From Janky To Jewel: Turning A 20,000-Square-Foot Warehouse Into A High-Value Asset

Deals don’t fall apart because a building is old—they fall apart because nobody planned for what the building needs. We open the hood on a 20,000-square-foot warehouse we put under contract, walk through our due diligence in real time, and show how to turn a janky, hard-worked property into a leasing-ready, financeable asset that throws off long-term value.

We start with the spaces people actually feel: reception, restrooms, and the break room. Under grimy carpet we found real terrazzo—expensive to build today, perfect to polish and highlight. We keep the second floor lean until a tenant asks, preserving cash and flexibility. Outside, we attack first impressions and safety with a full softwash, strategic paint, robust LED site lighting on every elevation, and a $15,000 landscape cleanup across 2.3 acres. Two metal “sheds” with concrete and power get right-sized: one sold, one reskinned for useful storage or light process space. The result is a brighter, safer, simpler property that shows well and leases faster.

On the finance side, we break down how to structure the loan around an as-completed appraisal so equity is applied to total project cost, not just purchase price. We share the comp packet we hand to appraisers to speed turnaround, and how we navigated environmental curveballs: a flagged underground storage tank, encapsulated asbestos, an RSRA reading low risk, and a bank that still required a Phase I. Built-in buffers—time, cost, and patience—kept the deal moving. For leasing, we outline why we prefer an anchor user above 8,000 to 10,000 square feet before splitting the space, and why we underwrote on 15,500 usable square feet with a full year of vacancy to protect investors.

If you care about commercial real estate that actually cash flows—industrial leasing strategy, underwriting discipline, environmental risk management, and the practical upgrades tenants notice—this walkthrough is your playbook. Subscribe, share with a fellow investor, and leave a review to tell us the one upgrade you’d prioritize first.

Learn more about Blue Commercial Properties on our website.

Transcript

Setting The Mission Of Blue Dirt

Michael Carro 0:00

Welcome to Blue Dirt, the podcast that digs deep into the foundation of commercial real estate investing. Unlike most real estate shows that focus on deal making and market trends, Blue Dirt gets into the nuts and bolts of what truly builds long-term value, the building itself. We break down how to spot deferred maintenance before it costs you, why a solid preventative maintenance program is a game changer, and how triple net leases can maximize your investment returns. We'll also explore the importance of strong landlord-tenant relationships and how they drive stability and growth in your portfolio. Whether you're a seasoned investor or just getting started, Blue Dirt gives you the practical knowledge to make smarter, more profitable decisions in commercial real estate. It's time to get your hands dirty and build value from the ground up. Let's dig in. Welcome to Blue Dirt, where even idiots can make a killing commercial

Introducing The 20K SF Warehouse Deal

Michael Carro 0:56

real estate. I'm Michael Carrow with SVN Southend Commercial Real Estate, and I'm joined by Don Ruddhead with Blue Commercial Properties. Fantastic. Well, today we're, we we talked a couple weeks ago about one of our other projects that we just put under contract, and we wanted to give you an update on that. It's uh it's about a 20,000 square foot warehouse property. Um and so we're in the middle of due diligence, and due diligence is uh just probably a nice way to say that we are in our inspection period where you go through the process of inspecting the property. And so Don does a phenomenal job with the physical structure, and then I typically handle the other things such as lending, environmental survey, appraisals, things of that nature. And so we thought we'd talk a little bit about each of our roles within that uh process so you can at least understand where we're at. And then we're also gonna chat about some of the challenges that we've run into and how we plan to overcome them. So, Don, do you want to talk about the physical asset first to get us started?

