, and today we will explore the four different ways they can be used by a business owner.

  1. Financing: Allows for off-balance sheet financing (100% of equity can be made available for investment, as opposed to 75% with traditional financing) and at a lower cost
  2. Improved Returns: Firms may earn a higher return on their primary business rather than in real estate, so they consider moving capital to principal business to expand operations
  3. Balance Sheet Improvements: Tool for improving the balance sheet which can be important for exit planning and larger corporations
  4. Exit/Repositioning: When a firm determines they want to exit a given market/location, they can execute SLB to cash out of a given asset in advance, and then have 5-10 years to find new location.

Financing

Sale-leasebacks are a popular means for companies to fuel growth by moving capital out of real estate and into their principal business.  Often, releasing capital in real estate is more affordable and has better terms than bank financing.  With bank financing, you may only be able to release 75-80% of the equity in your real estate, and that loan will likely come with a 3-year balloon payment.  And often the appraised value of the building is the value of the vacant building.  With a Sale-leaseback, a business owner can tap into 100% of the equity in the real estate, with no balloon payment, and often the value of the NNN lease to an investor is higher than the appraised value of the empty building (depending on the owner’s creditworthiness and balance sheet).  Also, a risk of bank financing is that if the appraised value falls below the agreed-upon LTV, the loan is in default and immediately called (think 2008).  The sale-leaseback puts the market risk on the new owner.

Improved Returns

If the returns from a company’s principal business are higher than the returns on the real estate, it often makes sense to move equity out of real estate and invest it in the company’s core business.  The goal is always to maximize return.  For example, if the business is able to gain a 20% return from day-to-day operations, and the ownership of the real estate where the business resides is only netting an 8% return, returns would increase if the business could divest of the real estate to allow for greater investment in the core business.  Through the signing of a long-term lease, the real estate can be sold, the business remains in operation in its current location, and operations could conceivably be expanded with the opening of a new location or other operational expansion. 

Balance Sheet Improvements

As a seller looks to exit their business, it can become important to improve financial statements.  With this strategy, the seller replaces a fixed asset with a current asset. This increases the current ratio (current assets/current liabilities).  Sometimes referred to as the Working Capital Ratio, investors see this as an indication a company’s ability to service its short-term debt. 

Exit/Repositioning

A Sale-leaseback can be a useful tool for a business that knows it wants to move from a given location into another market or trade area in the future.  It can also be a means to exit from an overly specialized or obsolete building.  An example could be a prison or a hospital, or a retailer realizing that growth is moving in a given direction and determining that in 10 years it will move to follow growth, or that they will centralize their operations in a new building. 

We’d love to learn from your experience! Have you ever considered a Sale-Leaseback? As a broker, have you ever put one together? What have mistakes have you made/lessons learned?

This post originally appeared on Jonathan Aceves’ Blog and is republished with permission.

The Four Primary Uses of Sale-Leasebacks

The Four Primary Uses for Sale-Leasebacks

  1. Financing: Allows for off-balance sheet financing (100% of equity can be made available for investment, as opposed to 75% with traditional financing) and at a lower cost
  2. Improved Returns: Firms may earn a higher return on their primary business rather than in real estate, so they consider moving capital to principal business to expand operations
  3. Balance Sheet Improvements: Tool for improving the balance sheet which can be important for exit planning and larger corporations
  4. Exit/Repositioning: When a firm determines they want to exit a given market/location, they can execute SLB to cash out of a given asset in advance, and then have 5-10 years to find new location.

Financing

Sale-leasebacks are a popular means for companies to fuel growth by moving capital out of real estate and into their principal business.  Often, releasing capital in real estate is more affordable and has better terms than bank financing.  With bank financing, you may only be able to release 75-80% of the equity in your real estate, and that loan will likely come with a 3-year balloon payment.  And often the appraised value of the building is the value of the vacant building.  With a Sale-leaseback, a business owner can tap into 100% of the equity in the real estate, with no balloon payment, and often the value of the NNN lease to an investor is higher than the appraised value of the empty building (depending on the owner’s creditworthiness and balance sheet).  Also, a risk of bank financing is that if the appraised value falls below the agreed-upon LTV, the loan is in default and immediately called (think 2008).  The sale-leaseback puts the market risk on the new owner.

