Real Estate Brokerage & Property Management Blog

Here you will find the latest real estate endeavor stuff I engage in on a daily basis.

Friday, May 6, 2011

Home Converted To Commercial Office “Non Conforming” Analysis

Hi Prospects & Friends,

I wanted to share a real estate endeavor that I'm in the process of doing in the future, and it all started off with me and a "Leasing Agent", so I will discuss my idea. Ok a few days ago I was analyzing office buildings for lease, because I was thinking about locating my office to a high "Traffic" location surrounded by prime buildings. So I decided to search my area with lease rates less than $14/sq.ft./year, and I came across 2 properties that ended up fitting my criteria. I contacted the leasing agent who was advertising the office space, and mentioned to her I was a licensed real estate broker who would be representing myself in the lease contract, if I decided to sign the lease. So she met me on Wednesday (5/4/2011) and showed me the suite I really liked. I new I liked the location because the office building was facing a high "Traffic" street, and sits right across the street from Home Depot, as well is 5 minutes from a subdivision where the homes start at $1M+. So I told her I "Love It", and could I sign a 3 year lease, she said yes, but asked me don't you want to think about this some more? I told her no not really, but she insisted on showing me another building with office suites right across the street that were more "Luxury & Exquisite", so I told her fine, and met her at the other building. When we entered the building it looked "ghostly" because there was no one walking around, and I told her so where is everyone? She mentioned to me the building was bought out of "Foreclosure" and the owner is knocking out walls and creating individual "Executive Suites", and leasing them out to "Small Business Owners" who are just starting off, and don't have employees yet, and who are growing like yourself. So I told her "How Interesting", and how does all this work, she said each tenant will get an "Executive Suite" which is a 1 room office, and then share the conference room, the kitchen, the receptionist area, and the waiting area to sit their clients. So I looked around the office, and decided all the executive stuff wasn't for me, and told her thanks for showing me this building, because you just gave me an even "better idea" to pursue an office. I told her I wasn't interested in the other building either I loved, and thanks for all the help.

***I know that after the tour the leasing agent gave me with the "Executive Suites" it was meant for me to see this building because it gave me and idea to add to my other idea I had already had in mine about 3 years ago****

Ok I really want a "Multi-Story Office" building, because I've always wanted to lease out office space, but these buildings are very costly and because I want a prime location, these buildings can start at $1M+, so since I don't have that kind of money, I've always just put this idea to the side till the leasing agent gave me an idea. I've come across to situations that have caught my attention:

1. Homeowners buying homes in unrestricted areas, and deciding to build their businesses on the same lot.

2. Builders coming in areas where the subdivisions are not deed restricted and building near these homes subdivisions that are deed restricted, and causing a "Build Out" to occur, and "Revitalization" to develop at the same time, this is very challenging and complex to understand, but this is very "Rewarding" if you spot this trend and act on it correct. I will explain how this occurs now so see in detail below:

I came across this home that was built as a home but converted to a commercial office it has:

Gross Sqft- 7,952

Lot Size- 36,758

Stories- 3

Parking Spaces- 33

Office Suites- 11

Breakrooms- 2

Bathrooms- 5

Conference Room- 1

This subdivision where this home is located was an "Unrestricted" subdivision, but because the builder "Built Out" his subdivision, and caused the buyers to want more from him and this subdivision sits down the street, and has older homes, the "Revitalization" has developed and the demand for the lots where this home is located are high, as well as the subdivision. This has caused some of the owners in this subdivision to sell their homes, because of the builder building the $1M+ homes on 1 acre lots down the street, the market value of the lots sitting in this subdivision has gone up, due to buyers wanting newer homes, and willing to pay a premium to tare down these older homes, to get these lots "Revitalization". Therefore this has allowed the builder to proceed with slowly turning this "Unrestricted" subdivision into a "Deed Restricted" subdivision. Here is where it gets tricky with this home, and so far each new owner has left it in it's "Non-Conforming" use. The original owner bought this home in an unrestricted subdivision, and decided 2 decades ago to convert it from a home and change it to a commercial office, nothing was violated on the owners part because, there were no deed restrictions at the time. Now that the builder has slowly built newer homes on some of these lots, and changed to a "Deed Restricted" subdivision, all the older homes that are not being used as "Residential" are categorized as "Non-Conforming" use, which means this home and any other home located in this subdivision that were converted to a commercial office has to stay that way because it isn't conforming with the new deed restricted usage, which is residential only. So if the owner decides to sell this building, and the new owner converts it back to a home or tears it down and builds a new home the deed restrictions come in play and this home will never be able to be a commercial office ever again, as well as no one will be able to build a commercial office on this lot, the new home will strictly be labeled as residential with conforming use. So all older homes in this subdivision that have been converted to strictly commercial are "Grandfathered" till someone changes the usage back to residential, which then will destroy the ability to convert back to a commercial office permanently. So here is where my idea comes into play:

I plan to monitor this subdivision, and any others I locate like this, and if I find a home that has been converted to strictly commercial usage like this one, then I will:

1. Keep it in it's "Non Conforming" use which would be commercial office.

2. Reap the benefits of the builders creating a "Build Out" and causing "Revitalization" to develop at the same time (you have to know the area is in demand from the beginning to be able to spot this very quickly).

3. Take the leasing agent's idea of "Executive Suites" and apply it. If I had this building I would rent the 11 rooms that were turned into office suites and rent them to businesses, and let them share the conference room, bathrooms, and breakrooms.

4. Since the lots are in demand in this subdivision, and I know these lots are on 1 acre, and the builder is splitting the lots into .5 acres I would wait till the price climbed high enough to where I could earn enough money to get the "Multi-Story Office" I really want.

5. Then finally after I'm ready to sell, bring the tenants with me to the new "Multi-Story Office", from the sale of this "Grandfathered Non-Conforming Home Converted To Commercial Office", that was a hidden "Jewel".

So after I look back at the trip with the leasing agent I had on Wednesday 5/4/2011, it's good I didn't sign that 3 year lease, because for some reason I sense my "Destiny" wants me to go this more challenging route I just explained in this article. Ok have to go, will write something else soon, bye!


PS- Attached is a picture of my "Smart Renter" tote I sell over at my Z store. You can view it from the right side of my blog at bottom, which will lead you directly to the store.