Don Redhead 1:56

Yeah, that sounds great. Um obviously found this online. Um, this a little closer. Does that sound better? Oh my God, it's unbelievable. So

Defining Rentable Condition And Office Strategy

Don Redhead 2:06

much better. Uh obviously, you conduct kind of your initial site visit based on your experience is gonna is it's kind of gonna drive obviously your understanding of the asset. We even with a great understanding, because there's certain elements that I feel like as I keep doing it, I get a little bit smarter, right? But we still, I was talking to somebody this morning, even though I've identified issues or what I believe to be issues, I've brought people in that actually know. Right. Right, that that truly verify. So as you're walking through, we're looking for, you know, what are we gonna have to do to get this in rentable condition? Maybe it is already in rentable condition, but what is the budget that we need to put together to actually get this thing you know leased up? So uh we're looking at the roof, we're looking at the mechanical, we're looking at electrical, we're looking at plumbing, we're looking at the grounds, the structure.

Michael Carro 3:00

Um well let's slow it down for a second. So when we talk about rentable condition for us, this building is currently occupied by a tenant right now, uh by the owner who's selling and downsizing. So it's it's absolutely in rentable condition right now. But what we focus on is as investors, we don't know who the ultimate tenant is going to be. And what what we have learned is women, regardless of the asset class, drive a lot of the decision making, or at the very least, the veto vote. And so one of the things that we do, so this most buildings, and this is a warehouse, has an office component. So one of the things that we really like to focus on is when we walk people through, we want the office not to feel like a lot of construction or warehouse type offices are really geared for greasy hands and and and hardworking blue-collar guys that don't really care about the softness of a space. We have found that with the veto vote of women, if we can win them over, the guys don't care for the most part. And so we really want the office to be a wonderful, comfortable environment for especially our women. And so whether they're the owners or whether they're the office staff, it doesn't matter. If they feel good, everybody else would feel good. So uh so, Don, talk a little bit about what condition the office is in and where we want to take

Targeted Office Upgrades That Win Tenants

Michael Carro 4:36

it.

Don Redhead 4:36

Yeah, I mean, it it and based on your uh description, you can kind of draw some pretty good conclusions of what this office looks like, right? It's manufacturing, it's it's pretty greasy, it's pretty old, it's dated. Uh, it has some unique characteristics. It has a Tarazo floor that looks cool.

Michael Carro 4:54

Well, stop there. So the Tarazo floor, I think, is is something that's really, really interesting. They don't really do them anymore. They're super expensive if you were to do them today. And so in part of the areas, it has this terrazzo, and but most of it's covered with this old grimy carpet, which we plan on pulling up. Uh, and and the the uh the the glue, the adhesive, it's probably gonna be the biggest bearer. But then we'll go in and polish this uh tarrazzo, and it's gonna it's gonna look spectacular. It's gonna be a nice highlight in this very old dingy property. There's also a lot of uh ply, what's it called? Not plywood. Um it's almost like a siding that they use.

Don Redhead 5:37

Panel paneling, yeah.

Michael Carro 5:38

So dingy paneling, you know, it looks okay, but yeah, it it looks exactly how you would think, right?

Don Redhead 5:46

It's just dated, it's old, there's exposed electrical. It was what a growing business and in a light manufacturing type facility would do. Right. They the people there aren't picky, it's it's owner-occupied. You will get um when an when an owner-occupied building is is being lived in and worked in, there's a little bit more um latitude that they can get away with in terms of of discomfort for the the tenant, because it's them. They're you know, they're employees.

Michael Carro 6:18

And the professional term is the the property is a little janky, okay. Um, that's the professional commercial real estate term that that is applied to this property.

Don Redhead 6:27

Correct. Yes, yes, janky, janky for the word for the dead. That's right. But yeah, it's just dated, it's it's been worked hard. So now what we're gonna do is is go in, and you don't need to do a tremendous amount, but what you really need to do is spend the right dollars in the right locations, i.e. being uh the break room, the restrooms, and kind of the the reception area where that is gonna be the face of the business. If you're gonna spend any money, that's where you need to spend it because they may modify a lot of the layout for maybe the the real user that comes in and moves in. So you also don't want to spend too much money that could ultimately be ripped out. You know, if you actually make the break area nice, you make the restrooms nice, you make the reception nice, they may modify it a little bit, but if you go in and we just redo all the floor um throughout the whole building as an example, with a different floor, like an LVP or a hot tile or something like that. And they may come in and go, hey, we actually need walls here, here, and here. So now you're you're starting to have to rip out things that you have done. You may need to redo ceiling grids, you may need to redo lighting plans, um, fire suppression.

