In the spirit of contributing to my favorite interwebs forum, I wanted to share the outcome of a property I sold recently that was successful - mostly due to the diligence and the Environmental Assessments (ESA’s) performed. While not an MHP, there is relevance to discuss at the end of the thread.
I purchased a < 1 acre parcel of vacant commercial land for a price under 100K, well below market value. It was at the hard corner of a major thoroughfare and an Interstate Highway inside city limits. The catch? It was a gas station for 30 years and had been decommissioned 15 years earlier, and had sat vacant thereafter (e.g. raw land no improvements). It also had other challenges such as floodway, 100, and 500 year zones across 70% of the property, as well as a prescriptive easement from the lovely city - who would not issue any permits for construction until an agreement was established. In summary, this property is very easy to dismiss and move on.
Before even putting this property under contract I had already become aware that it had underground storage tanks (USTs), which had leaked upon their removal from the ground. I requested the property’s records on file from the TCEQ - in microfiche format - from Austin and then find one of the two readers left in existence connected to a printer to get a full grasp of the details of what had happened. Even then I had been told by several people, “Yea, the TCEQ had a lot less rigor in their application of their rules back then”.
After contracting the property had 4 months feasibility, the Phase 1 ESA came back with lots of issues. Phase 2 ESA was priced at 12K to perform 8 test holes down to the water table and to confirm the extent of contamination of the soil and water. This could also be used to price the cost and extent of remediation and monitoring if needed. Combined with the Phase 1 and real estate attorneys who specialized in this sort of thing means I would be all in for about 15K on feasibility - and might have to walk away. I had to sit on that proposal for about a week and also explain to my wife why I wanted to piss 15K down the drain. We considered the facts on hand, the upside, and our financials to see if this was an education we could afford, and decided to proceed. The Phase 2 confirmed contamination from the tank removal, but was well below the state thresholds for action / remediation.
Okay great, I got the property for a decent price, but it’s still got all of these other issues right? I did a lot of work with architects, hydraulic engineers, structural / civil engineers to understand the development potential for the property which would allow us to demonstrate to Buyers its potential. And then I sat on it. For 5 years. And in that time the County decided that the property taxes for it should increase 1000%. I hired a company to fight this yearly - and also successfully litigated once through arbitration. This only prevented the taxes from going up 1500% but I consider a win.
Now was a good time to cash out, and have a great commercial real estate agent. It was only on the market for about 9 months. He direct mailed all commercial businesses within 1/2 mile of the property to let them know it was for sale. One of those recipients had a friend who owns boutique hotels and purchased the property. Diligence was simple because of the homework and development potential documentation I had on hand. Sold for 500K.
Let’s bring it home to some relevance for this group - Lessons Learned:
A standard rule to walk away from a deal if the Phase 1 is dirty - this is usually the right decision, but there can be enough upside to take the risk proceeding further, especially if the Seller will cover the cost or give a major price reduction; and
Don’t underestimate the power of direct mail to SELL a property. We needed a very specific buyer to purchase, and it came from an unlikely source related to the mailout.
Hope this is useful for someone in the future.