Commercial Real Estate Investing From A-Z

Will there be real estate opportunities in the Palisades area of California after the fire? What is the current state of the real estate industry, and what is the outlook for 2025? Pike Oliver, real estate veteran in master planned communities, and co-author of Transforming the Irvine Ranch book, shares his insights.

How do you think that is impacting real estate professionals that are related to rebuilding in the area? Are people flying in from other states or cities to get that kind of business?

I do know that there have been some folks who are looking to potentially acquire sites that maybe people whose homes were burned, are not interested in reoccupying, and there's pluses and minuses associated with that. Some of the folks are coming in with low-ball offers and trying to take advantage of the distress. On the other hand, I heard of a lot that burned in the ballast eyes area and whistle for a million dollars the other day, so that doesn't sound like too much of a low ball offer. A lot of things are involved in real estate, there's the good side and the bad side, as far as opportunities, there will be opportunities to rebuild, but it's challenging because of all the individual ownership of the residential lots. Whether there are large-scale opportunities, that remains to be seen, and there's a lot of work to be done in clearing the sites, certifying them environmentally, and doing all of that, and that's just getting underway, and it's going to take some months to get that all squared away. There are several issues associated with fire insurance. We've seen a lot of concern about that. California is probably going to have to look at how it regulates that, perhaps a little more liberally as far as allowing for rates to essentially pay the true cost of providing the insurance.

What are some trends for the year coming from your newsletter? There is improved sentiment regarding potential stabilization of real estate and also some top markets to watch. What have you been keeping up with regarding what you think is coming up in 2025?

I always like to say that I have no high-definition crystal ball, all I know is what I read from people who are more expert at this sort of thing than I am.  I think we're probably past the most challenging adjustments coming out of the COVID period. And there has been a lot of question about inflation and interest rates. I think one thing we have to always keep in mind is that what the Fed does fundamentally affects short term interest rates. Rates. Long term interest rates are kind of a different matter, although influenced.  Just everything that's going on with policy. I wouldn't be looking to see a return to the very low interest rates that we had up until the pre-COVID period. I think that's behind us now.

The positive thing is we've had a few years of higher rates, although, by historical standards, in my career lifetime, not all that high. I think that the market of consumers now is going to be more accustomed to interest rates in the 6 7% realm, less put off by it, and people's lives change. Their families change. They have a need, and they're not going to wait forever to act upon that need if they can afford it.

Pike Oliver

news.ares.org

pike@urbannexus.com

How to negotiate better loan terms and manage lender relationships? We will also cover top lessons learned at the latest conference and evens, and what is the current state of the market?

Read this interview here: https://tinyurl.com/yf53zdpu

Lessons Learned

• Some of the Dollar Stores that closed are now selling in bankruptcy for a huge discount.
• There are so many ways you can partner up with people, you can do a JV (joint venture) with owners who have a lot of dark real estate (such as Dollar stores that are closing). Dark retail is a retail store that still has a lease but they have decided to close doors, they are still responsible for rent, but having a dark retail in your center isn’t good for your other tenants, so you would want to have that property filled again. What can you convert that to?
• You can partner up with cities, ask the city what do they need, offer to buy the land at $1/sf, offer to pay starting on year 3-10 when the property is ready or fully stabilized, get funds from them or breaks in fees.
• If you need a capital partner, there are capital market intermediaries that can help you find family offices or a construction loan, I spoke with a couple of people that did that a while ago and as far as I recall, their fees are around 2-2.5%.
• When you raise a fund, the real estate fund management fee is 1.5-2% of the committed capital.
• Don’t give special terms such as MFN unless an investor is committing a minimum of 25% of the deal. A “Most Favored Nation” clause gives a party the legal right to terms and benefits under the contract that are as good as or more favorable than the terms and benefits received by anyone else who enters into a similar contract with the other party.
• After webinar let them know you have the next week open for any questions they may have, this builds trust and helps them move forward.

Loans and Lenders:

You must pick up 5-6 new lenders a year.

