A case study in cutting a dark 4,000 sf bay into two suites, and how a 400 amp panel almost ended it

A case worth studying for anyone holding a dark bay. Take a former furniture showroom sitting dark in an 18,400 sf six-bay strip. Fourteen months vacant at $14 psf NNN asking, three tours, no offers. Nobody wants 4,000 feet at that corner. The move is to demise it into two suites of roughly 1,900 sf each, and in this scenario both lease inside five months. A quick-service restaurant at $26 psf NNN on a ten-year term, and a physical therapy operator at $21 psf on seven years. Owner cost comes in at $266k all in: demising wall and separate metering at $48k, restaurant allowance at $102 psf, therapy suite at $38 psf. New base rent is $89,300. The owner was also eating roughly $32k a year of taxes, insurance and common area cost on that vacant footage, which now gets recovered. Simple payback on the $266k lands a bit over two years if both tenants perform. What nearly kills a deal like this is electrical. Say the whole phase-two side of the building has 400 amps at the main, and the restaurant needs 200 for itself with a hood and gas equipment. The upgrade quote is $41k with a sixteen week utility timeline that runs past the tenant's opening date. The workable solution is to move the service upgrade into the tenant's allowance and give two extra months of free rent, which costs the owner about $8,600 in abated rent instead of $41k in capital. Second scare: an existing sandwich operator two doors down with an exclusive use clause on sandwiches, written broadly enough that the restaurant's menu touches it. That takes a signed waiver and a rent credit of one month to get past. What the case teaches: measure demand at 1,800 to 2,200 feet before designing anything, and pull every existing lease's exclusive use clause before showing a space to a food tenant.

5 replies

ehernandez74 PC3BPRO 12

The two-year payback assumes both tenants perform. What does the arithmetic look like if the restaurant goes dark in year three and nothing has been amortized? Also worth knowing whether the allowance was paid on completion or drawn in stages, because that changes what the owner is holding if the buildout stalls halfway.

ehernandez74 PC3BPRO 12

tashaford30 SG2CPRO 16

The exclusive use clause is the piece easiest to miss, even reading everything carefully before a first purchase. Finding those usually means reading all the leases end to end, there isn't a shortcut around it.

tashaford30 SG2CPRO 16

mitchell_ray4ServicePRO

Sixteen weeks for a service upgrade sounds optimistic to me for anything involving a transformer on the utility's side. Was the 400 amp existing service fed from a pad transformer you could swap, or did they have to pull new primary? That difference has been six months versus six weeks on jobs I've been on.

mitchell_ray4ServicePRO

tylerbrooks9 AO1APRO 10

Restaurant at $26 doing $102 psf of allowance is the piece worth staring at. That's $194k in one tenant, and restaurants fail more often than physical therapy operators do. Would the boring outcome, both suites leased to service tenants at $21 with $40 psf allowances, have produced a worse result after risk. Lower rent, half the capital, and the second generation space is easier to relet.

tylerbrooks9 AO1APRO 10

gregpowell66 AC4BPRO 19

Demising wall and metering at $48k reads light unless the sprinkler main and restrooms already worked for two suites. Did the project require a second ADA restroom set, re-heading the sprinklers for the new layout, or cutting a second exit? Those three items alone commonly run $60k on splits of this kind, and permit review on an exiting change often runs eleven weeks or more.

gregpowell66 AC4BPRO 19

A case study in cutting a dark 4,000 sf bay into two suites, and how a 400 amp panel almost ended it

5 replies