2023 has been the year to improve this mixed use investment property.
Commercial Units
We have an ongoing issue that we need to make our investors aware of. While they are still paying rent, we have been sued by Dorians Greek Taverna. The issues revolve around them refusing to accept the lease as written, making demands for space they are not entitled to and objecting to paying CAM costs which are supported by actual invoices. We consider the suit completely without merit. We have counter-sued for damages and to remove them from the building. We are confident that we have no legal liability exposure and that we will prevail, but these kinds of issues take time to resolve.
Also unfortunately commercial tenant Local Losers failed in April 2023, but we are pursuing compensation for the balance of the lease. By time the new tenant is operating and paying rent we will have lost about a year’s rent on the 3222 space.
We can however now happily announce that Go Grill will open at the Colton-Fox Building, target April 2024. This franchised fast casual restaurant offers healthy, quick and very tasty meals. Guests select their vegetables and proteins from a self serve bar, the food is weighed and then grilled in front of the guest with the addition a favorite sauce.
While the temporary reduction in commercial revenue is not great, the new lease has built in escalation which was not present in the previous leases. In the long run this will result in a higher valuation for the building.
The other commercial tenants are operating well.
Residential Units
In the early part of the year we improved the residential hallway and stairway with new paint, new brighter energy efficient lighting, unit numbers and peepholes, and classed it up with the addition of some modern art.
Turnover gave the opportunity to renovate and refresh studio Suite 3 in April 2023 with a whole new kitchen, new appliances plus dishwasher and over the range microwave for the first time, carpet, curtains, paint, LED lights and other enhancements. Strong demand for rentals in Vernon and the renovation allowed us to moved that unit from $710.50 a month to $1200 a month.
In September we were finally able to get Suite 5 vacant and start renovating. Suite 5 is the largest apartment in the building at 739 sq ft. but had the lowest rent at $615, with landlord paying the utilities. It also needed the most renovation due to a disintegrating bathroom floor, extensive cigarette smoke damage and other tenant caused damage.
Suite 5 has been converted from a 1 bedroom with a storage closet into a still generously sized 1 bedroom + large den each with new proper 4 ft closets, making the unit much more valuable. We created a built in desk, plus added storage over the closets and desk, using the 10 ft ceilings to our advantage.
The unit received new paint after repair of all the drywall damage and skim coated all the walls to solve the tar problems. The enhanced kitchen includes a new peninsula (using recycled cabinets from Suite 3) with live edge eating bar. It now has a dishwasher and microwave range for the first time. The harvest gold stove and old white fridge were replaced with stainless steel appliances found at a bargain. The bathroom was completely rebuilt from the joists up and now features a tiled shower. New carpet tile in the bedroom and den, new LED lights and three ceiling fans, baseboards and trim, and extra built in storage over the new closets. We expect to have Suite 5 complete by end of 2023 and expect to rent it for around $1700 a month plus utilities.
Several water leaks and problems uncovered in the Suite 5 bathroom reno lead to the decision to completely replace all plumbing on the upper/residential level. While this is a substantial and costly improvement, with a commercial unit vacant and Suite 5 bathroom under renovation this was the best time to complete the work. The plumbing was a mix of copper and caste iron, which we found to be in the last years of usefulness and starting to fail. The problems that would have arisen from not changing these out now would have been years of leaks and potentially sewage dropping into the commercial units.
The replumbing also allows the installation of coin laundry just steps from the apartments, a great addition to the property.
We are very happy with the renovation progress. While it involves some short term vacancy during renovations, all this work increases long-term cashflow and leads to a higher valuation for the investors.
We negotiated higher rent on another suite and have continued to increase the rents on the remaining 2 residential suites by government allowed percentages each December. In May 2022 Residential Rent was $3,350 but by January 2023 we expect to be at about $5,100 per month which is 152% higher residential rent. Beyond that we still have 3/5 units prerenovation with the original tenants so there is still room for improvement.
Financing Activities
We pivoted to a combination of GP provided funding as needed and a good low rate vender carry mortgage, but the mortgage needs to be renewed or replaced in April 2024. There are indications interest rates will decrease in 2024 so we are weighing our options carefully to find the best path forward for our investors.
Due to heavy reinvestment into the Colton-Fox building, the smaller mortgage obtained, and lost revenue due to vacancy it does not make sense to do distributions at this time. 2024 should have increased monthly cashflow and therefore our plan is to push out those cashflows to the investors as and when it makes sense considering the refinancing efforts.