Six unit conversion of a 1920s bank building. Finished it, sold it, lost $114k of my $210k
Putting this up because I read a lot of conversion threads before I wrote the check and I didn't read enough of these.
Two story masonry building from 1926, ground floor was a bank branch until the early 2000s, then a series of short-lived retail tenants, then empty for four years. 8,400 square feet total. Beautiful. That's part of the story.
I came in as a 40% partner with $210k. My partner had done two single family flips and one duplex. Plan was six apartments, two on the ground floor behind the retained storefront glass, four upstairs. Purchase $265k. Renovation budget $780k, so about $174k a unit all in with soft costs. Projected sale at $1.28M based on a 6.5 cap on $83k of projected NOI.
Where it went wrong, in order.
First, sprinklers. We assumed the building was exempt because of its age. The building official's read was that changing from mercantile to residential occupancy triggered a full NFPA 13R system, and there was no negotiating it. The nearest adequate water main was across the street and the city required us to bore under it and pay for the tap. That was $96k we hadn't budgeted, and it added five months because the bore had to wait for a street cut permit window.
Second, electrical service. The building had a 200 amp service that was fine for a bank with a vault light and some teller stations. Six units with electric ranges and heat pumps needed 800 amps and a new transformer pad. Utility said the pad had to go on the sidewalk side, which meant an encroachment approval. $71k and another three months.
Third, the vault. Nobody priced removing a 1926 bank vault. It was in the middle of the ground floor and it was 14 inches of reinforced concrete. $38k in demolition and structural shoring, and we lost a bedroom in the floor plan working around what was left.
We finished 11 months late at about $1.34M of total cost against a plan of $1.045M for the whole project. The sprinkler, service and vault items were $205k of that and eleven months of carry and extension costs were most of the rest. Sold for $1.14M in a softer market, netted about $1.06M after costs. My share back was $96k.
What I'd do differently, plainly. I'd have paid an MEP engineer and a code consultant $12k to walk the building before closing, and I'd have written the sprinkler and service upgrade answers into the due diligence checklist as items requiring a written response from the building official and the utility, not a guess. And I'd have asked what my partner had done that involved a change of occupancy, because the answer was nothing.