Before we jump in:

Can I brag for a second?

We recently turned an old, empty Sears building in Piqua, Ohio into a great Class A warehouse.

It now serves 4 tenants.

Here are the pictures.

Before

After

I'm really proud of the amazing job RCS Construction and the team did.

Now, we are starting a similar project in Ontario, Ohio.

We are converting a Macy's building into the same type of flexy sexy/warehouse space.

If you know any businesses in Ohio that need 10,000 to 100,000 square feet with docks and drive-in doors at very affordable rates.

Please forward this link to them.

I would love to talk to them.

Now let's get to business:

Have you ever heard about the first principles?

It's been all over social media since Elon Musk's biography came out.

It explains his thinking process when he starts a project.

First principles are a basic way to solve problems or make decisions.

In commercial real estate, I follow a simple question.

When we're buying a value-add big-box industrial deals, I ask myself what ground-level things this deal must have to be successful. 

The answer? It involves "expanding utility," which I will explain further.

Let's dive in.

I'll use one of our deals, the Cleveland Tech Center, as a case study.

It's a big industrial property. It covers 445,682 square feet on nearly 30 acres.

This property has been doing well. We bought it over six months ago.

Here are four key factors for expanding the utility of a property.

These factors boost a property's efficiency.

They attract many tenants and meet market demand.

If you spot improvement potential in all four areas right away, you've passed the test.

It's likely a good deal. Now, it's worth your time to see how much value you can add.

Here are the four big ones:

1. Parking Expansion: Can you make the parking bigger and more profitable?

For example, Cleveland Tech Center covers nearly 30 acres.

It includes 10 acres of vacant land after a building was demolished.

Zoning allows outside storage. So, some trucks are parked there.

We plan to pave this area for a new parking lot.

We've just got the green light from the city.

It will fit about 240 trucks & trailers.

This will be a big amenity to our current and future tenants.

The lot will have gates and two automatic entrances.

For extra security, we will have:

• Good lighting for safety and security.

• Surveillance cameras throughout the area.

• An access control system to ensure that only paying tenants can enter. Non-paying tenants cannot open the gates.

We plan to lease this parking lot to small and medium-sized operators for about $200 each spot.

This will bring in around $40,000 a month in gross revenue.

We expect to spend no more than $2.5 million to build it.

In short, this parking lot will raise our property value by $4 million and enhance cash flow. It's a key part of the deal.

2. Hallways: Can you subdivide the building with common hallways?

This is crucial. For example, the Cleveland Tech Center needs hallways to boost efficiency.

Buildings with many tenants often have empty spaces.

Hallways should go all the way through the building, either east to west or north to south.

Sometimes, we need many hallways in both directions to achieve three main goals.

• Efficient Traffic Flow: Hallways must allow smooth traffic and access to smaller units.

• Easy Access: Hallways should allow tenants to access the docks and large garage doors.

• Common Facilities: The new layout will have shared bathrooms in the hallways. They will be accessible to all tenants.

Hallways need to be 20 feet wide. A bit of variation is fine.

They must support two-way forklift traffic and high vans.

Depending on use, they might also need to accommodate box trucks.

3. Installing Docks and Doors: Can you install docks and drive-in doors at the perimeter?

One important rule to not f*ck up buying decision is to make sure you can add more docks and driving doors to your building.

At the Cleveland Tech Center, we wanted to ensure we had enough drive-in doors and docks around the building.

This would help us better serve our tenants.

Often, even big buildings on large sites have limits to their use.

Many times, the building's position on the site means you can't add enough docks and drive-in doors.

Possible issues include:

• The land might be too sloped.

• Drainage challenges may not allow what you envision.

• Other engineering factors or ground levels might limit improvements.

These factors are important to consider.

4. Big Box to Beautiful Small Boxes

This might seem minor, but it's important.

When you divide the building in your plan, do it neatly and logically.

It should look intentional, not like a patch-up job.

Here's what I mean:

• Are the walls and lines aligned with the building's layout?

• Does it look like evenly sliced bread, or are there crooked corners, wasted space, or obstacles?

• Is it easy to navigate, or does it feel like a maze?

In my experience, a complicated floor plan leads to future problems.

So, design it with straight lines and easy access.

Aim for efficiency, like Siemens' standards, maximizing every aspect.

A logical, easy-to-navigate plan keeps tenants happy and buildings full.

In short, make your floor plan clear and neat.

Takeaways

1. Four key questions for a successful big box value add deal:

   • Can you improve the parking area?

   • Can you put hallways in the building?

   • Can you add more docks and drive-in doors?

   • Is the floor plan easy to use and flow well?

2. The price per pound or CAP rate in value-add deals is not as important as how much you can improve the building.

3. A nice, beautiful, and frictionless floor plan is very important for the project to be successful in the long run.

Be Well,

Saul!