Michael Carro 7:37

But we've identified that the floor plan is fine the way it is. Yep, it's a two-story office portion of this warehouse. So we'll go in, we'll put our normal color scheme in. It's it'll be light, bright. Uh, the flooring is gonna be a highlight for us. We will love on the restrooms, we'll really spend more money in the break area, making sure that um it looks really good. It has

Site Cleanup, Sheds, And Landscaping Plan

Michael Carro 8:00

a cool table already. It has a cool table, and and we're gonna rehab that. Um and so we're just going to make sure that it's and and the second floor. They would decide we're not gonna do anything. We're gonna leave the paneling because listen, when you have the example of the first floor that already looks great, if they go upstairs and they're like, hey, listen, you know, uh, we want this, that hey, they know what the first floor looks like. We can say, no problem, we'll we'll redo the second floor the same that we did the first floor. So, so we already have that good example. They may go up, they may be the type of the size of company that won't even use the second floor office. So that's why we're not gonna invest any money. We'll clean it up, but we're not gonna, we're not even gonna do redo this old flooring in there because we may get a tenant that never goes up there. They may use it as storage as opposed to office space. There's no reason to waste them. Exactly. So that's that's that's kind of the office environment. And that's great for showings, right? Just like we don't do any residential, but as I imagine, residential is an emotion-based decision for many people. And so going into this office where they're gonna work, you know, spend more time in this office than they probably are gonna be at home. We want that to be a really inviting atmosphere. And if we can make that an inviting atmosphere for them, then the likelihood of them saying yes to the space goes up if the rest of the space works. So now that's the office. That's kind of our mindset and focus on on most of our properties. Now, Don, dive into the rest of the facility because there's other ugly parts of the building that, you know, we could talk about the lighting, uh, some of the metalwork that we want to do, uh, the roll-up door, things of that nature.

Don Redhead 9:42

Yeah, there's there's a the the benefit that at this property is it's not gonna take a lot. There's a few little areas that that just don't show very well that you know, we'll softwash the entire building, um, put fresh paint on it. The roof is new, so all the trim metal around it already looks good. The lighting in most of the warehouse is actually relatively new, so that looks fine. Uh inside, we may even actually softwash the inside of the brick because when they were doing some manufacturing, it's it's dirtied it up.

Michael Carro 10:14

Significant buildup of grime and junk and stuff like that.

Don Redhead 10:18

So the next thing that's actually rather significant at this one because of the size of the parcel is the landscaping. There's a lot of old trees, dead trees, just just brush kind of undergrowth. So we'll go through clean that up.

Michael Carro 10:34

Uh and the quote, and by the way, the quote

Budget Triage And Leasing Priorities

Michael Carro 10:36

for the landscaping cleanup was about 15 grand. About 15, yeah. So it wasn't a cheap, um, but it's also a very large property. It's 2.3 acres. And so, but it has it's janky all over, uh, not just on the inside of that office.

Don Redhead 10:52

Yeah, and then the rest of it, there's there's a couple metal buildings that are on there that you know, I think one we're gonna sell, right? It's more of a it's something modular that you'd buy and just set on a property. The other one that they use for powder coating will put a new roof on that. Um probably we probably will reskin that one as well.

Michael Carro 11:14

And it's not that expensive. I mean, if you're just gonna buy metal, replace metal, uh it's pretty simple stuff. These are almost like large sheds in this case. Um and so much so that these I'll use the term buildings weren't even in the the sales square footage. Now, the nice thing is that it does have concrete floor and it has electrical. So no plumbing, but it but so they're they're good quality shed structures that just need some love.

