residential growth vs commercial growth

[Beano]

Commercial office property growth has moved very little over the last 12 years compared with residential
Has any PT investor looked at converting a small commercial office to residential ?
Location Auckland
Suburb Ponsonby
Lettable space 432m2
Deck 32m2
Land 594m2
Parks 15
Value as commercial $1.8m at net yield of 8,pc

But looking around ponsonby there are no large (over 200m2 residential units under $2m

,pretty well the whole street is residential

[Nick G]

I think DaveW on here has. I'd be interested to understand the process.

[Davo36]

Commercial office property growth has moved very little over the last 12 years compared with residential
Has any PT investor looked at converting a small commercial office to residential ?
Location Auckland
Suburb Ponsonby
Lettable space 432m2
Deck 32m2
Land 594m2
Parks 15
Value as commercial $1.8m at net yield of 8,pc

But looking around ponsonby there are no large (over 200m2 residential units under $2m

,pretty well the whole street is residential

Yeah offices are hard.

I assume it's on the first floor?

Issues to consider when converting to residential:

1) Planning: You will almost certainly need resource consent. Which will come with a number of conditions. Probably have to pay either development contributions or reserve contributions or both.

2) Building Consent: You will need double glazing, possibly a balcony or 2, noise insulation for the floor and walls, increased fire rating for the floor and maybe some walls/doors. Will possibly need extra windows or lighting.

This makes it all sound easy, it isn't.

[Nick G]

It sounds like it will cost less than 2mil however. Is there a specialist who can do feasibility on these types of projects the same way a surveyor looks at subdivisions?

[d2ba]

you can't buy any commercial in Ponsonby for a net yield of 8%.(if you could investors would be banging down on the agents door / or the auction would be in Frenzy )
You are are looking at 4% max if you are lucky

[Don't believe the Hype]

There is a chance the property is already owned... Not a new purchase

[Beano]

you can't buy any commercial in Ponsonby for a net yield of 8%.(if you could investors would be banging down on the agents door / or the auction would be in Frenzy )
You are are looking at 4% max if you are lucky

Yes the property is already owned
The net yield was the suggested sales yield by the real estate agent
But it seems silly to sell at 8pc when I can add or convert to residential
Also I am hesitate to buy a residential apartment at 4pc net yield when I can build cheaper
It is a two story building

[d2ba]

For a new build around Vinegar Lane these are ballpark figures for lease
Sort of thing you will find ground floor of the apartment buildings being built
3-4 Metre high ceiling
Retail Showroom:
$650/m2
Office:
$450/m2
Carpark $80 per week

[Anthonyacat]

Yes the property is already owned
The net yield was the suggested sales yield by the real estate agent
But it seems silly to sell at 8pc when I can add or convert to residential
Also I am hesitate to buy a residential apartment at 4pc net yield when I can build cheaper
It is a two story building

Your agent is either incompetent or dishonest, telling you to aim for an 8% yield on sale. The property is likely worth almost twice that much. Have a look on TradeMe for yields in Auckland on commercial properties.

On the other hand, if you're interested in selling at or near 8%, I'd love to take a look - would probably be very interested at the 7-8% yield range in Auckland.

[Nick G]

Check the NBS rating? That's the only reason I can think of it being cheap.

[Davo36]

Your agent is either incompetent or dishonest, telling you to aim for an 8% yield on sale. The property is likely worth almost twice that much. Have a look on TradeMe for yields in Auckland on commercial properties.

On the other hand, if you're interested in selling at or near 8%, I'd love to take a look - would probably be very interested at the 7-8% yield range in Auckland.

Haha yeah, I'd buy it at 7-8% yield too!

[Davo36]

It sounds like it will cost less than 2mil however. Is there a specialist who can do feasibility on these types of projects the same way a surveyor looks at subdivisions?

No I don't think there is anyone who does this. It would be great if there was, but the thing is the costs are huge.

What you really want is some sort of idea of what could be done with the place, what that might sell for, then what would be required to be spent to get there...

But how to do this is not clear.

