GlobeSt.com: How does the process of doing the redevelopment evolve, and what are the necessary steps?

Mape: Getting to an accurate purchase price can be difficult and time consuming. Fees and off-site costs are the biggest variables of new construction. As noted above, with redevelopment plays the costs are the big variable. Getting accurate costs can take longer to figure out since it involves several contractors and multiple property visits to assess the costs to reposition the asset. No seller likes to give time, but it takes just as much time, if not longer, than a ground-up development acquisition to complete a thorough due diligence of an existing property.

GlobeSt.com: What should be avoided in this process?

Mape: The thing to avoid is trying to fix the unfixable. Some buildings are not meant to be fixed, and you can end up spending more money than you anticipated trying to save an old building. Environmental remediation is another issue to consider and one that needs to be fully understood. Although most problems can be cleaned up, it can sometimes take years and cost a significant amount of money. And besides the time and money, you need to protect yourself from future claims due to these previous environmental problems.

GlobeSt.com: What else should our readers know about doing a successful industrial redevelopment for resale?

Mape: It is important to make sure you end up with a marketable building. Again, it sounds pretty basic; however, we toured rehabbed facilities that are not functional for most tenants and remain vacant for long periods of time. Usually you cannot change the building, but only clean it up and fix the interior. Look for features to help sell the building. Is it close to a freeway? Does it have heavy power? Is there outdoor storage? Are there built-in features that can be reused (a crane, etc.)? Sometimes older buildings have features that developers would not include with new developments to save costs, so highlight them.

The industrial sector has become the hottest segment in commercial real estate. How will logistics companies keep up with the market forces of omnichannel commerce? When will new supply finally catch up with demand? Who's putting investment capital into industrial and what does the future hold? Join us at RealShare Industrial on November 16 and 17 for answers to these and other questions. Learn more.

BREA, CA—Price, costs to improve and functionality of finished product are the most important things to consider for an industrial-redevelopment acquisition, Western Realco's director of acquisitions Jeremy Mape tells GlobeSt.com. As we recently reported, the Newport Beach, CA-based firm recently purchased the five-building, 180,087-square-foot industrial property located on 15.8 acres at 404, 423, 424, 436 and 484 Berry St. for approximately $26 million. JLL senior managing director Louis Tomaselli and SVP Zach Niles represented the seller, Guardian Capital Management, in the transaction. We spoke exclusively with Mape about what it takes to achieve a successful industrial-redevelopment acquisition and what to avoid in the process.

GlobeSt.com: What is involved in planning for a successful industrial redevelopment?

Mape: The most important things to consider for an industrial-redevelopment acquisition are price, costs to improve, and functionality of finished product. Although price seems obvious, many people believe that potential improving market fundamentals and the ability to forecast higher rental rates is creating value. It is not. A redevelopment project should be purchased at a price that considers the inherent risks associated with redeveloping any property. One of those risks is costs overruns. It is much easier for a contractor to budget for new construction costs versus costs in retrofitting an existing building. We carry a contingency three times greater than a ground-up development budget. Too often we have seen cost overruns on redevelopments due to unforeseen issues with the existing property.

Equally important to costs is functionality of the finished product. What are you left with at the end of the day? Some problems cannot be fixed, and therefore the property is functionally obsolete. Other times there is still value, although the property is not going to be state-of-the-art. In markets with significant barriers to entry, there is typically strong demand for older buildings with good bones and layout. As developers, we typically focus on new, clean state-of-the-art buildings with all the bells and whistles (clear height, sprinklers, trailer storage, etc.). However, well-located, old and ugly industrial properties serve a purpose to many users and can represent a unique opportunity as well.

GlobeSt.com: How does the process of doing the redevelopment evolve, and what are the necessary steps?

Mape: Getting to an accurate purchase price can be difficult and time consuming. Fees and off-site costs are the biggest variables of new construction. As noted above, with redevelopment plays the costs are the big variable. Getting accurate costs can take longer to figure out since it involves several contractors and multiple property visits to assess the costs to reposition the asset. No seller likes to give time, but it takes just as much time, if not longer, than a ground-up development acquisition to complete a thorough due diligence of an existing property.

GlobeSt.com: What should be avoided in this process?

Mape: The thing to avoid is trying to fix the unfixable. Some buildings are not meant to be fixed, and you can end up spending more money than you anticipated trying to save an old building. Environmental remediation is another issue to consider and one that needs to be fully understood. Although most problems can be cleaned up, it can sometimes take years and cost a significant amount of money. And besides the time and money, you need to protect yourself from future claims due to these previous environmental problems.

GlobeSt.com: What else should our readers know about doing a successful industrial redevelopment for resale?

Mape: It is important to make sure you end up with a marketable building. Again, it sounds pretty basic; however, we toured rehabbed facilities that are not functional for most tenants and remain vacant for long periods of time. Usually you cannot change the building, but only clean it up and fix the interior. Look for features to help sell the building. Is it close to a freeway? Does it have heavy power? Is there outdoor storage? Are there built-in features that can be reused (a crane, etc.)? Sometimes older buildings have features that developers would not include with new developments to save costs, so highlight them.

The industrial sector has become the hottest segment in commercial real estate. How will logistics companies keep up with the market forces of omnichannel commerce? When will new supply finally catch up with demand? Who's putting investment capital into industrial and what does the future hold? Join us at RealShare Industrial on November 16 and 17 for answers to these and other questions. Learn more.