Don Redhead 11:46

Yeah, and the real thing is it's almost like the exercise you have to go through is almost create your wish list, your dream scenario. If you could get this place perfect, what would it look like? And then you really only have so much money to get the desired return. So then you need just to be go through each line item and be pretty methodical and say, hey, what is actually gonna help me get this property leased up faster? You you really need to keep some in reserves, right? If somebody shows up and says, Hey, I need this dividing wall, I need another roll-up door, I need this to get the deal done, you need to have that in reserves, but you also need to go through and say, I got $100,000, I have $200,000 worth of work here. How do I bifurcate out? What is ultimately gonna showcase this in the best possible light and get somebody in there to lease it up as fast as possible?

Michael Carro 12:41

Right. So that's a little bit about the building. Now, a couple of things he he didn't

Safety Lighting And Lender Requirements

Michael Carro 12:46

mention. Exterior lighting for us is really important, kind of goes back to that safety and security scenario. Uh, we are we are really big on ensuring that uh our our properties are well lit. And um, so on this particular building, we identified the south side needs three exterior lights. The uh west side of the building has one, we need to add two more. Um, the east side has none. We'll probably add two or three on that side. And then the front, we want this place to be illuminated really, really well. Um, and again, it goes back to the safety and security of an asset. Um, as far as the soft items, you know, environmental uh financing and things of that nature. So your lender has two primary requirements. Um, and and I'll add a third that has to be in there as well. So they're gonna they're gonna need and they will order the appraisal. They also in commercial properties want a an environmental report. And then, of course, you need a survey. The survey goes into a lot of different areas. So um, so the when we ordered the environmental work, there was a UST, an underground storage tank at one point in history. It may go back 50 years, but it's gonna show up on the report. The lender flagged this. We knew in advance, and this all property also has some asbestos that was also called out on a report, which was fine. We knew it was there, but but we're not gonna touch it. We're not gonna, as long as you don't disturb the asbestos, it's fine. It's encapsulated, you don't have to worry about it. But the moment you go and you you renovate that portion of a building and you disturb it, then you have to handle it properly. So, but in this case, the UST was called out, and the the lender's environmental review person said, No, I want something more. And they asked us to do, I had never heard of this. It was something like an RSRA, which we did. We paid uh $1,400 for that. And the findings came back low risk. And I guess the two findings are high risk or low risk. So fantastic, submitted that to the bank. Then the bank's environmental guy said, you know what, I'm still not happy,

Environmental Hurdles: UST, Asbestos, Phase I

Michael Carro 15:06

I don't believe that, which I've never seen before. We want a phase one. So we called the environmental company back. They're like, we don't understand why it's really gonna be the same result. However, you know, it it is a more invasive process in that they're gonna go to the property, they're gonna inspect the property, they're going to pull additional reports. So they went and did all that. We expect the phase one back. I expected it back yesterday, um, but um, maybe it'll come in today. Um, and again, we fully expect it to come back with no further assessment. Uh, I call it no further action, but no further assessment is what they said. Uh we'll likely come back. We'll give that to the to the lender, and then hopefully we'll be fine. That was another $1,200 because we got some credit for getting the RSRA. Uh, I don't even know what the acronym is. So um hopefully we'll be good there. But it was an extra step, an extra uh $1,200 and so on and so forth. So um the appraisal. This is a bit faster of a contract than we normally have. That's what the seller negotiated. We feel like we got a good rate in exchange. They wanted speed, so we're jumping through hoops faster than we normally would. And so that's why we're having to just order everything and just go full blitzkrieg on this thing. So with that, um, we've got the survey, already got that back and the appraisal. So, what I'd like to do with my appraisals is I will I, in this case, because I need the speed, I put together as many comps uh that I could find for this asset class. Because I'm in commercial real estate myself, I have access to all the same uh properties that the appraiser has. So, in an effort to help them, I just give them a whole bunch of appraisals, or not appraisals, but uh uh comps. And they can choose to use them or choose not to use them. It it doesn't, I'm just trying to make their job easier. Selfishly, if I can make their job easier, then I might be able to get my uh appraisal back faster. In this case, I needed it quicker. It was actually due today, and they were able to get it to us two days ago. So they they never do it early, but they were able to get it to us on Tuesday. When I say to us, to the bank, I have no idea what the appraisal says, and the bank won't tell us until it goes through their review process, which takes a few days because our due diligence expires in six days on the 18th. And so uh we are just you know going full tilt forward to make this thing happen.

