Grand Finale

After spending our Saturdays in empty buildings and walking through vacant lots Jerod Mund discovered lots 1012-1016 Lipscomb  Street in Fort Worth, Texas only listed for only $142,000! This was a far cry less than the $750,000 property we ran away from. We discussed it over the phone and met at UTA in the business building 3rd floor computer lab. Sitting next to each other we compiled all resources, and results from all those we talked to in the industry. Our renderings we ordered from a architect were unfortunately not complete so we moved ahead.

Parking was somewhat of an issue but I was confident that we could receive a variance. The property currently on the site was an eyesore and not generating the tax base our new property could for the city. I believed we could reach out to Council Member Joel Burns and receive a letter of support as well as from everyone on Lipscomb. The Board of Adjustment would more than likely side with our group. We also showed how much we would receive if we made the property solely residential as compared to office. Either way due to the lending guidelines and cost to acquire the land we were still not going to make significant returns and would not seek to do this deal. 

Our team believes that  if given about a year we could find possibly a distressed property in the area that we could possibly acquire through a short sale or some other unique way and find profitability.    

Plans

The Allen-Glater-Mund group is spending our Saturdays combing the Near Southside of Fort Worth searching low and high for a feasible property. During the week we discuss our construction, financing, and demolition leads. I have reached out to Vendigm  Construction managing partner Anthony Burks he is swamped with live projects and would like to but can't free up his schedule to meet with class. Jason is reaching out to his friends in the lending community and Mund is analyzing properties with his access to commercial info.

I remembered Ross McCuisson, UTA MSRE alumni. His company, McDougal Real Estate a Lubbock based outfit  is currently renovating and developing commercial property in Grand Prairie he agrees to help with our cause. Throughout the week the Allen-Glater-Mund communicates through primarily text messages and the occasional phone calls.

Financing

By definition a lender is a private, public, or institutional entity which makes funds available to others to borrow. However, post mortgage meltdown, lenders strict guidelines are not designed to make funds available for both existing, new construction mixed use office, and retail commercial real estate projects. The majority of lenders that our group contacted offered undesirable terms. 

We had the pleasure of meeting with Leslie Houston from Wells Fargo. Ms. Houston made it clear that all appliations would be combed and scruitinized by underwriters. All loans would require high capital reserves and borrowers would be held personally liable. Residential property types remain the easiest to finance. Ms. Houston also mentioned that the SBA has a few great programs, and made note of FHA. Many argue that FHA programs are loaded with red tape and some requiring 6 to 12 months to complete.

Based on todays terms boot strapping opportunists must think outside of the box to make ends meet. This includes creating joint ventures, subleases partners, assuming properties, owner financing, and most importantly finding ways raise capital independently. 

        

   

Mary Mund & Cody Payne

Jerod's wife Mary Mund paid us a visit to discuss how she markets property in the Near Southside. Her team primarily seeks young professionals, and young doctors. They place ads in the Ft. Worth Magazine, Ft. Worth Weekly, 360 West, Fort Worth Business Press, and the new Ft. Worth South. To save money they also focus online social media which saves them money. Mary & Co. are no strangers to putting in a little sweat equity posting fliers in and around hospitals. Marketing budgets on larger developments can range from $5k-$10k which in general is funded by the developer. 

Cody Payne,  Senior Associate with Dominus Commercial,  was more than happy to discuss his experiences with leasing properties. He stated that landlords who do not take care of their properties in general can eventually find themselves with C non-performing properties. Payne stated that he's seen some properties sit dark for 5 years. The largest concession he seen given was for 13 months which was spread over the term. However this is not an unusual practice in today's market as smaller business start ups are not as prevalent.  

When questioned about the flexible space Cody Payne stated that it would be best used for office and retail as opposed to residential. Cody also stated that the property would require tenant improvement. Mary Mund said she would not feel comfortable/safe using the property for her personal residential use. She said there would be to many other people near her home and low privacy. I stated that the property would be more suited in a different city such as Austin.  

Roller Coasters & Musical Chairs

The real estate market sky rocketed between 1999 through 2006 and tapered off in 2007 before completely melting down in 2008. During this time the Near Southside area flourished with a complete face lift. The Fairmont  Historic District benefited from the boom like all other areas as it was full of promise. Investors some more savvy then others jumped in early and purchased real estate at much lower prices. Some to the point that they are in a position in which they can dictate large sections of the market.

