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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Mr Mark on August 01, 2019, 08:14:03 PM

Title: A superfund site of my own?
Post by: Mr Mark on August 01, 2019, 08:14:03 PM
I guess this is a story of a failed RE project.

I've been seriously considering buying a small abandoned commercial building nearby. It's in a middle-lower income neighborhood that is on the up slowly, large park a block away, new school going in 3 blocks away. A few brave millennials.

It's a flat roofed concrete box of 2600sqft. Needed gutting inside. Could also get the empty lot behind.

Plan was to get it, gut it, whitebox it, replace facade, secure it, and lease it. Maybe even partner with someone to put in an anchor tenant - small deli/sandwich place on the end.
$100k Budget:
Purchase & secure: $35k
Gut & whitebox: $30k
Landscaping & facade: $15k
Legal & Contingency:$20k

Should lease (if you get tenants) for $8 -$12 adjusted gross/sqft/yr. Taxes and expenses $2k/yr
Sounds pretty good right?

BUT, it used to be a dry cleaners. Oh Oh.

Spoke with enviro guy: He says "no problem. We do a level 1 & 2 and baseline survey of any contamination ($12k), and anything there is not legally your responsibility. You don't have to do soil remediation. If there was contamination of dry cleaning stuff, and if you need to protect inside building from vapor, another $12k for a vapor barrier. A lot of this might be tax deductable too.So worst case $25k"

OK.  Then,
Structural guy - you need a new roof - $30k.

OK. Then,
Enviro guy again. "I did a quick check for you, and that car parking area adjacent to the building on the corner [note: my target for this space is a future outdoor seating area], well, from at least 1941 until at least 1967/1971 it was a gas station, with 2 underground storage tanks. "

Me: Ok... so if the tanks are still there and there's been historic contamination...?
Him: "Oh, well then you have to remediate, but there are some state funds you can apply for that covers soil removal. Tank removal cost is yours. And you'll have to do it. About another $10k.

Contractor: "hey your new mechanicals will cost more too - add another $10k for that, and facade is now $20k, not $10"

Now I have a project with big environmental unknowns, costs as estimated (and we know what tends to happen to those...) are now $190k+ and lots of hassle, all to get the 2600 sqft nice white box all fixed with new mechanicals and roof and outside facade, and would be awesome, right. For ~$75/sqft...

In 5 -7 years it'd probably be worth $350k, rented out. Yield in the meantime wouldn't be too bad.

But I don't think I'd buy it right now if someone else did all the work and sold it post renovation, for $200k. And indeed my realtor admits is wouldn't be immediately worth $200k on completion.
So I'm, if not walking away, putting it on hold. It would be my first commercial property.


Title: Re: A superfund site of my own?
Post by: AccidentialMustache on August 01, 2019, 09:50:02 PM
Would your city/county offer any help or incentives to fix up the environmental issues?
Title: Re: A superfund site of my own?
Post by: cheddarpie on August 14, 2019, 08:20:07 AM
I work in the environmental cleanup industry and would absolutely not buy this property with the numbers you are working with. Tank pulls and petroleum remediation can be relatively straightforward, but will still be a significant cost. Dry cleaner solvents, on the other hand, can be a huge problem because solvents are designed to dissolve dirt and grime -- hence, they move! A lot. You could end up with a big cleanup obligation or your hands or restrictions on how you can use the property.

Definitely do not buy without doing a full Phase II environmental assessment to understand the extent of contamination and talking to a lawyer to assess the viability of the prior owner, potential insurance claims, and a strong indemnity clause or possibly a prospective purchaser agreement. If the prior owner or dry cleaner operator is not still around or viable, you will be responsible for the cleanup and its costs, which would likely be in the six figures and possibly more.

What state are you in?
Title: Re: A superfund site of my own?
Post by: powskier on August 18, 2019, 11:39:20 PM
I wouldn't go near that in accumulation phase and never while FIRE.
Title: Re: A superfund site of my own?
Post by: moonpalace on August 19, 2019, 01:22:42 AM
Former environmental enforcement attorney here: I wouldn't go near that property. @cheddarpie is exactly right about the dry cleaning chemicals being a showstopper. Huge downside risk there and you'd very likely be strictly liable for all cleanup costs as the owner.
Title: Re: A superfund site of my own?
Post by: Mr Mark on August 23, 2019, 08:53:15 PM
Thanks guys.

Yep. Pulled the plug. Meh. Just wanted to share a failed deal. Only a % you explore actually work.

Site is MI

According to my guy, the Dry cleaners are legally not the bigger deal. I wouldn't have to soil remediate. The gas tanks are the issue apparently.