I teach a class in developing and building commercial real estate. It is neither a fast nor an easy process, but in certain cases, it makes a lot of sense to build versus buy.
Many retail chains can’t retrofit an existing building. They want their building to be consistent, whether it’s in Kansas City or San Diego. They have all designed their “state of the art” building, and that standard building becomes part of their brand. Many times they want a certain location so badly that they tear down an existing building to build their prototype. Medical users also have a difficult time fitting into an existing non-medical building. The amount of sinks, exam rooms, and (in some cases) surgery rooms that need to be added make building a new building more attractive.
Office users have an easier time buying an existing building. Many times you can tear out the interior and start over with what works best for your business. Many buildings built in the late 80’s and early 90’s have lower ceilings than we would prefer and many more private offices than we typically build today. Sometimes the parking isn’t sufficient for handling an open concept office, which might prompt building a new building. Many times, industrial users can buy an existing building that fits their needs. However, the design of industrial buildings has changed over the last 30 years. They now include taller ceilings, more docks, and bigger buildings, all which could prompt constructing a new building versus buying existing.
A big factor that might prompt building is tax incentives. Tax abatements might be available for new construction. Tax Increment Financing (TIF) might also help someone in the process of building versus buying existing.
At the end of the day, the most important factors in building are the location and the availability of existing properties. If you do decide to build, you need a great team around you. It takes a minimum of 18 months to get a new building designed, built, and occupied. The benefits are that you get exactly what you want, where you want. It also gives you a good opportunity to see our government at work, because you will deal with a city’s staff and the city planning commission. It also helps you cultivate a few more gray hairs, because the process will surely deliver them to you!