Southern California is a high-demand market for industrial properties, but the steep rise in the cost of industrial real estate has made it more difficult for buyers to enter this market. The situation is further exacerbated by a lack of available land for new construction. This has led many businesses to seek alternatives, such as functionally obsolete industrial buildings, which can be much cheaper but require a significant investment in redevelopment. This blog post aims to explore the option of buying a small, functionally obsolete industrial building in Southern California and performing a ‘property makeover’.

Benefits of Rehabbing: Functionally obsolete industrial buildings can be a gold mine for investors willing to put in the work required to rehab them. These buildings are often located in prime locations, such as near major transportation hubs, that would be difficult or impossible to replicate with new construction. These properties are also steeped in history, providing a unique selling point when looking to rent or sell the building. Additionally, rehabbing these properties is environmentally responsible and can lead to significant energy savings and reduced carbon footprints. In Southern California, these environmental gains can be key to gaining a competitive edge in the market.

Major Challenges of Rehabbing: While purchasing and rehabbing functionally obsolete industrial buildings can be an attractive option, it is not without challenges. The biggest hurdle is often obtaining financing. Due to the building’s functional obsolescence, lenders can be hesitant to provide traditional financing that would require a significant down payment. In addition, rehabbing on an industrial site can be legally complex, with many permitting and zoning requirements. This can add time and cost to redevelopment efforts. Lastly, safety is a major concern when rehabbing older buildings, as they may have been built before modern building codes were established.

Tips for Successful Rehabbing: There are a few critical considerations to keep in mind before embarking on a rehab project. First and foremost, it’s essential to thoroughly inspect the building before purchase to ensure that the structure’s integrity is still intact. This includes evaluating the property’s foundation, electrical, and plumbing systems. Second, due diligence on zoning and permitting requirements for the location is necessary to avoid any potential legal barriers in the redevelopment of the property. Third, obtaining financing can be greatly improved by leveraging historical tax credits, which are often available for the restoration of historic buildings. Finally, engaging the services of an experienced industrial real estate broker, an attorney, and a contractor specializing in rehabbing can help mitigate risks throughout the rehab process, making it easier to achieve a successful outcome.

Functionally obsolete industrial buildings might seem like more of a challenge than a solution, but for investors who are willing to put in the work and bring a little creativity to industrial real estate development, these buildings offer a unique opportunity to not only make a profit but to breathe new life into Southern California’s industrial scene. By understanding the challenges and benefits of rehabbing these properties, as well as adopting a conservative outlook on any project, investors can stand to capture value in the changing Industrial market. A successful rehab project might take patience and ingenuity, but it offers an opportunity to own a piece of history and create a new and vibrant future use for an industrial property.

Give us a call @ (562) 424-7974 or email jc@ccrasocal.com should you have any industrial real estate requirements!

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