Ok, so i was contacted by a local bank here in KC. The bank employee was so excited to get a hold of me, because he had heard that I do apartment conversions. He has this building, it's just under 6K square feet and would make an excellent choice for apartments. So I ask him the usual pre-screen questions, current zoning, location to major streets, parking available…etc. He tells me and I quote " The investor they foreclosed on had already begun the zoning change with the city, and that to my knowledge, it has been rezoned for residential".
So I agree to meet him and look at this building. It's in a great location, right on a very very busy street, with off street parking. There was not enough off street parking, but there was a vacant parcel, right next door that was owned by the city, and more than likely I could of bought for under 1K! Here is where the problems begin.
When I pulled up, I thought the building was a little strange in shape, and for the next hour or so, looking over the builiding, I couldnt put my finger on it. The whole time I was walking this building and picturing the number of units I could get in here, this banker is just gloating over how good of a deal this is. They only wanted $40K for this building, so it was a great deal. I asked him at least 3x, if in fact the zoning had been started or, in fact been completed to a residential building. He assured me, that at the very least the zoning application had been filed, but was not sure of it's status. This was fine with me, as getting a building rezoned is not that hard, its just very time consuming. After I get done with my walk thru, I am standing out in the parking lot, and I keep looking at this building, and the banker asks me if there was a problem. I ask him directly, what was this building's history? He told me, that it was "always" used as a either a warehouse or car repair center, as there was a large overhead door on one side. This immediately set the light bulb off, this was not only a car repair shop, but I'm willing to bet a gas station at one time. The obvious issue here, is ground contamination. I asked this banker again, the zoning as at the very least been applied for, he assured me it was. Here is the problem with this banker.
From my experience in dealing with the city on re-zoning, I know that getting re-zoning on a gas station to residential, is not impossible, but it is highly unlikely. Even if you agreed to pay for the EPA field test at a cost of probably 100K or more, it's no assurance they will approve the application. So I called my contact in city planning and asked her, was there such an application applied for at anytime for re-zoning. Her answer was a shocking "yes", 2 years ago! And as I suspected, she basically told me that there was less than 1% chance of being approved. This is why the investor lost this property, he bought it, couldn't do anything with it.
Here is the problem, he contacted me because he knew I bought vacant buildings and transformed them into apartments. He assured me that either the zoning application had been at least filed, if in fact it hadn't already been rezoned. After further investigation, I actually found out thru research, that this was in fact the same bank that made the original loan of 250K, for purchase and renovation to apartments. I look at it, that he was intentionally trying to deceive me into this purchase, as he knew they were stuck with this building forever. I can see one side, where he didn't come directly out and say, "it has been re-zoned to residential", but he knew without question, that the city would of never had approved the re-zoning.
What do you think?
John
I think you are thinking too much with a linear perspective rather than thinking outside the box.
You've got a property with previous connections to being a gas station. THAT is a problem. Without knowing precisely the US laws on the situation .. i'm pretty sure they come to similar to ours in Australia .. that you clean up the site and all ground contamination.
So .. for him .. and currently for you .. its a dud. But why not think what it CAN be? So you cant be doing residential at 100% and thats understandable. But why not mixed-use? A shop down the bottom and maybe a couple of offices up the top? You've stated a couple of times in the article that its a great position. So why not spruce it up to what it CAN be instead of crying about what it can't be?
From my perspective you've got a gold mine and you dont even know it. You are buying a property at a reduced level because you have to deal with ground contamination .. but you are getting a great site ! So start thinking about what you can be doing with it.
My last petrol station site is now used as a multi-level storage site. Its a rental place for people who have stuff they'd prefer not to keep in garages and still need that kind of space. Its a different use but its highly profitable and its well used again .. BECAUSE it was a petrol station in a good position.
Its what you can do with it .. and you need to stop looking at what really is a singular negative .. and explore the real options you can do with this site. I doubt with residential restrictions you'd get mixed use (residential and commercial) granted .. but who knows? unless you try to dream the project KNOWING the current objections .. you may be missing out on your moment.
Find out whats needed in the area as far as requirements go .. commit to your area research. At 40k my perspective is you could even hold it for a couple of years paying taxes on it (i know it smells loss making) and wait for a developer with big pockets to come through. There is a time and a price at which everything is worthwhile. The question for you is how much extra time .. money and marketing are you prepared to spend to achieve a satisfactory result for your back pocket.
Xdrew,
I appreciate your comments, though would disagree with the fact that I was crying. I walk away from far more deals than I ever proceed with, because I won't enter into a deal where the federal government (EPA), will get involved. Dealing with city government is sometimes enough to drive the normal person crazy, it's a whole new level of frustrations with the feds, as they will bog that project down with so much red tape, it wouldn't be worth the land it was on.The costs associated with a contamination cleanup, will easily reach into the 6 figures, making this deal very suspect.
The reason I would never pursue this deal, even at the 40K price tag, is very simply there are no assurances, the sight could be cleaned up. There is no way to get the EPA to come out and give you their "opinion", prior to closing. They could very easily determine the sight is beyond cleanup, and require the building be tore down, so they can do an entire lot cleanup, thus seeing your 40K vanish.
To even request a zoning change to mixed use commercial would still be a long shot, as the cleanup would be mandatory. This area lends itself very nicely for residential units, as it is surrounded with like properties, would not make alot of sense as office space/gas station. And given the fact, the location already failed as a service station, doesn't offer much confidence in it's ability to become profitable as a gas station. The other issue with gas stations in KC. If you are not backed by some seriously deep pockets, you will be taking on some of the nations largest corporations on retail fuel stations, backed by oil companies. The retail gas business in US, is very very competitive, and cut throat. There are stories of gas stations selling gas at a penny above cost (it's illegal in the US to sell gas at cost or below) to drive smaller stations out of business, just so they can dominate that corner.
I think the point I was going towards was the lengths some of these banks are trying to pursue to get rid of these bad notes.
John
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