“Smack” that was the sound of me hitting the broken asphalt.
“Wrgghhhhh, whhroof, woof” that’s the sound coming out of the dog chasing me.
“Splosh” that’s my hand finding a puddle of an an unidentified liquid as I try to push myself up.
It’s 5 something AM on a Sunday morning. Pitch black and I am walking and then running from one end of an old plywood factory to the other. As I fend off the live-in security guard’s canine companions I reach the roller doors to the main street entrance and meet my development manager accomplice. Today we are going to turn this temporarily surplus asset into cash flow. At $10 a head we are taking on the car fair and swap meet market…this asset, a future development site, is going to be sweated.
Four hours later, after not exactly replicating the numbers that attend the historic car parade preceding Daytona 500 we shut the roller door and go home.
Part One: Temporarily Surplus Asset Utilisation
To a developer anything with land under it is a potentially under utilised asset. If you own it, you are paying for it, and usually you are paying a lot. It is rare where a developer purchases an asset with an intention to develop that makes a return that covers all holding costs. Turning that asset into a development project, with construction underway as quickly as possible, is a developers business as usual.
In the interim period between site purchase and construction the asset is temporarily surplus and the developer may look to opportunities to realise cash flow. ‘Interim’ for a large project or when markets tank or where planning consents drag on, can be a long time. If the asset was purchased with long term leases in place then the likelihood is most tenants will want to move on upon expiry given the uncertainty over development. Similarly a developer does not want to be tied into long term leases as their primary motivation is to get the development underway without fixed leases delaying commencement.
Temporarily surplus asset utilisation opportunities include:
– Subletting space on a month to month or short-term demo clause basis to be used in line with previous business activities on site (an option that deteriorates over time as you spend less money maintaining the property and keeping tenants happy in anticipation of development)
– Short term lease of space for all types of storage (security becomes paramount)
– Erect temporary structures to create leaseable space – including inflatable structures
– Pop up retail and restaurants
– Low rent creative premises and ‘incubators’
– Car parking, public pay as you use
– Car parking, short term lease to others
– Temporary housing and accommodation (outside of disaster relief there are lots of expensive complications like the need to provide infrastructure and services but in some circumstances…)
– Car fairs and swap meets
– Film and television sets or staging areas
– Event space
– Art galleries and sculpture parks
– Farmers markets, arts and crafts, food trucks, coffee carts
– Entertainment (carnival type attractions, roller coasters)
– Agriculture (yes I have seen land rezoned from residential back into agriculture)
– Urban farms, urban orchards and community gardens
– Trailer park
– All types of signage and billboards for advertising ( this includes parking a truck trailer covered in company logos on site and advertising on fence wraps)
– Demonstration and exhibition space
– Relocatable house showroom
– Car, boat or heavy machinery sales yards and popup showrooms
– Concerts & festivals
– Sports training and temporary event facilities
– Photography studio (one example was a development project site in waiting where they had a ‘drive in’ photography studio for car magazines)
– Trash recycling collection point (actually this is what is going to happen whether you like it or not on most unsecured sites!)
– Vending machines (assuming you have passing foot traffic)
– Urban parks
– Tree farms (when development has stalled for a very long time!)
– Educational and work training premises
– Construction product or system testing
– Bomb squad dog explosives detection training (yep, been there)
– Volunteer or community organisation meeting and information place
– Theatres
– Ice rinks
– Urban beaches
– Playgrounds, obstacle courses, skate parks, outdoor basketball courts, bmx track
An interesting comment from opengreenspace.com is how people can perceive temporary uses that when done well appear to be a permanent fixture. This is especially pertinent where a use has been temporarily brought into the public domain and then removed once the temporary use is no longer required.
“Temporary uses should, however, be approached with caution as there may be a risk that, over time, local communities and stakeholders will associate a permanence and potentially ecological value with a particular space, making future changes difficult to promote without attracting opposition. In considering such opportunities therefore, it is advisable to identify an exit strategy and to ensure that there is ongoing clarity about the temporary nature of a site.”
To actually succeed at extracting cash flow to help fund site holding costs temporary uses have to generate more cash flow than the investment required to commence and operate them. When the duration is uncertain developers are heavily constrained as quite often you don’t have (or know you have) a long enough period to generate sufficient cash to pay back any temporary investment. This of course assumes there is market or public entity demand willing to pay a high enough rate for temporary space/use in the first place.
Vacant land is generally more difficult than existing buildings to generate a temporary return. Even land used for a car park can require significant investment to comply with council/city regulations as well as being able to collect the income. Often it is simply not worth it except in Central Business District type locations where parking enjoys a high price premium. Zoning and other code regulations can permit only limited activities on a site further restricting any temporary use.
However, it may be best to find an alternative temporary use than to do nothing with an asset in transit. There may be council/city requirements to offset stalled development site blight or ‘Empty Lot Syndrome‘. You also want to prevent unsolicited trash dumping and homeless invasions and other issues that end up costing money and potentially cause a public relations nightmare. Donating the site, temporarily, to enable a community endeavor may even help placate potential opposition in upcoming zoning and planning hearings.
I had the inconvenience of dealing with a relentless homeless invasion. We had an old house that we used as an office on a development site. When we had completed the show home at an alternative location we moved out of the old house. The intention was to keep the property until construction was approved and then demolish as part of the overall contract – essentially let’s not spend any money until we need to. We looked at offering the building for temporary lease but the lease market was flat and we didn’t want to spend any money on the property to get it up to a leaseable condition. Plus we only anticipated a vacant period of 3 to 6 months.
It started with a few break ins that set off the alarm. Police were called and a homeless man was moved on. Next week, rinse and repeat with an increased number of occupants. Each subsequent time a little more copper wire had been removed and a little more neighborhood trash collected. Then one very ambitious individual cut the main electrical line from the power pole to the building (I have no idea how) – disarming the alarm in a very dangerous manner.
So we got a battery powered alarm system, that survived a week or two and you guessed it, they stole the alarm! Nothing would stop these guys, they didn’t mind that it was 115 degrees nor that the water was turned off (but kept using the bathroom!). So I let them have it and we decided to demolish the building early.
These poor homeless guys were persistent to the extent they would lie there quite happy to let you yell at them to get out and then still not move. After signing the demolition contract I asked the burly demolition contractor what his procedure would be to remove my favorite residents prior to the bulldozer going in. I was thinking he is going to have to call back the police or worse take the physical moving of them into his own hands.
“No problem, this is par for the course on our demos – no one stays in there once they hear me start the engine”
Part Two in an upcoming post will address extracting maximum value from real property assets surplus to what is required to run normal business operations. We will look at strategies how you identify and prioritise surplus real estate as well as evaluate disposal and redevelopment options in light of risk and opportunity.