Posted by ray@lcorn on June 22, 2006 at 10:44:27:
Dale,
The hotel deal sounds scary. Hotels are tough even for experienced operators, and a redevelopment deal even more so. Depending on when it was built may have significant building code and/or environmental issues. Even best case, say the building needs minimal work and can be re-opened as a hotel it will take full-time management, preferrably a franchise and lot’s of start-up capital.
Conversion may or may not be feasible, and if so, market dynamics will determine best use and costs of purchase and conversion relative to potential rents will determine feasibility. Any of the above scenarios are a lot for a beginner to take on.
The second property sounds more doable. Redevelopment of service stations can often be profitable if well-located and sufficient land is included to make the economics work. Retail, office and service uses are most common, but depend on zoning and development standards. My minimum size would be about an acre, and the rule of thumb for retail use is about 10,000 sf of building space per acre.
For a scrape-and-build redevelopment project the key is to buy the land at a price that you can afford to tear down the building and start over. If that’s not possible, then you’ll have to consider a renovation/expansion plan for change-of-use. I’ve seen service stations turned into banks, car washes, restaurants and almost anything else a small business may need. But like any project the local market determines best use. We don’t make markets, we serve them.
Like scrape-and-build, a renovation/expansion deal requires the property to be bought at a price that the economics of the deal make sense. And of course regardless of the investment strategy thorough due diligence is required for environmental issues, zoning and development standards.
ray