I know this is "off topic", but I have contributed a lot on the board(s) in the past, so I hope you'll all forgive me. :0)~

Question:

I need some suggestions regarding ways to work out a "No Money Down" or "Low Money Down" on a Commercial Warehouse Building Lease.

The building has been sitting vacant since 1998. The lease rent is ridiculously low because the owner is motivated to get a tenant in there. The building has no real structural flaws, the owner is simply not willing to put money into the building for the plumbing in the men's restroom and the cracks in the concrete floor.

The people who want to rent the space are willing to fix the floor and plumbing, but they only have enough money to do one or the other (i.e: lease the space -OR- fix the floor and plumbing).
The renters are looking for creative ways to lease the space so that they can make the improvements and use the space for their business enterprise.

Using another building is not an option. Newer warehouse spacein the area is available at $1.00+ per square foot and does not have enough parking area (The building they want to lease has 500+ parking spaces which is critical to the success of their enterprise. Most newer warehouse spaces have less in the area have less parking spaces. The building they want is so cheap because it is old (built in 1957) and needs to be improved. The building they want to rent is only .025 per square foot...of course it ends up costing about $1.00 per square foot when the renters make the improvements...that is why they are looking for creative ways to finance either the improvements or the lease.

Any suggestions?

Sweet Sable
xoxo

SS:

Minimal Tenant Improvement costs including new: partitions, electrical, ceilings, lighting, air distribution and finishes run about $25/SF. If either you or the owner were to amortize these improvements over a 5 year lease, the cost would be about $0.52/SF.

In making your decision, please bear in mind that many of these old warehouses and industrial buildings were not originally conceived to later be converted into high tech office space (if that's what your doing). According their roofing systems DO leak, which can fixed, but not always easily and they are normally inefficient to air condition. Additionally, if this building falls under the City of Los Angeles, if may be required to be seismically retrofitted since it was built in 1957. On the plus side, old warehouse buildings with high ceilings and bowstring trusses make for good work environments.

Hope this helps and good luck!

Have the tenant make the improvements to the property and receover their investment in the building in the form of rent at the rate to be agreed upon credited against the total amoujnt spent on the improvements. You did not address the continuing expenses that I would hope the tenant will be able to meet down the road. The tenant stays in the premises rent free until the improvement cost is fully recovered

Why don't you structure the lease so that there are a few free months up front?  Your friends cannot expect to make the repairs and then permanently lease the space rent free.

Sable we could help more if we knew more about the situation and people involved. To get creative you have to know the players and the problems. We know some of the problems, tell us more about the business.

You say they are going to be using this warehouse for a business but not what type. Do they plan on opening offices in the building as well or just a shipping department? Where is this warehouse (generally)? What kind of business are they running? Is the business being run by a corporation, partnership or family? Do any or all of them qualify as minorities? Are any or all of them disabled? Any of them Vets? Are they doing business domestically or internationally? If internationally, are they dealing with countries that have 'favored' status?

All of these and many more questions come to mind. There are government and private industry progarms to offer support to new businesses and minority owned businesses.Since the building has been empty for such a long period of time, has the Fire Marshall ruled it a fire hazard? Would the city be willing to offer a loan or grant to renovate the building to improve the neighborhood or remove blight?

SBA loans are available (Bank of America is active... I hate those guys though). An exercise in paperwork but they are almost automatic.

Another good way is to try to get the landlord to be your lender... by paying more in rent. A lease has to make economic sense to a landlord. Often it's more cost effective in the long run to leave a building vacant that lease to a tenant below cost. Asking a landlord to put money in where there is no return does not make financial sense.

Finally, is the property in a revevelopment zone. Go to City Planning and find out what staff thinks about the location. The city may have a loan and/or grant program for distressed properties. Again, an exercise in paperwork and you now have a "silent partner" in that the city will watch you to make sure you spend the money on improving the property and that you maintain it. This is not smart if you are going to operate in the shadows. City will look at the property without financial feasability filters in place. It ain't their money... They will spend freely.... your money.

