AMA - Dense Urban Land Assembly

Today's question comes from Marc in Montreal who writes:

We own a midtown Strip Mall where there is an adjoining property worth $1.3M which has 18 parking spots.  It has a restaurant on the property that will be shutting down in 6 months due to retirement.  A developer has an offer on the land for $2M, and would probably let me purchase it for $2.1M.  Our strip mall has long term leases in an aging building.  I see a scenario where a Land Assembly could convert it all to a 3 storey mixed use building with underground parking that would surely yield profit above and beyond both projects.  What are the possible short term or long term strategies that we could take with this project?

I am considering a multi-phase project whereby I tear down the restaurant, build some commercial units, move my commercial tenants there, then tear down HALF my existing building, move some of my tenants there, and then the last Phase?  3 Phases, and every tenant ends up moving.  After the last Phase, I simply fill the remaining spaces.

On the 2nd and 3rd floor, I would have residential units.  Either Condos or rentals.  Is the extra $800K to purchase the corner property worth it?  I am not sure exactly how to do a napkin calculation on this, but I imagine price per square foot to build minus price per square foot to rent is the way to go, minus all kinds of carrying costs and commercial tenant improvements.

All of the commercial tenants have different long term expiration dates on their commercial leases, ranging from 7-15 years.

Let me know if you have any thoughts.

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Host: Victor Menasce

email: [email protected]