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Commercial Real Estate Investing From A-Z

Getting started with Commercial Real Estate Investing, or an experienced investor? This is a weekly podcast on the steps that I take to make my Commercial Real Estate investments (Retail, Office, Self Storage, etc) including successes and lessons learned. We cover advanced techniques for purchasing, operating, and exiting your properties, from the best people in the industry. You will learn everything you need to know about real estate investing. We are based in San Francisco / Silicon Valley and also cover how technology affects Commercial Real Estate, and how you can stay ahead of the game. Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support

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What is Cash on Cash, IRR, and REIT's?

Today we are covering what is the difference between Cash on Cash and IRR, what are REIT's, and what are the pros and cons from an investor's perspective. Read this interview here: http://montecarlorei.com/episode-23-what-is-cash-on-cash-irr-and-reits/ We're interviewing Jason Ricks, a professional real estate investor focusing on acquisitions, leasing, construction, and development. He has a background in retail leasing and asset management working on premier properties worth hundreds of millions across the country. He also oversaw a 2.2 million square foot value add retail portfolio throughout Texas and Oklahoma, and most recently he was featured in the number one Amazon best selling book Desire, Discipline and Determination. What is the difference between cash on cash and IRR? These are both really common metrics that a lot of investors use when evaluating real estate. One of the beauties of commercial real estate, or income producing real estate, is the cashflow. Cash on cash is a snapshot of the percentage return of your cash invested. Imagine that you invested $100,000 into a shopping center. In year one you got a cash flow check of $10,000, so what type of return is that on your investment? That's going to be a 10% cash on cash return and this is usually quoted on a before tax basis. What that does is that it gives you a nice snapshot of the initial return that you're going to get on your investment, which a lot of investors are curious about, especially when you evaluate this against, for example, a stock dividend or a coupon. That's one of the exciting things about commercial real estate - that cash on cash income producing, and cash on cash gives you a nice snapshot of the IRR. Internal rate of return gives you the full picture, the comprehensive picture. And the way that's done is if you own, let's say a shopping center over a period of five years, you're going to have very different cash flows. And whenever you decide to sell the building, you're going to have a big chunk of sales proceeds. How do you evaluate a return on your investment over a five year period, taking into account the time value of money? That's what the IRR does. It gives you a nice picture of your yield. A lot of times investors will look at IRR before making an investment, and it's primarily a proforma. So it will say, here's my crystal ball and here's where I think cash flows are going to be, here's where I think we're going to end up going on an exit cap, and this is going to be the sales proceeds. And what's nice about it is that it gives you an opportunity to evaluate it against other investment vehicles. What are REIT's and what are the pros and cons of investing in a REIT from an investor's perspective? REIT's came about in the 60's and at that point only accredited investors were really engaged in commercial real estate, REIT's then allowed non-accredited investors to invest in commercial real estate. This can be done in either debt or equity REIT's, and these can either be private or public. To qualify for a REIT there are a lot of requirements, and a ton of reporting. 90% of its taxable income has to be in the form of shareholder dividends, and you have to invest 75% of your assets in real estate cash or US Treasuries. As an individual investor that's unaccredited, what's fantastic about REIT's is that gives you broad based diversification and exposure to commercial real estate, plus just like any other publicly traded stock, it's liquid, meaning that you can get in and get out very quickly. Unfortunately, REIT’s don’t offer much in the form of capital appreciation. They’re very dividend heavy focused. And those dividend checks that you do get from REIT’s are going to be taxed as regular income. Jason Ricks jason@concordiarealty.com --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


22 Aug 2019

Rank #1

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Top 5 Mistakes to Avoid When Investing in Commercial Real Estate

