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Real Estate Should I simply sell my building, or should I setup an operation?

Discussion in 'Real Estate Investing' started by NC Bidniss, Mar 11, 2019.

  1. NC Bidniss
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    NC Bidniss Bronze Contributor Read Millionaire Fastlane FASTLANE INSIDER

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    I own a 200,000 square foot warehouse in WV, and I'm toying with the idea of selling the property. The intention with the property (since I started with it) has been to refurbish the building and setup a warehousing and logistics operation. I currently have about 88k sf leased to a company, and I have actually declined offers from others to lease more due to a potential buildout project which unfortunately just fell through.

    Leasing the entire facility would earn 60k monthly at my advertised rate of $3.50 sf/yr. Operating as a warehousing provider could earn roughly 120k per month with the same space, albeit with more expense. Throw in some more processes and I could potentially earn upwards of 200k monthly with the facility.

    However, the facility is not in a logistical hub. It is a couple miles off the interstate in a relatively small city in WV. While I am confident that I could keep the building full most of the time, it would take a lot of work, and an economic downturn could potentially clean the place out.

    That is why I'm considering selling. I just spoke to one of the owners of the company that is currently leasing the space. He informed me that they were planning to build a 200k sf facility on a piece of land they own within the next year or so. I didn't make a formal sell offer, but I did say that my asking price would be $4.5m if I decided to sell. Based on the replacement cost of about $7m that my building is insured for, I imagine the buildout cost for my tenant would be somewhere in that ballpark if they do proceed with building. We both agreed that it would save them a lot of money.

    If I sell, my primary intention would be to reinvest the money in one or two derelict industrial facilities. The building I am thinking of selling started off as a grade-A shithole, and I worked to transform it into a class A warehouse. I believe the knowledge and experience I gained through that endeavor could be repeated, and I could make a profit by flipping similar facilities. It took me about a year and a half to get the current building into shape, but cost only about $100,000. Knowing what I know now, I could likely turn another place around in 6 months.

    I'm not sure what to do. On one hand, I have the perfect facility, owned outright, and ready to go with some sort of operation. On the other hand, the place is in an economically okay town in an economically deprived state, and my window to cash out may close at any minute. I'm sure there may be other details you all may want to know, so feel free to ask.
     
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  2. AF77
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    AF77 Contributor

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    Let it go for 3.5 million. Move on to greener pastures.

    Hell you could retire off 3.5 million if you wanted to.
    That’s 300k for 10 years (after taxes).


    Sent from my iPhone using Tapatalk
     
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  3. NC Bidniss
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    NC Bidniss Bronze Contributor Read Millionaire Fastlane FASTLANE INSIDER

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    Obvious answer, right? Unfortunately, the family company owns the facility, of which I only own 8 percent. The intention is to leverage the property into more wealth to the point where my share is worth taking. I could take my "cut" and run, but given the amount of control I have over the company versus the value of my share, it is smarter for me to stick around and help make mom and dad rich, too.
     
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  4. Connor
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    Connor Contributor Read Millionaire Fastlane I've Read UNSCRIPTED

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    Given your concerns about the area, I would sell and try to get into a better spot. As everyone knows, the three most important characteristics of any piece of real estate are location, location, and location.

    Maybe I'm being conservative here, but I think it's better to lock in a nice win than hope for a home run. Not sure how excited you are about the more active operation of the warehouse, as that could be a pro or a con of keeping it, depending on how you feel.

    Props to you for making it happen though, whichever way you end up going!
     
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  5. AF77
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    AF77 Contributor

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    Gotcha, this changes things.
     
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  6. Michael Burgess
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    Michael Burgess Bronze Contributor Speedway Pass

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    I think you're looking at two distinct choices:

    1) You run a logistics and warehousing company, and focus on building a business around these services.
    2) You run a real estate development company, and focus on building a business that improves distressed industrial spaces.

    ....or you do both?

    If you liquidate the current building, you can free up capital to improve another building, and potentially lease part of it while ALSO running a logistics / warehousing company from a better position.

    You seem to have experience improving properties like this - do you have similar experience building logistics / warehousing companies?
     
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  7. NC Bidniss
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    NC Bidniss Bronze Contributor Read Millionaire Fastlane FASTLANE INSIDER

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    I'm thinking the same way. Also, there is little to get excited about when it comes to the wonderful world of third party logistics haha.
     
    Last edited: Mar 11, 2019
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  8. NC Bidniss
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    NC Bidniss Bronze Contributor Read Millionaire Fastlane FASTLANE INSIDER

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    The both options are pretty well the idea, unless I decided to sell (I have other properties). I have experience in commercial and industrial real estate development and leasing, but no real experience in warehousing and logistics. However, my company has been in the family for 5 generations, and 3PL was our bread and butter for 30 years, with moving and storage coming before that. Dad shut down the logistics operation and went into commercial and industrial real estate around 2008 (economy plus the opportunity to deunionize). I don't have experience in warehousing, but I have a lot of knowledge gleaned from him, my grandpa, and a lot of personal education. Though my dad is not really involved, he does provide consultation when I need it, so I have the expert available for the warehousing side of things.

    It was actually his idea for me to sell the place and start developing properties. He said my skill set is probably better suited for that. I want to consider both sides of things before I make the decision, but I'm really leaning heavily toward selling. I feel like the opportunity is better on that side. If I were in a large city with that size of a facility, I'd likely be looking at things from a far different perspective.
     
    Last edited: Mar 11, 2019
    GlobalWealth likes this.

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