Question:

Do any or all of them qualify as minorities? Are any or all of them disabled? Any of them Vets?

Answer:

The people leasing are:

1. Male, Minority (Black)
2. Female, Minority (Black), Veteran (Navy)
3. Female, Minority (Black)
 
  Non are disabled

Question:

You say they are going to be using this warehouse for a business but not what type.

Answer:

The warehouse will be used as an "Indoor Swapmeet".

Question:

Do they plan on opening offices in the building as well or just a shipping department?

Answer:

The available offices will be used only by swapmeet staff. Owner says we can sublet.

Question:

Where is this warehouse (generally)?

Answer: Northern CA (Near Stockton)

Question:

What kind of business are they running? Is the business being run by a corporation, partnership or family?

Answer:

Indoor Swap Meet. Partnership (3 people)

Question:

Are they doing business domestically or internationally? If internationally, are they dealing with countries that have 'favored' status?

Answer:

Not applicable

Question:

Since the building has been empty for such a long period of time, has the Fire Marshall ruled it a fire hazard? W

Answer:

No

Question:

Could the city be willing to offer a loan or grant to renovate the building to improve the neighborhood or remove blight?

Answer:

They have been to the city planning department already. Right now the city has a problem with sidewalk vendors putting their booths up in vacant lots on the weekends. The police have to "run them off". What the city would like to do is send these people to the swap meet to sell their merchandise. The city is "Gun Ho" about the plan, in fact they are having another meeting tomorrow with the city council to discuss it. The preliminary answer to whether they can run an indoor swap meet in the building is YES. It is solving one of the cities major problems.

The people who are going to lease the building need some advice on financing it. They have a $75,000 boat that they can use as collateral (spelling) and if necessary take a second mortgage out on a 3 bedroom house.

For several reasons.  Street merchants usually make the bulk of their money because they have limited or no costs.  Start charging them rent and it starts not being worth their while.  This is especially true if the warehouse location is not in a place people normally go.  (Most people aren't hanging out in the warehouse district on weekends.)  As a merchant, why would I want to set myself up in a warehouse that's away from the traffic I depend on for business?

I think your friends need to do some market research specifically:

* Talk to lots of the street merchants.  Would they even be interested?  Would they pay enough to make it profitable?

* Talk to their customers.  Would they go to this warehouse on weekends to do their shopping?  Or would they just forget about it completely if the merchants were not lined up in the places they normally go.

Markets like the one you talk about usually only work well if the city is wise enough to establish them in locations where people are likely to be in the first place.  Unused parking lots, parks and other public spaces in populated areas tend to work best.

Often a great idea that carries a lot of risk for the promoter, a lot of work for the promoter and a lot of work.... I said that already.

Rewards are there as well if you are smart, charming and ruthless.

Good luck.

The man who ran one of the larger outdoor swap meets in San Diego, Monty Kobey, tried the same type of thing here in San Diego many years ago.

Granted, Monty died before he could put a lot of effort into it, but it never panned out. His family still runs the Kobey Swap Meet in San Diego every weekend.

I think you've had a good suggestion about talking to the street vendors and doing research, but there's some added issues to concern yourself with-one big one being liability insurance. If this project does get going, if a customer slips on a spilled beverage-Major Lawsuit!!!!!!

The insurance alone may make this cost prohibitive. The other suggestion about working with the City/County is a really good one. Since this has the potential to address a major city problem, perhaps some type of concessions from the city.

My gut feeling is it just won't last, it may be a novelty at first, but you MUST have a high traffic area to keep it going.

good, that's what I am looking for...a dose of reality.

#1. They are looking into insurance right now..

#2. They have vendors chomping at the bit to get in. Northern CA gets rainy, cold and gloomy in winter. Even though outdoor swap meets run in winter, a lot of vendors have said that they would welcome an indoor location. The vendors are paying space rent NOW to outdoor swapmeets, why wouldnt they pay my friends for a dry secure place to sell? Why wouldnt the shoppers want a warm, dry, secure location to shop in?