Improved Returns

If the returns from a company’s principal business are higher than the returns on the real estate, it often makes sense to move equity out of real estate and invest it in the company’s core business.  The goal is always to maximize return.  For example, if the business is able to gain a 20% return from day-to-day operations, and the ownership of the real estate where the business resides is only netting an 8% return, returns would increase if the business could divest of the real estate to allow for greater investment in the core business.  Through the signing of a long-term lease, the real estate can be sold, the business remains in operation in its current location, and operations could conceivably be expanded with the opening of a new location or other operational expansion. 

Balance Sheet Improvements

As a seller looks to exit their business, it can become important to improve financial statements.  With this strategy, the seller replaces a fixed asset with a current asset. This increases the current ratio (current assets/current liabilities).  Sometimes referred to as the Working Capital Ratio, investors see this as an indication a company’s ability to service its short-term debt. 

Exit/Repositioning

A Sale-leaseback can be a useful tool for a business that knows it wants to move from a given location into another market or trade area in the future.  It can also be a means to exit from an overly specialized or obsolete building.  An example could be a prison or a hospital, or a retailer realizing that growth is moving in a given direction and determining that in 10 years it will move to follow growth, or that they will centralize their operations in a new building. 

 

Using Rent Curves to Study Multifamily Rental Rates

This is Jonathan Aceves with Meybohm Commercial Real Estate, advising business leaders and helping them make wise real estate decisions.  Today we’re going to be discussing Multifamily Rent Curves.  

 

How does one set out to study multifamily rental rates?  We do this by building a rent curve.  Let’s say you want to study the rental rates for housing in Martinez, GA.  We would do a survey of rental rates at apartment complexes in the area, and plot them on a graph.  The graph would start out looking like this:

Then we would separate them by class.  Class is a ranking system given to multifamily properties by investors, generally A, B, C, and D.  A properties are generally newer, amenitized, and really nice.  B properties are usually good, but maybe a little older, maybe not the same level of amenities.  C properties are in not-so-great areas, in fair condition, usually schools aren’t so good.  D properties are in bad condition and really rough areas, these are the kind that you wouldn’t go to at night.  Once you’ve broken them apart by class, you draw a curve over them.  You would end up with something like this:

 

It is interesting to note the steepness of the curve, and the distance between the different curves.  Another thing to note is that market changes shift the curves.  This is what we see in rapidly gentrifying areas—the entire curve moves out.

 

So how do you use the rent curve?  Well this helps investors identify opportunities for repositioning.  It also helps you identify management problems.  If I see a complex with below-market rents, I try to figure out why.  Is it a problem that an investor can fix?  

 

Thanks for reading!  Please like and share with those you think might benefit from this.  We’d love to hear from you! What are your thoughts about rental rates? 

 

 

Columbia County Apartment Development Rezoning Moves Forward

 

Columbia County Apartments
Blackstone Camp Apartments Elevation
Blackstone Camp Site
Aerial View of Apartment Site

 

Southeastern Development received a recommendation for approval on zoning revision to modify the shape of the site on Blackstone Camp Road.  The property is near the upscale River Island Subdivision in Columbia County.  The project would be limited to 274 units, and would follow the River Island PUD narrative design standards.  Southeastern Development has already started the site work.  The project was technically approved in 2002. It recently has received a lot of criticism from neighbors, including a petition for the Columbia County Commission to reconsider.  

 

I think this is a good project and will ultimately be good for this community.  I think it’s important to have a healthy mix of housing, and new Class-A apartments force older complexes to lower their prices, and create a cycle which helps create a diverse offering of housing products.  Also, A-Class housing becomes B-Class housing, B-Class housing becomes C-Class, and so forth.   

 

It seems that lower-income neighborhoods that don’t want to see change and diversification fight against gentrification, while higher-income neighborhoods that don’t want to see change fight against “higher crime rates” and “overcrowding of schools”.  

 

Hare are a few additional resources, the Augusta Chronicle Article, the recent rezoning application on this project, and a 2010 Study by Columbia County on Multifamily development.  

 

This looks like a great project that should be great for Columbia County.  Augusta is continuing to grow!  What are your thoughts? 

 

 

Huge Economic Impact of Topgolf and Dave & Busters for Augusta

 

What are the economic implications of Topgolf and Dave & Buster’s coming to Village at Riverwatch?  According to projections from Augusta Economic Development Authority reported by Damon Cline, these two projects are expected to add $15 million to the local tax base, and add 200 jobs and generate $1M in sales tax revenue.  Hats off to the Economic Development Authority, who was able to help attract these developments without tax incentives, and the only expense is a $250K commitment  to construct the public road that will give these sites access.  

