The Impact Of Commercial Redevelopment On Local Communities
Reprinted from ThanMerrill.com
Commercial redevelopment has become synonymous with the most lucrative exit strategies known to investors. While their commitment is more than that of the average residential project, the returns can be much more impressive. It’s worth noting, however, that returns extend far beyond padding your bottom line. The right commercial redevelopment project can revitalize an entire community in more ways than you may know. The next time you decide to take on a commercial project, make sure you understand just how much your impact may be felt.
COMMERCIAL REDEVELOPMENT & THE LOCAL COMMUNITY
A commercial redeveloper, not unlike their residential counterpart, has a much greater impact on the local community than many can even begin to fathom. Outside of the obvious appreciation redevelopment provides for a subject property, communal benefits extend far beyond the building in question. In fact, you could argue that commercial redevelopment is a viable catalyst to stimulate economic growth in everything from small businesses to individual homeowners. The ripple effect resulting from a proper commercial redevelopment project can have a resounding impact on a community for years — if not decades.
Done properly, commercial redevelopment can improve a local community in more ways than one, and there is no reason your next project can’t be the one to do so.
First and foremost, commercial redevelopment is entirely capable of resulting in a higher price point. Not surprisingly, remodeling a commercial building will increase its value and result in more demand — the two things that make this exit strategy attractive to investors in the first place. With that in mind, residential redevelopers aren’t the only ones that benefit from their efforts to improve land. It’s worth noting that the subject property in question isn’t the only one to benefit from an increase in value. If for nothing else, commercial redevelopment has become synonymous with a domino effect of sorts; it’s not uncommon for the prices of nearby properties to be buttressed by the increase of the building being remodeled.
Redeveloping a building can improve its own value, which begs the question: how does the improvement of one property inherently impact those around it? The answer is simple, and perhaps even something most real estate investors — commercial or residential — are already familiar with: comparables. In their simplest form, comparables (or comps) are a real estate appraisal concept used to identify properties with characteristics that are similar to a subject property whose value is being sought. They are, more or less, one of the most accurate strategies used to determine the value of a similar property within close proximity. In short, if the property you are using as a comp has appraised at a higher value, the subject property will benefit.
Even more so than residential projects, commercial redevelopment is responsible for stimulating the economy. The larger and more complex nature of a commercial property deal will require more boots on the ground. It shouldn’t surprise anyone to hear that more people will be involved in a commercial project than a single-family home. That means more contractors to remodel the interior, more painters, and perhaps even more litigation. For better or for worse, a commercial redevelopment project will require a lot more work, and a lot more people.
Every dollar spent on commercial redevelopment — in one way or another — is put back into the community. The next time you buy nails form the local hardware store you are stimulating business on a level that is magnified exponentially, at least when you consider how many people have the same idea. The plumber you need to be sure everything is in working order will need to come from somewhere. When it comes down to it, the needs of a commercial redeveloper create a demand for local business, and that demand translates into jobs.
Just off the top of my head, I can expect a commercial redevelopment project to enlist the following services:
- Mortgage broker
- Closing agent
- Title insurance agent
- Insurance agent
- County clerks
Remember, when you are redeveloping a commercial property, there is a good chance you are helping a lot more people than you may be aware of.
Free Up Available Money Supplies
Less pronounced than that of job creation, but nonetheless important, is the impact commercial redevelopers have on financial institutions. While it’s true you may enlist the services of a mortgage broker, your position in a community extend far beyond that of job creation. It’s entirely possible for commercial redevelopers to ease the burden of nonperforming loans on the books of financial institutions and improve available money supplies.
For what it’s worth, banks aren’t in the business of holding on to properties, especially those of the non-performing variety. When a property is foreclosed on and repossessed, it is a drain on the institution’s money supply. Acquiring non-performing loans provides banks with more work and no monetary gains. Therefore, those that continue to accumulate non-performing loans (foreclosures) are subjected to a significant financial burden.
Fortunately, the same properties placing a burden on banks have become a commodity for commercial redevelopers. Banks want to get rid of non-performing loans, and commercial redevelopers are more than happy to take them off their hands; it’s a win-win. Investors are given access to bargain prices and banks no longer have to maintain the properties draining their money supply. The excess capital banks hold on to can be expected to account for better loans at lower rates for local businesses.
Commercial redevelopment has a resounding impact on the local community, and the extent of the benefits are only limited by the building itself. The right project could very well buttress an entire community. It’s possible for a commercial real estate project to spearhead a massive job opportunity movement. At the very least, any business that buys the property will need employees to fill it. Those jobs infuse the local economy with capital; capital that can go a long way in revitalizing a neighborhood.
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