Lessons Learned on Our First Deal in 2025

Today we are talking about a deal we recently raised for, mostly so you can understand some of the things that happen behind the scenes and why we decided to have this be our first syndication for 2025.

Read this episode here: https://tinyurl.com/2km2c2k9

Why did it pass our test besides the fact that these partners have a great track record and having exited 4 deals with them?

1. Low vacancy. There is a shortage of small bay industrial in the Phoenix market, people have been building large bay industrial. For the small tenants that need a smaller space, the available inventory is very low.

2. Leases expiring and below market. A lot of the tenants had their lease expiring during our ownership, and the vast majority is below market, one of the largest tenants in the property with the biggest rent upside, already decided to not renew. We underwrote them not renewing a year from now, and they are significantly below market.

3. IG Leases. All of the tenants except one are on industrial gross (IG) leases. We are converting all of the tenants to NNN leases. This will also increase the bottom line for our investors.

4. Prohibited cost to build. Besides the market having very low vacancy, the vast majority of tenants being between 30 to 70% below market, and the leases expiring in the next 24 months, small bay industrial is cost prohibited to build. It costs more to build than the rents that you’re going to get. We are purchasing the property at a significant discount to replacement cost. The property was built in 1999 and it looks really good.

5. Location. The property has freeway visibility and is right next to the freeway exit.

6. Market. Phoenix is a phenomenal market. It has a 16% population growth since 2010, a job growth of 45 to 50% since 2010. The personal income tax is very low at 2.5%. They’re exploding in terms of plants, campuses, and jobs being created in the area. There is a $65 billion chip plant being created next to the property. There is a $20 billion Intel expansion. These are all creating jobs, which is always a great sign of a phenomenal market to be in.

Final Thoughts

The raise took a little bit longer than what we thought it was going to take. We did not finish the entire raise and still have a couple million to go, however, we did manage to close on the property and the couple million that we have to go is mainly for reserves, so that still needs to be finalized.

Commercial Real Estate Tips Learned Recently:

Turn expense into income: e.g., rent dumpster out.

You can open a Senior Living home in any state if one tenant has a disability due to the ADA / Fair Housing Act.

Always over-raise in case investors don’t send funds.

If a deal blows up, attorney often refunds fees (to keep you as a client).

When you refinance, you don’t pay taxes. This means you can cash out of a property, or get a line of credit, and buy another property without paying taxes on that down payment. Make sure you are comfortable with the LTV’s when you cash out.

Interest rates are always negotiable, you can get ~0.25% interest rate break if you open a checking/savings with lender.

When developing a property from the ground up, always assume that the piece of land has all of these: endangered species, wetlands, easements, utility issues, trees – until proven otherwise. This means you need to get all of these reports and surveys done (amongst many other things)) before purchasing a piece of land for development.

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