#3. My friends are solving the cities problem with outdoor vendors, you know the ones mentioned that set up in vacant lots with no overhead...the police are tired of running them off. The city has said that they will send those vendors to the indoor swapmeet...now those vendors wont have the "Well there is no where else to sell" excuse anymore.

#4. The street where the building is is well traveled as it is right next to a major freeway on/off ramp. The building is well known with the locals as it has been in existence since 1957.

#5. The town they live in has two...TWO...shopping centers. A Mall and an (overpriced) Outlet Center. Both the Mall and Outlet Center are packed on the weekends. The building they are renting is about 2 1/2 blocks from the outlet center.

#6. Even though this is a "Swap Meet", my friends are trying to have more of a "Farmers Market" feel to it. They are trying to attract vendors who sell Antiques, Arts and Crafts, etc.

Okay...more imput please! (positve or negative is fine, I'm looking for honesty and a reality check for them)

Sable
xoxo

Los Angeles has an Indoor "Farmers Market" that has been there for years (as long as I've been alive I think). They sell fruits and vegetables (my friends will have a farmers market section) as well as apparel, jewlry, arts and crafts, etc.

I believe Oregon has a large Indoor Farmers Market also that sells merchandise other than fruits and vegetables.

Both are successful...why cant that success be duplicated?

INDOOR SWAP MEET HORROR STORY

http://www.mesaazcorruptionreport.com/shopper/

Is anyone on the board a lawyer? How often do you think this kind of thing happens and why the gentleman in the stories lease was not binding.

In my friends case the city is behind the project, the owner is behind the project because the space has been empty for so long.

"I" told my friends just to do cosmetic renovations (again, the building is structurally sound and just needs the floor and plumbing fixed) I told them not to put too much money in it.

Sable

Hmmm, if the area is good, then it might work.  Again, it seriously depends on whether the kind of stuff they're selling would be something somebody would think of unless it was right there, outdoors, in front of them.  A lot of swap meets tend to attract people because they're outdoors and visible.  Put them in a building and nobody knows they're there.

For the most part, where places like this exist, they have existed for years and at one time may have had a much greater importance in overall civic life than they do today.  LA's farmer's market predates the existence of supermarkets and malls.  At the time it was built, it was THE ONLY place to go in LA to get fresh produce.  It still lives on that repuatation today, but I doubt whether anybody would build it today.

The key will be attracting crowds to something that isn't incredibly obvious.  Shopping Centers spend tens of thousands of dollars to make themselves obvious, but it sounds like you friends would not be able to afford that.  This is something that the city might be willing or interested in helping with.

if you're talking about the one near CBS studios, it's probably successful due to the tenant mix, reputation/longevity and location.  you can't duplicate location.

i don't have too much experience in retail re, but i guess the questions i'd ask are:

will the demographic of the area support an indoor swapmeet?  there used to be (or maybe still is) an indoor swapmeet in norwalk, ca that was fairly succesful.  however, the surrounding population was mostly hispanic.  at the risk of sounding elitist, most swapmeets tend to be in lower income areas.

how big is this box?  can you find and fit enough vendors into the warehouse to make a profit after rent, utilities, insurance and other costs?

there's probably a reason why this building has been vacant for so many years.  it's probably functionally obsolescent.  the owner is probably holding onto it until he can pay someone to torch it or find someone dumb enough to rent it.  

the zoning?  can it be zoned for commercial?  

why can't another building be used?  most warehouses tend to be located close to each other i.e. you won't find a single warehouse building surrounded by residential units.  if this building is the only one that will work because of the low rent, then the business plan isn't too secure and there doesn't seem to be any room for error.

then again, if you want to succeed, you've got to be willing to take chances.  it just seems like there is a lot going against this plan.    

It all worked out! Again, thank you for the assistance.

Sable

-- Modified on 6/26/2002 10:14:12 PM