In this episode we will learn what are some of the top 5 mistakes to avoid when investing in CRE. You can read this episode here: http://montecarlorei.com/episode-22-top-5-mistakes-to-avoid-when-investing-in-commercial-real-estate/ 1. Looking at Pro Forma Numbers One of the things that you will start to see as you're searching for properties is that there are two sources of income in the financial statement. Number one is the actual revenue / actual net operating income of the property. Number two is the pro forma income / pro forma net operating income. And these numbers are different because one is the current number and existing financials and the other one is an imaginary number. It's an imaginary number based on what the real estate agent thinks the property could make after you buy it. Commercial real estate brokers don't have the same obligations around disclosures or telling the truth as residential real estate agents do, you have to be careful and take everything that they give you with a grain of salt on the pro forma numbers.  2. Always take a look at who your tenants are Is this the right mix of tenants? If it's a retail building - when are their leases expiring? If the majority of the tenants have lease expiration dates coming up all around the same time in the next three years, that's not a good sign. Why? Because what if something happens to the economy or what if something happens to the local market and these tenants all decided to leave at the same time? Not only are you looking at the tenant mix and when their leases expire, you are also looking at how much these leases are currently at, are the leases above market price? Are the leases currently below market price?Is this the right mix of tenants? If it's a retail building - when are their leases expiring? If the majority of the tenants have lease expiration dates coming up all around the same time in the next three years, that's not a good sign. Why? Because what if something happens to the economy and these tenants all decided to leave at the same time? 3. Survey the property for environmental issues as well as the laws within that city There are a lot of very difficult cities to do business with, San Francisco is a prime example. For example, if you want to convert an office to a Starbucks, you're going to have to go through a lot of approvals with the city. If you want to convert something to a residential building, it might take literally years to get that approved. A lot of people in the neighborhood will make a big deal out of it and they will make it very difficult for you to get approvals in a short period of time, so you really want to check what you can do with that property without having a lot of issues. 4. Get all reports and surveys done Get a structural engineer to make sure that the building is solid and has no problems. Get a roof inspector to make sure that your property has a solid roof, and depending on the type of property, you might want to have a few other surveys done such as taking a look at the foundation, the windows, and HVAC units, if applicable. 5. Take a look at hidden costs and contracts that will have to be honored by you after the sale Some properties may have contracts that are two, three years long for online advertising and those were part of the costs that you were planning on cutting after you took over the property. However, the contract doesn't end for at least another couple of years. You also may have to pay local taxes that the seller was responsible for paying, and there may also be some insurances that you may not need that the seller purchased and now you're responsible for paying. --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


15 Aug 2019

Rank #2

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8 Things You Should Know About Real Estate Financing

Today we are continuing our conversation around commercial financing, we will learn how you can get a commercial real estate loan, ways to partner up with seasoned operators, how to find lenders that can make creative financing available to you, and a few other valuable things. We are interviewing John Pascal, Managing Director of Paramount Capital Advisors (PCA). You can read this interview here: https://montecarlorei.com/8-things-you-should-know-about-real-estate-financing/ Let's start with the basics: is a job needed for first time investors, does the credit score matter, what is the minimum down payment for that type of investor? From a lender standpoint it’s very important that the borrower has experience executing the business plan that they’re proposing. It’s a little bit difficult to get financing for first time investors or developers. Generally, who I deal with are more experienced real estate groups because it’s just very difficult to finance the deal otherwise. But I would encourage anybody who is looking at getting into the business to maybe partner with, or work with a group that has done it once what they’re proposing to do. And it’s also important that the borrower has a good balance sheet. Typically a lender would like to see net worth equal to or above the loan amount, and liquidity, meaning cash or marketable securities equal to at least 10% of the loan amount.  What are typical deal killers when trying to get a loan? The lack of financial capability, i.e. net worth and liquidity. The parameters for that are more stringent with a traditional bank than they are with a private equity lender. The other hurdle is the experience of the borrower. The more experience, the easier it’ll be to find financing because the lender will have comfort that the borrower can execute on their business plan. The strategy itself is also important. If a borrower says “I can sell this property in a 4% cap rate and that’s my way of paying the loan back”. It has to be realistic, and proven in the market. Are 4% cap rates prevalent in the market, and can that be proven out to the lender? Those three things are really critical for getting the loan approved. I heard that you are very creative on getting financing, I would love to hear some examples of your creativity. It all boils down to having a good understanding of the capital markets, and which capital sources are doing what. I spend a lot of my time understanding what different lenders with different equity sources are interested in doing. One example was that there was a developer of a hotel in the Atlanta area whose lenders were looking to foreclose on the asset, and the property was in a good location. It just was at the time completed and about a year or so prior to me getting involved, and it was just ramping up, basically it was under water. The vultures were circling, and the borrower came to me to try to figure out a solution. It was a situation where a traditional lender probably wouldn’t have looked at this deal because the deal was underwater, but I brought in a private equity firm to recognize that there was going to be some value in the deal. There were probably 15 or 16 lenders on the deal, and we negotiated with each of the lenders to take them out. It was like herding cats. The bottom line was that I found a private equity firm who would do the deal. They certainly charged a lot of money to do it, but today the property is doing great. John Pascal www.paramountcapitaladvisors.com john@paramountcapitaladvisors.com (312) 767-3320 --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