 

What do you think will be the impact of these new developments?  Comment below:

 

Additional Resources:

More Details in Great Article by Damon Cline on this Subject

Village @ Riverwatch website & contact for Jordan Trotter Real Estate who handles leasing

Topgolf Website

Dave & Buster’s Website

 

 

September 2019 Multifamily Update

There’s a lot of activity in Augusta’s Multifamily Market!  We’ve already reported that there are over 1500 apartments in development around Augusta, and Damon Cline published an article with even more projects and details two weeks ago.  Click here to download the Costar Multifamily Report, which has some great information about vacancy rates, rental rates, and the overall economy.  Below we’ve included listings from the MLS, Costar and Crexi if you’re looking to buy or want to keep up with the market.  Many of these properties trade off-market, so give us a call if you’re looking for off-market opportunities.  

 

Subscribe to our Multifamily Newsletter–click here! 

 

MLS Multifamily Search (Mostly Duplexes & Quads)

Augusta Market Multifamily Costar Listings

Georgia Costar Listings

South Carolina Costar Listings

North Carolina Costar Listings

Georgia CREXi Multifamily Inventory Export

SC CREXi Multifamily Inventory Export

NC CREXi Multifamily Inventory Export

 

Recent Notable Sales:

926 West Apartments, McKinley Inc. to McDowell Properties for 26.5M, $94.6K/Unit

Crane Creek Apartments, Southeastern Development to PASSCO Companies, $58.0M, $193K/Unit, 5.73% CAP

Ironwood Apartments, LIV Apartment Partners to Graycliff Capital Partners, $51.9M $185K/unit, 5.4% CAP

Metropolitan Augusta to Lexerd Capital – Sold Aug 26th, Terms not disclosed (and not yet public record)

 

What are your thoughts about the Multifamily Market?  Overheated?  Just getting started?  What activity are you seeing?  What do you think about rental rates?  We’d love to hear your comments! 

Car Wash Underwriting – Commercial Real Estate

 

 

Have you ever wondered how to evaluate a coin-operated car wash?  Today we’re going to underwrite a car wash.  Someone called me and asked me to give them an opinion of value on their car wash. 

I always start by evaluating the financial statements.  In this case I requested their last two year’s tax returns, in this case Schedule C’s.  My goal is to arrive at the NOI.  Remember, generally tax returns are drafted to minimize tax liability, so often they are inflated, or include things such as travel and deductible meals that you likely wouldn’t include on an operating statement. Here you see my revision of the Schedule C’s–depreciation and mortgage interest are both non-operating expenses that we’re going to remove from the operating Statements. 

Then I’m going to create a pro-forma, which is my guess as to the actual operation of the car wash.  You can see here that I’ve added some expenses–lawn care and utilities, and taken the average of the actuals on some of the other items, and then I look across the three different lines to get a guess of what a potential buyer might expect. 

Then I’m going to call a few lenders and get their guess on what financing assumptions will look like.  I want to know what the term, interest rate, and LTV might be for a loan on this asset.  In this case, two lenders I called, both guessed that at 75% LTV is likely, 5.65% interest, and 15 year term, and target DSCR of 1.5.   

I enter these loan assumptions and then I review the value indicators.  How does the property cash flow?

Now I review industry specific resources–you can use the Business Reference Guide or similar resource.  It tells tells me a general rule of thumb is that car washes trade at 4 times gross sales–that would put this car wash at between $160,000 and $215,000.  Another guideline is “cost of real estate, equipment, improvements, plus 2 to 3 times EBIT“.    I’m also told that a market average is that operating expenses should be between 25 and 40 percent of Gross Sales (our numbers put it between 18% and 37%).

Another consideration on this property would be the value as a development site.  What are land comps selling for?  Is it suitable for commercial development?  If so, there is a chance the land is worth more than the car wash–keep that in mind.   

So now I have a pretty good ballpark guess on this car wash.  If I set the price down under $200K, the cash on cash-on-cash is between 26%-60% (obviously too high), and the Cap Rate is between 22% and 14%.  At $300K, the cash-on-cash is too low–7.55%, and DSCR is tight at 1.25.  My guess on this is that 250K is about right.  Remember, this is higher than the rule of thumb from the Business Reference Guide–but still leaves a decent margin for a potential buyer.  

What are your thoughts?  Have you ever owned or sold a coin-operated car wash?  Do you have any questions?  Feel free to comment below!  

 

Additional info:

Car Wash Underwriting Spreadsheet

Dultmeier Sales – Good information

Auto Care Forum