The Commercial Real Estate Investor Podcast

Key Takeaways:Industrial real estate remains resilient, with low vacancy rates, but older buildings may need upgrades to meet modern standards.The multifamily market is bifurcating, with Class A urban properties seeing more challenges, while Class B and workforce housing have stronger fundamentals in certain areas.The office market has structurally changed, with high vacancy rates, but there are pockets of resilience in medical office, Class A trophy spaces, and suburban mixed-use developments.In retail, grocery-anchored centers and experiential retail are performing well, while malls and big box retail continue to struggle, especially in weaker markets.Potential opportunities exist in distressed office, hospitality with expiring CMBS loans, retail repositioning, and affordable office/multifamily in good secondary markets, but caution is advised to avoid overpaying.

Key Takeaways:Leverage LinkedIn and social media to become a thought leader by creating valuable, client-focused content rather than self-promotional posts.Ensure your social media presence and brand aligns with the type of high-value clients you want to attract.Publish regular, data-driven market reports to differentiate yourself and stay top-of-mind with potential clients.Seek out speaking engagements and other opportunities to position yourself as an industry expert.Develop a system to proactively identify and build relationships with the key players and decision-makers at large industrial, retail, and corporate clients.When given an opportunity to work with a high-profile client, make it your top priority to over-deliver and exceed their expectations.

Key Takeaways:Be very cautious of deals with extremely high cap rates (over 10%), as there are likely underlying issues with the property or tenant.Thoroughly vet the seller and ensure they are the actual owner of the property before proceeding. Verify ownership through title work.Conduct thorough due diligence, including a Phase 1 environmental study, to uncover any potential problems or liabilities.Have a commercial real estate attorney review all lease and purchase documents carefully before moving forward.Work with reputable title and escrow companies, not directly with the seller, to protect yourself from potential scams.Ensure the tenant's financials and business model make sense for the high rent being paid, as it may not be sustainable.

Key Takeaways:Explore alternative financing options like bridge loans, floating rate loans with rate caps, assumable debt, and seller financing to make deals work in the high interest rate environment.Underwrite deals conservatively, stress-testing for debt sensitivity and ensuring NOI durability. Focus on realistic rent growth and expense assumptions.Plan for longer hold periods of 7-10 years, as the 3-5 year flip mentality may not work in the current market.Look for distressed opportunities, especially properties facing debt maturities that are forcing owners to sell or refinance on unfavorable terms.Consider value-add opportunities, especially in newer vintage properties from the 2000s, as they require less capital expenditure compared to older 1960s-1970s properties.Tighten expense management and focus on value-add improvements to boost NOI, as rent growth alone may not be enough.Be conservative in underwriting, build in buffers, and focus on the long-term rather than short-term market fluctuations.

Key Takeaways:When determining the price per square foot to pay for industrial land for development, survey recent comparable sales in the area to see what the market is paying. Take into account the specific zoning as that can impact pricing.As a general rule of thumb, you'll want the land cost to be around 20-25% of your total development costs (including hard and soft costs). This can help guide what price per square foot makes sense.For a 4,000 sq ft commercial space you're looking to lease out, the main marketing strategies suggested are:Hire a commercial real estate broker to list and market the spaceList the space on online marketplaces Put up a prominent, eye-catching "for lease" sign on the propertyWhen raising capital for commercial real estate projects, the key is to start networking and letting your contacts know you're actively looking for investors, rather than waiting until you have a deal.

Key Takeaways:Don't invest with syndicators you don't know personally. It's important to thoroughly vet and understand how a syndicator operates before investing with them.Align incentives with your investment partners. The general partner should have significant skin in the game and be taking on meaningful risk alongside the limited partners.Be very conservative in your underwriting and stress test deals for various scenarios. Don't rely on overly optimistic assumptions.Focus on getting 20%+ annualized cash-on-cash returns. Anything less may not be worth the risk and effort compared to other investment options.Avoid 50/50 partnerships, as they can lead to stalemates and disputes. One partner should have majority control.

Key Takeaways:Underestimating renovation costs and working with inexperienced contractors can lead to major challenges on your first commercial deal. It's important to work with seasoned professionals who can provide accurate cost estimates.Creative financing options like investor partnerships and seller financing can help new investors get started in commercial real estate without having to put up all the capital themselves. However, you need to carefully structure these deals to ensure they are beneficial for your role.Thoroughly reviewing leases, tenant information, and potential capital expenditures is crucial when evaluating commercial properties, as the income and expenses are the key drivers of value.Don't be afraid to take the plunge into commercial real estate, even if you're a beginner. With thorough due diligence and learning from others' mistakes, you can find success, even if your first deal isn't perfect.

Key Takeaways:Budget conservatively for unexpected maintenance costs when buying older commercial properties. Factors like HVAC issues, plumbing problems, and deferred maintenance can lead to significant unplanned expenses.Scaling up in commercial real estate can help minimize maintenance costs per square foot. Larger properties often have economies of scale compared to smaller, lower-cost properties.Prioritize finding quality tenants and building strong relationships with them. Bad tenants can make an investment experience very difficult, so proper tenant screening and management is crucial.Consider hiring a professional property management company rather than self-managing. While it costs more, it can save time and headaches in the long run.Hands-on experience is invaluable in commercial real estate. Finding a partner with expertise can help navigate the initial learning curve.Focus on acquiring quality properties, even if the upfront cost is higher. This can pay off in the long run with fewer maintenance issues.Recognize that commercial real estate investing, while more passive than a full-time job, still requires ongoing work and oversight. Setting up the right team and systems is key to scaling.

Key Takeaways:Thorough due diligence is crucial when analyzing potential deals, especially when reviewing rent rolls, leases, and tenant mixes. The distress in the market is compartmentalized, so understanding the specific risks and opportunities in each asset class and submarket is important.Considering alternative financing methods, such as paying cash, syndications, or using creative structures like lines of credit, can help mitigate downside risk in the current high-interest rate environment.Focusing on consistent cash flow and tenant quality, rather than chasing higher returns, is advisable. Properties with longer weighted average lease terms (WALT) and diversified tenant bases may be more resilient.Avoiding forced deals and being selective and patient is recommended, as the market has not fully adjusted yet, and overpaying should be avoided. Sitting on the sidelines for a period may sometimes be the prudent choice.Staying attuned to broader economic and geopolitical factors, like the potential impact of US-Canada trade policies, is important as they can affect commercial real estate transactions and operations.

Key Takeaways:Going "dark" in commercial real estate refers to when a tenant shuts down their business but is still legally obligated to pay rent. This can create opportunities for landlords to get properties at a discount.When a tenant goes dark, the landlord has to weigh the pros and cons of suing the tenant versus negotiating an early lease termination. Lawsuits often end up costing more in legal fees than they are worth.When releasing a dark property to a new tenant, it's important to negotiate a buyout deal with the existing tenant first before bringing in the new one, otherwise the landlord has less leverage.For financing dark properties, there are lenders willing to work with these situations, but it will depend on the landlord's overall financial strength and the specifics of the lease.Building relationships and a strong network in the commercial real estate industry is crucial, especially when transitioning from residential to commercial investing.