19 Sep 2019

Rank #3

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How to Start Real Estate Investing With Zero Money

In this episode you’re going to learn how to get started in real estate investing with zero money down. If you’re feeling a little overwhelmed by the fact that you need a lot of money to get started in real estate investing, fear not! There are opportunities out there where you can partner up with people. We interviewed Ellis Hammond to find out how he got started in real estate investing with no money down. Read this podcast here: https://montecarlorei.com/how-to-get-started-in-real-estate-investing-with-no-money/ What are some things that you did to get to where you are, and what are some things that you wish you did when you were starting? Build your network before you need your network is the best advice I can give to someone who wants to get started into real estate. That’s really how I went from owning no real estate to doing a $2 million deal last year, and we have two deals right now that will be over $15 million in real estate. I found a mentor, and that mentor opened me up to his network and other networks. I showed up at conferences that have people that you want to connect with. What are some ways that people can get into real estate investing without any money?  It’s finding the deals or finding the money. That’s essentially what it comes down to. Which one of those can you begin to play a part in? I think the nice thing about commercial real estate is that it’s a team sport and there are multiple roles within commercial real estate. That’s why I like it. That’s why I really got out of the single family space because commercial real estate allows you to specialize in what your superpower is. What is your superpower? What are you really good at doing? I’m really good at networking. I’m really good at building relationships.  If our listeners were to raise all of the funds, or raise 50% of the funds for a particular deal, how much would they own of that deal? For big commercial deals, the person who raising the capital can normally get paid 2-3% on the money that they raise. If you raised $1 million, you could make 2-3% or right off the get go on that million dollars you bring into the deal. So that’s nice to get some money right away. But you want to be a partner in the deal and with the people that you’re investing with. For syndications there are two sides of the deal: the general partner who’s the sponsor, or the operator, the ones who are putting together the deal. And then there are the investors, which is it called the limited partnership. So you then negotiate for a percentage of the general partnership and the equity so that you have consistent cash flow throughout the life of the project. If you’re raising all of the money, you would look to have about 10% of the deal or 25-40% of the general partnership equity.  There is another side to this that you could also start with: finding deals. Can you elaborate on that? If you don’t like asking people for money, the best thing you can start doing is looking for deals. In this market, if you get really good at finding deals, you’re gold. People will pay to find good deals because good deals are hard to find, especially in this market. This is a super power, it takes a ton of follow up, it takes a ton of detailed work. I tried to do both sides and I just realized that a lot goes into this one. So to get started learning how to find deals, go to a website called listsource.com – it’s a database website where you can filter real estate by asset class.  Ellis Hammond invest@ellishammond.com https://www.linkedin.com/in/ellis-hammond-435b40156/ --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


13 Jun 2019

Rank #4

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Commercial Loans: What is Debt Service Coverage Ratio, What Counts as Assets, What Are Deal Killers