Don Redhead 17:36

So the appraisal says exactly what you're asking for.

Michael Carro 17:40

We always hope it does. So um, but the way we structure a deal financially is if we buy it for one price and we have a renovation budget in there, and so I'm gonna use easy numbers. Let's say we buy something for a million dollars and we need to put 20% down. Well, I don't want to put 20% of a million dollars down. Let's say we need $200,000 in renovation. I want the $1 million plus the $200,000 equals

Appraisal Tactics And Renovation Financing

Michael Carro 18:08

1.2 times 20% is $240,000, as opposed to putting 20% down on the million, which is $200,000 plus the renovation all out of pocket. Well, that's $400,000, $200,000 plus $200 equals $400,000. So we would rather pay $240 than $400 and then finance the rest. And so that's what we do on all of our deals. But the appraisal has to reflect that. And so they're going to do an as is re appraisal and as as completed appraisal, meaning as completed after we do the renovation. So provided that that appraisal comes back as completed of $1.2 million or greater, then we will get all that money from the bank as part of our loan package. So it makes it a lot easier and then requires less money out of pocket for us. So that's kind of the where we are in the process. Um, you know, we have uh I've showed the property to a prospective tenant. They're not, they're too small. We run this risk, right? Because it's this 20,000 square foot building. I'm willing to split up the building, but I've got to get something, somebody that's a little bit larger to start us out versus smaller. Because if we find a tenant for the entire 20,000 square feet, but yet we leased out 4,000, we've just kind of hurt ourselves. So if I get somebody for 10,000 square feet or more, I'll do the deal automatically. If it's less than that, I guess we have to really take a pause and make sure that we're making the right decision. Maybe not 10,000, but I think if I found somebody for at least eight, uh, I probably would do that deal. So um, that's a little bit about this active deal in process. We are pretty excited about this. Uh, it's been on the market for a while. Um, the asking price uh was higher. They reduced it to 1.2 million, had good offers, but the key on this one is that we knew that the tenant, not I say tenant, we knew that the the owner, who is also the tenant, has already identified a new place and they're moving in March 1st. Well, this is February 12th. We got under contract about 20 days ago, and um uh we are so we lobbed in an offer and we got under contract at $935,000. Pretty happy about that. On a price per square foot basis, it's pretty low. It's a little bit um off on on the numbers because we are not using the full square footage. We lopped off a big section of the second floor that's in the warehouse, not the office, but the second floor that's in the warehouse that we don't see a lot of value in. And most of the top clients that we work with won't see value in that either. So we are we underwrite underwrote this deal closer to 15,500 square feet versus 20,000 square feet. And the numbers work.

Leasing Strategy And Splitting Space

Michael Carro 21:04

And so if the numbers work at the low square footage and we happen to lease up the entire square footage, then it's also a win. This also didn't include a 1,200 square foot warehouse uh that's out in the yard, as well as 300 linear feet of additional covered storage space with concrete flooring. So we think that there's significant upside on this asset, and we're gonna keep you posted uh in the future as to how this asset goes. We did underwrite it with one year of vacancy. Typically, we don't do that much, but the industrial market seems to have softened in our area. Um, I think it's temporary, but I didn't want to uh underwrite it with a quicker um lease up because I wasn't sure. I'd rather be ultra conservative, especially when I bring on investors. You know, in this case, we brought on a lot of the our team members in our office, and um There's nothing worse than to go back to them later and with a capital call, which nobody wants. At least they know that the money up front is likely all the money they're going to have or have to put in. And so the way we structure those loans is I put the loan in my name and and uh and then they just can put in what they want and not be on the hook for the um for the loan. So makes it a little bit easier, but it also motivates them to invest. Our goal is to make sure that everybody invests into commercial real estate. And so when we do this deal, especially in our in-house deals, we want everybody to have a seat at the table. So what am I missing, Don?

Don Redhead 22:38

So you said industrial is like, are you seeing any demand? Is it pretty consistent demand across all sizes? Are you seeing large square footage more demand?