Meet all of your lenders yearly, give them a report with your PFS (personal financial statement), show all property owned, how they have performed, share your mistakes and lessons learned, share the vision for the company, be proactive, present the business plan, how have you operated the assets.

After a loan is done, the lenders get a 2 week update, then it becomes quarterly. Send pictures, and show how are you doing vs pro forma.

Negotiate on loan unforeseen costs, stick with your needs even if you may lose that lender.

Negotiate that if you hit x percentage value increase, the lender gives the loan at x interest rate.

Agency debt is non recourse, and credit unions are great.

Don’t give any personal guarantees, the bigger you go, the less common it is for them to ask for a personal guarantee, lots of co-GP family offices can help and will show their balance sheet. You will need to have some guarantor for carve outs only.

We must negotiate debt to the ground, LTC is currently at 50%, don’t do variable rate.

We must read all pages of the loan docs and comment, edit, someone I know has made as many as 500 comments. You must have other banks lined up first they say no. Also, put a homestead exemption on all of your loan documents so they can’t take your home in case things go south, and make sure that they’re not removing any of your constitutional rights.

What topics should I cover next? Let me know at admin@montecarlorei.com

What are some retail trends that may not be so obvious today? Why should you add a retail component to your multi-family project? How to host a successful popup in your center? Edie Weintraub, Founder and Managing Director of Terra Alma, shares her insights.

Read this interview here: https://tinyurl.com/v25xssbn

We all know that retail is changing. It's a lot more service-oriented today, and it will be even more moving forward as people want to buy things online. How do you help them have a diverse amount of service providers so that they will all work with each other well in terms of what they provide so they are all thriving in that center?

We evaluate the local community and understand what's missing. If there's already an Italian restaurant in the market, we don't want to step on anybody's toes. The worst thing to have is a new shopping center or a new downtown walkable community, and immediately the first thing that pops up is a duplication of what's already there. We take the time to get to know what the community is asking for, attend local meetings, and talk about economic development. It is common for us to stop people on the street and say, "Hey, we're going to be working on a project that's coming up, and we want your input" because the more the community feels like they are part of the process, the more they're going to welcome the project with open arms. We've had conversations on behalf of multi-family developers to say, "Let us go and work for the community early," because if we can do an activation, a pop-up, or a farmers market on the site before you build, chances are we can get goodwill from the community. They will be excited for us to potentially capture some of those vendors from the farmers market and put them in a permanent space. There's nothing worse than someone coming in from outside and saying, "My Italian is better than your Italian," and that's not a good way to garner goodwill when you're coming into a new community.

Can you elaborate on how they work because sometimes water is involved and all of that? Which effort would it take from the owner of the property for these popups?

It depends on how much time we have because, at the very beginning, you've probably got a property under contract, and you need to go through the approval process. We're working with the current owner of the property and not our future client, who's going through the approval process. It is up to the current owner if they are receptive to dealing with us and letting us activate it so that there is positive momentum. It could be something as easy as a shipping container park. It could be a food truck park and those investments are picnic tables. Maybe there's existing space on the property that we can leverage bathrooms for, or it just might be a farmers market where we're not necessarily providing bathrooms but just creating a gathering space that people can come to. You can activate it on something as small as half an acre or an acre, but it just depends on what that timeline is.

A lot of the folks that we work with on the multi-family side and who we advise on the retail component are leaning in the direction of having anywhere from 12 to 25,000 square feet of retail space, and that's a good critical mass. We're going to assess what else is in the community and hopefully be able to leverage and be respectful of what's there. But if we're coming in and there's nothing around us within a 10-minute drive, 25,000 is that magic number that we would like to see in terms of a retail component. A lot of times, multi-family developers are pushed to do retail, and they don't want to, they don't get it, or they don't have performance for it. In my opinion, they end up performing in the space too high. It really should be an amenity, just like the fitness studio, just like the pool, just like any walking trails around it, because if you have the right...

How to repurpose real estate? How to negotiate a contract in an expensive area? How to work with the city to get your project entitled? These were notes from a development event we attended.