As we continue our conversation around commercial financing, will learn: how you can get a commercial loan as a first time buyer and operator, what is debt service coverage ratio, what counts as assets when you are getting a loan, what are deal killers when getting a commercial loan, and what are some things that you should keep in mind about your loans in case our economy takes a turn. We are interviewing Blake Janover, the founder and CEO of Janover Ventures, a commercial real estate and multifamily capital markets advisor focused on providing senior debt for commercial real estate. You can read this interview here: https://montecarlorei.com/commercial-loans-debt-service-ratio/ Can first time buyers and operators get a loan? Do they need to have a job, does the credit score matter as much as residential, what's the minimum down payment? The answer is yes. It's considered a credit factor, a risk factor, when an underwriter that analyzes credit looks at a deal and says "This is your first piece of commercial real estate" this is higher risk, but there are ways to mitigate it. One way to mitigate the risk is to add a partner that's highly experienced, I think it's great advice. It's not just great advice because it's what the lender wants, but generally speaking there's a reason the lender wants it, and it's imprudent to enter into a new industry without experience and not think that there are a lot of things that could go wrong that you don't know about and that's what having an experienced partner is about. In some cases you can offset experience with having an experienced third party property manager that has a demonstrated track record of managing similar properties in a similar sub market, and lenders will look at other things in order to offset certain risks such as a larger down payment, for example. What is debt service coverage ratio? From a net worth and liquidity perspective, lenders generally want to see that you have a net worth greater than the loan amount. That's all your assets minus all your liabilities. So if you're borrowing a million dollars, they want to see that you have a better than a million dollar cumulative net worth among all the guarantors or carve guarantors. And this isn't a hard and fast number. Liquidity is generally 10% but I'll talk about a deal a little later where we went way below that. So these are not hard metrics. Debt service coverage ratio is a hard metric. A good example is if your monthly debt payments to your lender are $10,000 a month, your lender will want to see that you have net operating income no less than $12,000 a month. That 12,000 representing 1.2 multiple of the 10,000 debt payments. What are some typical deal killers for loan applications? One of our biggest deal killers prior to an application is unrealistic expectations. We get inquiries that are not based in reality: "I'm buying a property for $5 million, I want to borrow $6 million". Okay, me too, let me know when you find that loan. Sometimes folks are looking for equity and we're really focused on senior debt. A big pre-application and post application deal killer is nondisclosure, principals that are not telling us all of their dirty little secrets and then it comes out later and it hurts everybody. I'm a big believer in just tell us everything upfront and we will either figure out a way to make it work or put a bullet in it early, but everything comes out in the wash. Other deal killers are net worth, liquidity, experience. Blake Janover capital@janover.ventures (800) 567-9631 Join our newsletter here: http://montecarlorei.com --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


26 Sep 2019

Rank #5

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Why Commercial Properties and Not Residential