Firstly you need a resource consent usually. Just to get that would cost over $10k in reports and take more than 3 months.

Then, let's say you get approval, but there's a few conditions etc. Do you try and argue the point with those or live with them?

Say you decide to push ahead. How much is it going to cost to build? You really want a price from a builder (several builders really) but there's no way you will get one at the current time without a building consent. What you might get is vague figures that you can't rely on later.

So then you decide to get a building consent. This requires full sets of drawings, lots of engineers reports and so on. This would cost maybe $30k, maybe more. And take another 3 to 6 months.

Then you decide to get prices from builders. And they come in at double the figure you imagined at the start! So then what do you do?!!??

You've spent like $50k on something that possibly no longer makes sense...

So do you then decide to start from scratch and build something simpler/cheaper? Taking another 6 months and another $50k to do so?

Or just plow ahead???

[Nick G]

Thanks, I wonder though how much of the RC and approval process you can reasonably know in advance, similar to what I did when I bought a place in Newtown a month ago. The architect went through it, sketched up plans, checked in with council briefly to make sure what I had proposed was within their rules and based on that I bought. There might be changes but that's a risk I'll bear. Still have consent process and in this case a development contribution to go through. At the same time my builder gave me a "close enough" budget based on what we had drawn up and I confirmed likely rents too. All before going unco. I'm aware that it's not done until it's done. Would have thought a commercial project would be similar just because of how those properties are valued (my flats are valued to a cap).

[Davo36]

Well if he's changing to residential then the end result will probably not be valued to a cap rate right? So coming up with an end value might be tricky.

Also, you're at the start of your project by the sound of it, it'd be interesting to hear your experience at the end...

What is the ballpark indication for your project? Like a couple of hundred grand? That might be easier to forecast about than a bigger project.

Also, you're altering some residential units, and they will still be residential units at the end right? I think it can be quite different to go from commercial to residential. All bets are off in a much bigger way with the council.

So for instance, if you ahve single glazing in your flats, and you are making alterations, the council probably won't make you upgrade every window to double glazed - but they will with office space - both for insulation and (more importantly) noise reasons. And everything else is like this.

I guess the only point I'm trying to make is that this stuff always looks easier than it is. It always costs more and takes longer than you'd think.

[Nick G]

Well if he's changing to residential then the end result will probably not be valued to a cap rate right? So coming up with an end value might be tricky.

>> It depends on the valuer I guess. My guy looks at #bedrooms, rent per room and condition when assessing because my properties are squarely aimed at a young professional/student market and rents per bedroom are set by the market pretty much.

>> I thought it might be similar for inner-city stuff in Auckland, particularly in a property like this.

Also, you're at the start of your project by the sound of it, it'd be interesting to hear your experience at the end...

>> It's my second one, last one I bought a 3br up and 2br down two flat property and converted to a 5br / 2ba upstairs with 2 new bathrooms, new kitchen, new carpet, paint etc. Downstairs just had a tidy up.

>> Same team this time so. Converting a 4br up and 3br down to a 5br 2ba up, 4br down and an outside "extra bedroom" sleepout will become a standalone studio.

What is the ballpark indication for your project? Like a couple of hundred grand? That might be easier to forecast about than a bigger project.

>> $120K. I readily admit that this predictable to +/- 10% from the get go.

Also, you're altering some residential units, and they will still be residential units at the end right? I think it can be quite different to go from commercial to residential. All bets are off in a much bigger way with the council.

>> Yup agree I'm also not changing build footprint. That's why I was wondering if there's a designer/architect who can consult on these types of things. Another poster here DaveW I believe has dome more hands on Commercial stuff.

So for instance, if you ahve single glazing in your flats, and you are making alterations, the council probably won't make you upgrade every window to double glazed - but they will with office space - both for insulation and (more importantly) noise reasons. And everything else is like this.

>> Yes you're right, anything I do new that needs to go through council has to be to code, the rest they don't look at. With a change of use I would expect all bets to be off in that regard and they look at the entire building so you'd need engineer reports etc. Like most things that are hard to do and expensive there's probably more opportunity?