Read the entire interview here: https://tinyurl.com/9624cn5k

Smart developers are in touch with their city representatives. The city is a great resource for leads. If you meet with them, they will tell you: that’s a bad land owner, or we want this place developed. Entitlement goes super fast when the city owns the land.

Create a public/private partnership with the city so they sell their land for cheap and you build what they need in the area, and they allow the change of use to what is needed. You would put a development agreement in place, and the city offsets fees to help the deal work.

Ask city what projects are stuck, which projects developers are not paying them for or have loans coming up.

If working with land that the city owns isn't an option, and for areas that you may think there is no more land to build, note that everything is still available to build, in the sense of you can repurpose several buildings. The things the presenter looks to get in contract and build (in their case multi family) are: auto dealerships, used car lots, private schools, a shopping center that isn’t doing well.

When working on a deal in a city that is known to be difficult, for example, any city in California, make sure to keep the deposit on your offer very low. They recommend $50-100k, and make sure that you can get your deposit back if there is a 50-50 chance of the project working out. Try to figure out early with the city if it is likely to work out or not. If the seller doesn't like your offer with a $50k deposit and 2 yr due diligence, show them your track record, in the sense that you will close once you get through the city, and show the fact that you have always closed on all of your deals.

A contract that has worked for the presenter is having 75-90 days feasibility, and at the end of that, have a non refundable deposit, in this example $50k, and have a close of escrow based on getting the permit, or a 18-24 month timeframe, with options to extend. You should also note that you will close earlier if you get the grading permit, or within 18 months and 3 extension options. You may think this is unrealistic in expensive areas in California, but they normally get this accepted because they close on 100% of deals that they get permits for.

As far as getting any property entitled, make sure to have individual meetings with each city council member before getting it entitled, so you can manage the story very well. Find what’s important to the neighbor as well.

People are investing in what they call "bedroom communities" which are the cities near larger cities that are growing, also known as path of progress. An example would be Atlanta and Marietta which is a near by town that people started moving to after prices in Atlanta got too expensive, but they still work in Atlanta.

Lastly, a few months ago we interviewed someone that was building homes with a retail component in the bottom in Utah, so that the owner would have their business at the bottom and live on top, and that person said that those were very popular. However, at this event, they said the opposite, shopkeep space for the bottom part of a house is not the best way to address that, the best is to have a condominium lease floor and have a retail broker lease them out. We are highlighting both perspectives so that you do your own homework, if this is something you'd like to build in the future.

What is the current state of the economy and real estate market? What are the opportunities and challenges in the commercial real estate market? Michael Ryan, an investor and loan broker with over 23 years of experience, shares his knowledge.

Read this episode here: https://tinyurl.com/49eua957

Based on all of your readings so far, what is happening right now?

The two fundamentals for generating wealth in the US have not changed, it's either small business or real estate. The economy goes up and down. We are having a recession right now, I purchased more properties at the peak of markets, knowing the markets were going to roll over and go down. It isn't because I wanted to, it's because as an independent contractor in the mortgage business, my income is best at market peaks, and it tanks in the downturns which are the best times to buy. My tax returns don't support it, so I have to figure out how to generate wealth through real estate, and buy at market peaks, knowing that I am doing exactly that.

Real estate is the slowest and the most boring path to wealth, but if you hang on to something for 20 years, the value is going to be up. We see the same thing with the equities market, the stock markets, spin the wheel of fortune, pick a date, and roll 20 years forward. I've property outside of Tampa, and they're talking about Tampa residential real estate stinks now due to over building, people moving to Florida seem to be slowing down, that's the headline. When you're coming off of five years of massive growth, does it make sense to have a little cooling period? Apartment buildings, after massive growth, does it make sense for the market to pull back a little bit? Does that mean that apartments are a bad investment? After Phoenix goes up 25% a year for four years, do you want to buy in Phoenix? Maybe not in year five but does that mean you're going to ignore Phoenix for the next 37 years?

As far as a recession, I've always been in the "easy landing camp", because of other aspects going on. The job market is holding up because until the job market tanks, which is a trailing indicator, we're not hitting it. The bigger challenge we're having is the two, or three years of overcooked inflation, that's what everybody's fighting right now.

