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Commercial Renovation – Complete Guide for Success

March 21, 2019

A commercial renovation project is both exciting and a bit worrisome.  You might be a business owner looking to expand or modernize your store space.  Alternatively, you might be a developer or investor who sees the enormous potential offered by renovating tired, run-down or out-of-code properties.  Happily, once you fix them up, you can either sell them (the classic fix-and-flip), or hold them for rental income.  Either way, you need to understand how commercial construction and renovation works.  You need to know how to select a good commercial renovation contractor.  How much will you be spending on commercial renovation cost per square foot, and where will you obtain financing?  Want to know?  Then read on, and we’ll answer all these questions.

Commercial Construction and Renovation

Renovations vary in complexity.  Specifically, some are only skin-deep, while others require changes that go down to the core structure.  Unsurprisingly, your costs will directly depend on the renovation’s scope.  Obviously, to get a handle on the size of the project, you need to do preliminary planning and work.

Preliminary Work for a Commercial Renovation

If you already own a commercial space, either as a landlord or as a business owner, you probably already have a handle on some preliminary work.  But, if you are an investor looking for suitable properties to buy, you have much preparation work to do, including:

Video:  Commercial Remodeling and Renovation

Check the Certificate of Occupancy (CO)

In a commercial renovation, the CO will tell you whether the property meets applicable building codes.  Specifically, the list of violations, often available online, will reveal much about the scope of the work.  For example, a tall abandoned building that needs extensive asbestos remediation is a bigger project than one that doesn’t. 

Consequently, the purchase price should reflect this.  Bear in mind that you will need an inspector to sign off on every building violation that you fix.  In addition, the CO describes the approved use(s) of the building consistent with the local zoning ordinances.  It further tells you whether the building is suitable for occupancy.  Unfortunately, changing the permitted use of the building might be a hassle.  So, you might want to work with an expediter.  Keep in mind, an expediter knows the local politics and should be able to speed up (“expedite”) the process.

Work with Your Architect and Engineer

If you like the property, walk through it with your architect, engineer and general contractor.  That way, you’ll get a handle on the amount of work and money it will take to correct the code violations and to reconstruct the building according to your vision.  Not surprisingly, some professionals will do this as a courtesy in hopes of landing your business. 

If the renovation is extensive, the engineer will verify that the property will physically and operationally handle the changes ordered up by your architect.  Let’s say, for example, that you intend to repurpose a clothing store to one selling appliances.  Your engineer will determine the requirements to reinforce the floor.  In general, you’ll want to assess the property’s mechanical, electrical and plumbing systems.  Also, the engineer will categorize walls as to whether they are load-bearing and structurally sound to handle additional weight.  In fact, your team will survey many details to establish the total scope of the project and its associated costs.

Solutions, advice, secrets, and tips for revamping/reconstructing distressed property

Inspect the Building Envelope

The building envelope includes its external walls, roof, doors, windows and so forth.  Keep in mind that the structure might date back to a time before mandatory handicap access.  Therefore, you might have to reconfigure spaces to accommodate the disabled.  This might include converting steps to a ramp, enlarging doorways, updating bathrooms and much more.  Also consider whether the property resides in a historical district, or is itself a landmark.  Unfortunately, this can tie your hands regarding what changes you can make to the building.

Understand Health Code Requirements

Are you turning a store into a restaurant? Well, you’ll need to satisfy the health code laws, including the possible need to install additional bathrooms.  In fact, that’s just one example of the many possible challenges the local health codes may present.  Happily, your expediter can help you understand what the rules are and how you can satisfy them.

Commercial Renovation Contractors

The law requires most commercial renovation projects to hire a commercial renovation contractor to oversee the work and ensure it proceeds correctly.  The general contractor, or GC, hires subcontractors, manages the building supplies, and makes sure that all work passes inspection.  In general, the commercial renovation contractor makes sure the project runs smoothly.

What to Look for in a Commercial Renovation Contractor

If you are new to commercial construction and renovation, you might need to select a general contractor.  And you might be doing this selection for the first time.  Since you don’t have previous experience, you’ll need to rely on the recommendations of others.  And, of course, you’ll need to conduct your own due diligence as well.  This includes:

Bids

You will likely invite several GCs to bid on your project.  Specifically, each contractor will provide a bid package containing the plans, costs and timelines for the projects.  Interestingly, one way to judge a bid is its level of detail — the more detail, the better.  Without a doubt, you must ensure that all the GC candidates bid on the same set of requirements.  You’ll do this so that you can properly compare apples to apples.   Moreover, take notice of any work the GC excludes from the project.

Licensing

You must ensure that your GC is a fully licensed commercial contractor.  Usually, this is a state and/or local requirement.  Without fail, the GC should carry a significant amount of insurance.  Therefore, you should verify the insurance policies that the GC owns, directly with the insurance company.  Doubtlessly, the amount of coverage can greatly vary among contractors, so make sure the candidate has sufficient coverage. 

Communication

It’s a clever idea to hire a commercial renovation contractor that you trust.  Importantly, one key factor is assessing the contractor’s communication style to see if it meshes with yours.  Usually, this includes frequency and type of communication as well.  For example, you might prefer daily oral updates or weekly written ones.  Truthfully, if the contractor has trouble agreeing to your communication needs, you might want to keep looking.

Experience

Does your project include highly specialized or unusual features?  For sure, a commercial renovation contractor with applicable experience is a valuable asset and worth paying a premium.  Therefore, you should verify a GC’s experience by following up with some of the principals on previous deals.  If possible, personally inspect the GC’s work and speak with the current property owner. 

Commercial Renovation Cost Per Square Foot

Your budget requirements often boil down to commercial renovation cost per square foot.  Unfortunately, costs can vary wildly depending on the project details.  Nonetheless, experience indicates certain average costs.  Generally, you should expect to pay $100 to $200 per square foot for new construction.  Furthermore, your cost for commercial remodeling will probably run about $50 to $150 per square foot.  In truth, these are, at best, ballpark figures that can differ greatly.  For example, the cost varies due to location, features, building use, building codes, historic district compliance.  Further variation factors include any special disciplines required, and other current market factors, including labor costs.  Without fail, don’t forget to include additional soft costs for project specialists, such as the architect, expediter and engineer.

Asset America® Offers Commercial Renovation Loans

When its time to secure your financing, you have a wide choice of lenders.  In fact, there are so many that it might confuse you.  To be sure, you might need financing for purchasing the property and more financing for renovating it.  Thankfully, whatever your funding needs for commercial construction and renovation, Assets America® most probably has the right product for you.  Alternatively, you might want an interest-only construction loan or an acquisition loan.  Or, you might find that a bridge loan or mezzanine financing is your best bet.  Sincerely, we will be happy to help you get the financing you need, quickly and professionally.  Contact us today to learn more at 206-622-3000!

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