Today you will learn why I picked commercial properties for my real estate investments and not residential properties. But first, let’s learn what types of properties fall under “residential investments” and what types of properties fall under “commercial investments”. You can read this episode in detail here: https://montecarlorei.com/why-commercial-properties-and-not-residential-for-real-estate-investment/ Residential Properties: Residential are properties where people live in, where people have their bed and pillow to sleep on at night, so it’s not only single family homes, it’s also duplexes, triplexes, fourplexes, mobile home parks, multi family properties like apartment buildings, high rises, lofts, student housing, and senior housing – and each of these categories have their own pros and cons! Also, each of these categories can be good or bad investments depending on the state that you invest in because of things like property prices, local economy, and state and city laws (i.e. some states have laws that benefit the tenants and you cannot kick them out, some states have laws that benefit the property owners, so if a tenant doesn’t pay the rent, they are out of the property within days). Commercial properties: 1. Industrial: distribution center, warehousing, or manufacturing 2. Office: you can have a regular office that you lease it out to several companies, lawyers, etc, or you could have a medical office building (for example) where you lease to a hospital, or to dentists, dermatologists, psychologists, etc 3. Retail: within retail you can have a single tenant building, for example in the downtown area of where you live, you can own a building that is leased out to a coffee shop for instance, or you could have a restaurant in your building, so that’s a single tenant retail. Another type of retail is the small neighborhood service center, like the places that have 5-10 tenants where you go to the dry cleaner, and there’s also a nail salon, or a cash advance business for example. Another type of retail can be a strip mall with let’s say 20-40 tenants, like the place where you go grocery shopping and they also have a bank as a tenant, some food places like Burger King or a big box shopping center where they’ll have a Target, Macy’s, a food court, etc 4. Storage units: this is where people pay you a monthly fee to keep things they’ll never need in your building, and within storage you could focus on storing wine for instance, because people like to collect, but don’t have a lot of space to have a temperature controlled storage at home. If you have a lot of courage, you could store gold for people 5. Land: you could lease your land to all kinds of businesses. For example: for agricultural purposes, to wind farms, for RV’s to park for a few days, for truck drivers to park their trucks when they’re on the road Why commercial and not residential? 1. NNN: this means that your tenants will pay for property taxes, insurance and common area maintenance (also known as CAM), this doesn’t happen in residential 2. With commercial properties you also get better tenants, you can get big companies such as Jack in the Box, or a bank, or a supermarket, and if you can get big name tenants to lease from you, you can increase the value of your property significantly. Why? Because these big companies are unlikely to out of business and the rent is pretty much guaranteed to come in, and the next investor buying your commercial property values that 3. Commercial tenants also sign longer leases: commercial leases can vary from 10-20 years, and sometimes more, there are yearly price increases that are negotiated on those leases, the leases typically start to get increased after year 5 for commercial properties --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


28 Mar 2019

Rank #6

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Questions You Should be Asking the Seller's Real Estate Agent When Interested in a Property

Welcome back to Best Commercial Retail Real Estate Investing Advice Ever! Today we’re going to be learning the questions that I ask a seller’s real estate agent after I take a look at a property on Loopnet and think that this could be interesting. You don’t necessarily need to ask all these questions every single time, but it’s a good idea to go over most of them when you call the seller’s real estate agent. Here is the step-by-step guide for your homework in today's episode: https://montecarlorei.com/questions-you-should-be-asking-the-sellers-real-estate-agent-when-interested-in-a-property/ A brief breakdown of the questions you should be asking the seller's real estate agent is: 1. Introduce yourself 2. How long has the property been on the market? 3. What is the potential you see for this property from an investor's perspective? 4. Are you local? 5. How did you come up with the price? 6. Who is the seller and how long have they owned the property? 7. Is there any known contamination in the property? 8. Does anyone have the right of first refusal (aka ROFR)? 9. Are there any easement agreements? 10. Please send me the rent roll. 11. Is the building historical? 12. Has the building been retrofitted (if older building)? Do you have any estimates to retrofit the building if it hasn't been retrofitted yet? If you're finding this podcast useful, make sure to subscribe to continue learning about commercial real estate investing, and if you can please do me a favor and write a review since we are just getting started, that would be wonderful. You can contact me here: https://montecarlo.home.blog/contact/ --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


15 Mar 2019

Rank #7

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How to Go From 0 to $500M in Retail Real Estate Investments