Looking into the next two years, what do you think people should be doing right now about commercial real estate investing?

What an incredible time to buy! When I'm talking with people, if you're a Democrat, I'm going to play a Republican and if you're Republican, I'm going to play a Democrat. The purpose is, you don't need Yes folks around you. You need people who are going to work to broaden your thought process, challenge it and you get to sleep on it. Then, come back and tell me what you want to do, and we will execute.

Before the Fed meeting, when they lowered the rates, I put in my residential newsletter that the best time to buy was 90 days ago. When the interest rates were hitting 8% was the absolute best time to buy residential real estate in California. You had no competition, and the sellers were scared to death, so you were able to negotiate lower prices. We're in Prop 13, and lower prices mean lower taxes forever. And when the interest rates drop, we know what to do then. Now that the interest rates have gone back up, the commercial real estate cap rates are up. "Why is that happening?" Because now they're not expecting the Fed to be continuing half-percent cuts because the news is out that maybe the economy isn't as stinky as mainstream media would like to talk about. Go back historically and you start pulling cap rates to get a perspective.

Michael Ryan

mike@michael-ryan.com

What type of industrial building is Chad Griffiths investing in today? What are the downsides of the industrial asset class? Chad Griffiths, Partner and Commercial Real Estate Agent at NAI Commercial Real Estate shares his knowledge.

Read this entire interview here: https://tinyurl.com/mre9kmt4

What are you investing in right now?

I like very simple buildings that can be used for multiple purposes, and my favorite is Flex Industrial. It is any industrial building in an industrial park used for other purposes than manufacturing or warehousing. One building that I have on a main industrial road used to look industrial until we did a renovation on it. We have an office tenant in there, a hot tub store, a flower shop, a cabinet store and we just put a bridal dress company in there, all are nonindustrial uses. Most people would never think of a bridal shop being an industrial building, but this building works for so many different types of uses, that if we have a vacancy come up, we might have 20 to 30 different ideas that people present to us in terms of what could work in the building.

I love that in flex industrial the rates tend to be a lot more competitive than retail. If someone wants to be in the suburbs as an office user, you're typically going to be paying a lot less than being in a dedicated office building in the suburbs, and you could still have light industrial in there as well. It's versatile and it's somewhat removed from warehousing. The one that I have is more in the inner city limits. It's very difficult to build something next door to us to compete with us, whereas, if you have a warehouse outside of city limits and there's available land, you could go and build another building next door, and have the versatility of the different types of tenants, that's my preference. If I could buy one thing going forward, that's what I'd focus on.

There are a lot of people who are opposed to data centers. Anytime a new one gets presented, it seems that there's an opposition group that are trying to fight it and get it blocked. I understand that pushback, but we need these data centers. AI is growing at a crazy pace. We need the data centers on top of it. There's a study that said that by 2030 data centers will take up 9% of the total US grid, that's double from what it is today, and that's already coming off of huge growth in the last few years, as these data centers have become more prevalent. They're taking up a lot of power, the forecast is for them to take up even more power, and they also need water, which is, I think, an under appreciated component of data centers.

What are the downsides of the industrial?

I've said to a lot of people, don't invest in industrial real estate. The biggest thing is, if you make a mistake, it's magnified much more than any other asset class. To illustrate, imagine if you were to buy a 15-unit apartment building, and you bought it in a good area, in a city, you're always going to have tenants in there. You just might need to lower the rent a little bit. If it's $1,200 and you say, "I just want to have I want to make sure my bills are paid." and you undercut the market at $800, you'll always have tenants. It's a matter of what price you need to accept. In industrial, if you buy the wrong building, you might never find a tenant. There are horror stories that I could tell of guys that have bought a property and they've sat vacant for years. If you do that with a single-tenant building, perhaps for the equivalent price of a multi-tenant apartment building, and it sits vacant, you lose 100% of your revenue.