However the investors that entered the market late and paid higher prices can not receive decent returns. Today's market rents simply can not support these properties that were purchased at the height of the market. Landowners refuse to look at what is occurring in the economy and  are dead set on getting what they put into the property. In some cases land owners are not only seeking to break even but make a profit. Although persistence is a good quality one must heed the words of country crooner Kenny Rogers "You have to know when to hold 'em,  know when to fold em, know when to walk away, and know when to run."

On many occasions the Allen Glater Mund group found ourselves running in search  of properties that wouldn't cause us to be immediately underwater from the word go. The investors that need to free up some capital will eventually take their losses. Others may hold out for many years to come only to ultimately break even or lose money due to property taxes, low property appreciation, and other maintenance expenditures over time. The new census bureau may show that the area can no longer receive NEZ incentives due to the large amounts of income that now exist in the area.

The Ugly Road To 98%

Owen Hannay an architect by trade now an advertising business owner, was kind enough to discuss his massive property undertakings. Hanna brushed the dust off his architecture pencils, rolled up his sleeves and got to work on the historic Awalt Building.


The problem with renovating most older buildings is the things you can't see with the naked eye. The Awalt Building is no exception. For example the buildings soil is made up of red clay and problematic water leaks. Hanna said that this created a major issue when working on the buildings visage. In addition to this Hannay stated that true concrete grows courser over time making it more difficult to manipulate. Owen Hannay said that the wood in the historic property creates better sound barriers than properties that are majority concrete. The wood somehow absorbs the sound barriers. In addition to that wood is easier to manipulate one can simply take a chainsaw to it and make the desired adjustments.


He also mentioned that citizens often resist the destruction of age old land marks. Developers in tune with this choose to demolish properties often in the wee hours of morning or night. Property owners can stay under the radar by requesting permits to demolish a fraction of their buildings structure and then they demo large quantities. In general there is no recourse for this action as they own the properties and once the damage is done its done.

Owen also informed us about the historic property/LEED designation dilemma. Although LEED is pro recycle old metals, local supplies, and etc. Anything you remove from a historic sight must remain somewhere on the site. No faux anything onsite. The guest speaker said anything new is new. Modern design elements and historic elements not only coexist but play off each other. Sounds similar to what you need to receive LEED designation. One would assume that there would be some common ground between the two, one would be very wrong. Historic buildings do not have the best energy saving features. Hannay pointed out their old windows are terrible for energy savings but are mandatory to receive property historic property designation. In the future there maybe some marriage of the two worlds but I would not advise you hold your breath.

The historic designation brought Hannay & Co $500,000 worth of tax credit however they chose to only use $14,000. He stated in hind sight it would be better to immediately monetize them and receive 65% =$325,000.


Being a successful business owner, architect, and now developer he stated this was the role of the architect;

1. Concept plans
2. Create construction drawings
3. City planning management
4. Tax credits appointment management

After conquering the huge hurdle of being rejected by 24 banks, using receivables from a prayer and sling shot, facing fire department issues, and a myriad of rehabilitation issues today the building is 98% leased. Its tenants include lawyers due to its proximity to the courthouses, a high traffic McDonald's, and Chipotle.

When asked if he would do it all over again Hanna replied now.

Site Selection

Jason Glater, Jerod Mund,  and I continued our search to find an ideal property. We stumbled on a restaurant and former tire shop owned and listed  by Mr. Buddy Baker on Hemphill. The building and the neighborhood behind were deemed historic. The tire shop was well equipped with 4 garage bays and also a fenced area with grass and a few trees. There were more than enough parking spaces and it was only about five minutes from downtown. The ceilings had a tin finish and the floors consisted of a smooth surface. The historic designation concerned us a little bit due to the strict reputation the Fairmont Historic District has earned over the years. With no need to own the restaurant I called up Buddy Baker and left a message asking him would he be willing to sale or lease the tire shop separately.

If he would agree to lease the property we would want to do it for the bare minimum for an extended period of time say 10-20 years make renovations and in essence sub lease the property to earn a substantial return on investment over time. Jerod Mund is a commercial real estate broker with Sperry Van Ness and he made an interesting point. Jerod stated that commercial real estate brokers do not put a lot of weight on the calls the get on properties during the weekends. He stated that these calls tend to be from people who just happened to see the property on the weekend driving by. Mund also said that out of the calls he received throughout his years as a broker no weekend inquiries were ever closed.