Michael Carro 22:50

Are you seeing what are you seeing out there as far as so the last three or four months um a lot of my benchmark properties uh have not been getting any calls? I've got this one property that I've had over 10 years that I always consider it my benchmark property because even when it's 100% full, I get a lot of calls. And so it's been kind of a ghost town for the last three or four months. However, oddly enough, in the past week, and and that's kind of how our business works. I mean, one week, I mean, it can go

Pricing Win And Underwriting Assumptions

Michael Carro 23:24

from quiet to five offers on the same property that's been vacant for two years. It's really interesting how it works. But um, but it really was across all sizes. I mean, I have a 3,000 square foot warehouse that usually would lease up in weeks. It's been on the market for eight, nine months. I should say eight months. Right. And so that's completely rare. Um, I've got uh some so it's all sizes, 7,500 square feet. I've got 54,000 square feet, I've got 20,000 square feet. I mean, I've got all different sizes um that have had almost no calls. However, in the past week, I've gotten calls on almost all these. Oh, really? Yeah. So, you know, we'll see.

Don Redhead 24:05

We'll see.

Michael Carro 24:06

Yeah.

Don Redhead 24:07

What about your your footprint kind of goes out a little bit farther? What about regionally as you go a little further west or east?

Michael Carro 24:14

Well, it's funny that you mentioned that. So I have a warehouse, two warehouses in one in Gulfport, Mississippi, one in Moss Point, Mississippi, which is outside of Biloxi. Again, very quiet, but now I've got two players looking at the 60,000 square foot place in Gulfport. And then I've got a 7,200 square foot uh industrial in uh Moss Point that I've also gotten some calls. Now, again, before I can do a deal, you got to get a call. So I'm I'm excited just to get calls. It tells me there's people looking in the market. So that's the kind of the key. Um, I've got something up outside of uh between Montgomery and Birmingham, crickets. It's a small town called Clanton. Uh great town, but but just nothing going on up there from a call volume standpoint for that asset.

Don Redhead 25:01

And what kind of users is it? Anything specific?

Michael Carro 25:04

No, it's across the board. Um, one group is a file storage group. They're they're bidding on a government contract. Um, another group for the 60,000 square feet in in Gulfport was for a a uh hydration dry powder manufacturing, light manufacturing. Uh so more of like a lab type feel. Um and so, you know, just all over the board. Interesting.

Don Redhead 25:30

Yeah, I wasn't sure if there was some some trend or or you know, something that was correlating each of these types of things.

Michael Carro 25:35

Yeah. Well, you know, the 54,000 square foot this week. I mean conversations with a group that uh I'm gonna says say repairs large engines for like wind turbines and turbines and things like that. So they need a these are pretty massive uh players, and um, so they need a uh 50,000 square foot facility. So I'm

Market Pulse Across Regions And Sizes

Michael Carro 26:00

in conversation with them right now. So we'll see. I mean, it's it's just it's all over the board. And you know, we live in a nice aerospace corridor, and we have a lot of Department of Defense manufacturing that's about to start in our area. So we're gonna see all the ancillary uh manufacturing for those facilities. Um, but we do a lot of aerospace tech, and now we're gonna be entering into some DOD, uh, Department of Defense uh manufacturing here in Pensacola as well.

Don Redhead 26:27

That's exciting. Well, over there any of this building.

Michael Carro 26:30

That would be great. Well, that wraps up another uh episode of the Blue Dirt Podcast, where even idiots can make a killing in commercial real estate. That's a wrap for this episode of Blue Dirt. We're here to help you build smarter, invest wiser, and create long-term value in commercial real estate. One solid foundation at a time. If you found today's insights useful, be sure to subscribe so you never miss an episode. And if you know somebody who could benefit from these discussions, share Blue Dirt with them. Got questions

Correction: Ensure All Chapters Within Duration

Michael Carro 27:00

or topics you'd like us to cover? Reach out. We'd love to hear from you. Until next time, keep digging deep. Stay sharp, and remember real value is built from the ground up. See you on the next episode.