Chad Griffiths

www.industrialize.com

www.youtube.com/@industrialize

What are the latest news in industrial real estate? How to predict what kind of industrial will be in demand in the future? What are some characteristics of an industrial building that would allow you to have different types of tenants? Chad Griffiths, Partner and Commercial Real Estate Agent at NAI Commercial Real Estate shares his knowledge.

Read this episode here: https://tinyurl.com/mvnjh5sp

What are some of the latest things happening in the industrial asset class?

What I find so fascinating about industrial real estate is that it's such a wide variety of activities and subcategories of industrial. Ten years ago, most people just grouped industrial as one big asset class, and they'd talk about it at a very high level, and that was it. But now, we should be breaking industrial into more subcategories, because if you look at the warehousing or the logistics side of it, that's gone through a pretty big roller coaster on its own that's independent of other subcategories. And just to give you an example, there are so many warehouses, distribution centers, and logistics facilities that went up so crazy over the last couple of years that in some large markets, they were adding 10- 20 million square feet of warehouse space every year. And now, some of those markets where they overbuilt, there's too much inventory. Their vacancy rate has gone from very low to being problematic in some areas, and it's going to take some time to work through that.

If you look at other subcategories of industrial, manufacturing has still done quite well and it is coming back to North America. Manufacturing and warehousing have been on different paths. There's a new one that has only come up within the last few years, which I think deserves its subcategory, and that is the high-tech industrial which could be EV factories or gigafactories, which is a kind of broad term they use to describe battery factories. Tesla has their gigafactories, that name is kind of extended to other companies as well. You also have semiconductor manufacturing plants, like high-tech labs. Essentially, these aren't manufacturing facilities, if you were to picture Boeing making airplanes, that is traditional manufacturing but these high-tech ones are completely different and there are billions of dollars being invested. TSMC is doing a multi-billion dollar facility in Phoenix, and there's another one going up in Ohio and Columbus, they're popping up everywhere and these are massive facilities. And then the other one that you have is data centers which are growing at a crazy pace.

How do you keep up with that as an industrial investor? How do you look ahead and try to understand what you should be investing in the future?

There are two primary things that I do myself. First, you need to be in a city that has population growth for the foreseeable future. It can't be that there's population growth because there's one major project going on, and then once that project is done, perhaps jobs leave with it. You need to be in a big city where there's optimism that the population growth will continue. Population grows, everybody needs more stuff, they're shopping more, they're doing more online shopping and so warehouses and industrial investment follows population growth.

The second thing is to invest in properties that have multiple uses. If that one tenant that's in there, or multiple tenants that are in there, whether it's at the end of their lease, or they go into bankruptcy, or they get bought out and they just no longer need it, they eventually leave. I want to make sure that when that tenant leaves, that building is suitable and compatible for the next tenant without me having to spend a ton of money retrofitting it.

Chad Griffiths

www.industrialize.com

www.youtube.com/@industrialize

Why should you have a mid-term rental? What are the pros and cons of mid-term rentals? What do corporations look for when looking for corporate housing? Angela Healy, CEO of AvenueWest Managed Corporate Housing shares her knowledge.

Read this episode here: https://tinyurl.com/4uaeke3p

What are midterm rentals? Why should someone have to offer a midterm rental as an investor?

Most people are very familiar with long-term unfurnished rentals, and in the last decade, short-term rentals have been very popular with Airbnb. Those midterm rentals have slid under the radar for quite some time, but we're making more headlines now because so many cities are prohibiting short-term rentals. In New York and Denver, we have a lot of regulations around short-term rentals, whether you need a license, whether you're restricted in which kind of properties you can offer, whether it has to be your primary residence, or whether you can only do it for 90 days. A lot of regulations happening around short-term rentals so what people are finding is, instead of either selling the property, especially in this real estate market, or switching it back to an unfurnished, long-term rental. They have another opportunity to be able to keep the rental furniture there and still be able to make a higher yield than they would be renting it unfurnished.

The nice thing about midterm rentals is if you work with a corporation like ours, you could rent them to corporations in the area, so you have a really solid customer base. No one's going to do anything to their corporate apartment that will make them get disciplined at work, and the average stay is about 99- 100 Days. You do have a couple of turns a year but nowhere like what you were doing with Airbnb in terms of maybe a couple of nights and then a turn. It is a nice medium compared to the unfurnished rental.

We have a couple of offices in California where the rules and laws around renting properties are very much geared toward the tenant or The occupant. By having the corporation rent the property for a specific assignment, you're not going to have somebody end up squatting or staying there beyond their term of what they're allowed, which also allows you to keep the rental rate up with the market. Once someone moves out, you're not subject to rent control, you can set your new market. If the industry or the real estate market is on an upswing, you can certainly get the increased prices related to the upswing and it is a nice way to diversify your overall portfolio.

What are some cons to midterm rentals?

We are subject to corporations and their ebbs and flows. That doesn't necessarily mean that it's only good in an up environment, because when there's a down environment, we do see movement of employees when they consolidate locations. Maybe they're closing this office and they're going to relocate everyone to this office. If your property is located near the office that closed, that could certainly be a con.

And then, there are times where we can be affected by the overall economy, like, if the government shuts down for a week, and everyone takes a deep breath and they're like, "Oh, what's going on? How long will they be closed?" We could see pockets of times when everyone is kind of taking a breath and trying to adjust to the new economy but once they do start making those plans, like either closing places, maybe they're going to expand, or maybe interest rates are rising, and everyone's kind of taking a breath, businesses will start to adapt to that and start to make some sort of change, and that change is good for corporate housing.

Corporations do not relocate people, and they do not start new assignments in December but that doesn't mean that we go vacant in that month, but if your tenant happens to leave in December, the likelihood of us finding somebody new before

How to determine the highest and best use for a piece of land? What is a new product that is in high demand in certain areas? What systems to put in place to manage a growing company? Amy Johnson, managing partner of Y Street Capital, shares her knowledge.

Read this episode here: https://tinyurl.com/4ajk387f

How to find the highest and best use for a piece of land?

It comes down to vision. For us and our process, if it's under 5 acres, I don't want to worry about it because doing something with 3 acres is the same amount of work, and the same amount of headache, as it does with 300 acres. I'm going to look at the overview of the market, what is the need, what is the city's master plan? And just because they have something in their master plan doesn't mean they want to stick with it. What's the city's vision? What's the market's vision? What is the market demanding right now? For example, right now, I am not looking necessarily for really large lots or humongous houses, attainable housing is a lot more in demand, that means multifamily housing and townhome developments. It is not because I love the look of townhomes, but that's what the market is demanding and what is needed in the community. We've the city's vision, the market conditions vision, and then the possibility of what's there. There may also be some products that were very successful in other cities that we put it in this city.

What is a new product that is in high demand in certain areas?

We’re fitting 30 units in 5 acres that the city wanted to just zone commercial. The commercial is great if you have a specific tenant. You've to build it specifically for the commercial people. Jack in the Box wants a specific look, Starbucks, etc. We've built this product in Brigham City, and I've also seen it be successful in other cities, the market was saying "We want some commercial but we also need attainable housing, multifamily housing, or townhomes on top". We've designed this unit that is one single tax ID. It's an individual townhome. The bottom is a commercial use that they can run a business from, they don't need to get a special license and the other two floors are the residential housing. The maker spaces are usually in high demand. They sell for about $100,000 more than the typical townhome unit.

Can you share a couple of tips on how you manage things, and how you keep the company growing from a leader's perspective?

These are important: 1) Delegation and utilizing the actual systems. 2) Being able to say "no" to things that don't serve you, and 3) Set expectations, and that can be expectations for vendors, other contractors that we're working with, and civil engineers having a clear scope of work. 5) I live and breathe by my calendar, if it's not on my calendar, it doesn't exist. That means even if my executive assistant and I need to work on a project, and it's just working on something, we will block that time, and we'll put it in the calendar. Or even if it's in person, it has to be on my calendar. On Sundays my husband and I go through our week and plan our week and say, "What does this week look like? Am I missing anything?"

Amy Johnson

amyj@ystreetcapital.com

https://www.linkedin.com/in/amy-johnson-358217162/