In this episode we will learn the story of how a successful retail real estate investor got into real estate, what was his first deal like, what has been the best deal of his career, and we’ll also touch a little bit about a not so talked about topic: how to deal with political risks in the city that you invest in. We are interviewing Michael Flight, an expert retail real estate entrepreneur who has been active in commercial real estate over the past 34 years. Michael has handled more than $500 million worth of real estate transactions. You can read this entire interview here: https://montecarlorei.com/how-to-go-from-0-to-500m-in-retail-real-estate-investments/ Tell us bout your best deal. There are a few best deals. There's one that we're still working on. We started managing it in nineteen ninety and we've redeveloped it three times now. We've expanded or renewed most of the tenants in the shopping center. It's a 300,000 square foot shopping center in suburban Chicago. We've actually torn down and rebuilt forty five percent of the shopping center. We took a Walgreens that was doing phenomenal volume and moved them to an aisle parcel that was just vacant, a parking lot. Over the years, the managing partner that became partners with us on a few different projects that we've done, that's just been a great project for us to expose us to a lot of things, not only with that, but geotechnical problems with soil stability. I'm fairly certain that most of the environmental problems are corrected, but every time we stuck a shovel in the dirt over there a new underground storage tank would come up. The other exciting thing was that it was in two major motion pictures. Wayne's World, and Wanted with Morgan Freeman and Angelina Jolie. They blew up one of the stores that we were replacing anyway since they were going out of business. You briefly mentioned that the city wanted you to have a different tenant, can you elaborate there? We have run into that in a number of different municipalities all over the country. It really depends on how strict their zoning laws are. It really depends on the individual city. That's why if you're buying a shopping center, you're going to have to live with whatever is the political system in there. Even if it's in a good state like Texas, it could be a difficult city. You need to know about that in advance. Now, we've had situations where we were doing a facade renovation on our property in Connecticut, next to New Haven. Most of the guys that were on the zoning board, probably three of them, also taught in the Architectural Department of Yale University. They all thought that they knew way better than the property owner what was needed for the shopping center. We went in with plans and they actually redesigned a large majority of the plans. And that's how much control they have over most of the time with the facade renovation. It doesn't require a zoning permit and you would just go in for a building permit. But some of these municipalities have very strict zoning code, signage code, design code. They're into the minute details. Another thing that triggers some things is if the municipality has traffic planners. So if you decide to change any part of the parking lot, they will tell you that you need to do this and that in the parking lot. You just need to be aware of some of the things that go into it. Slightly different than owning apartment buildings. They're more visible and so cities take a more active interest in it, and a lot of times they generate sales taxes, so cities take a larger interest in it as well. They're kind of your partner, but without putting any money into it. Michael Flight www.concordiarealty.com/contact --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


5 Dec 2019

Rank #8

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My First Commercial Real Estate Offer: What Happened (Part 1 of 3)

In this episode I’ll go over my very first offer (which happened about 4 months into my real estate education).  You can read the process here: https://montecarlorei.com/my-first-commercial-real-estate-offer-what-happened-part-1-of-3/ This will be broken down into a few episodes because it’s going to be a detailed explanation from beginning to end, and it will be as follows: How did we decide to make an offer on this property What did we ask the real estate agent to send us during the due diligence process Are we running this as a business or selling after remodeling, plus all the financial calculations Which items our attorney looked at and objected to from the title report What ended up happening and conclusion Things to note on the offer agreement We used the standard commercial offer agreement, and as noted above, we had to give the seller all of the inspections if we didn’t end up buying the property, so they could give them to the next buyer. A few other things that I highlighted on the purchase agreement were: 1. We needed to deliver the removal of contingencies or cancel the agreement within those 45 days, 2. If there was any problem with his purchase, we would have to resolve it through arbitration, 3. Both buyer and seller pay for escrow fees, the seller pays for County transfer fees, the seller pays for the city transfer fee, the buyer pays for all the reports, and the buyer also pays for the title insurance policy. These are just standard terms and we agreed to them. Things to ask the real estate agent to send during the due diligence process: 1. Recommendations for Structural Engineers, roof inspector, and contacts in the city of Salinas since she had been a broker there for a very long time, and she knew quite a few people. 2. The last structural report done on the property. 3. The blueprints so we can give them to our architect, otherwise if the architect did not have the blueprints we would have to pay around $10,000 to get have them redone. I needed those blueprints not only in paper format, but also in digital format since I wanted to forward it to our architect digitally via email. Both of these cost money so since she had the original blueprint (and it was about 11 pages long) she had to scan the blueprints and send them to me. 4. Rent comps, and sales comps in the area. Both of these are important in order for us to understand what we could rent the property for (and therefore what we could sell the property for), and what were people paying in that area once the property was fully leased and fully remodeled. All of this information was used in my financial analysis to do a best and worst case scenario so we could see what was going to be an ideal price for this property. Note that I asked for leased comps and sales comps from two different real estate agents and both of them provided me different numbers so I had to average them out to come up with the final number. You really want to make sure that you ask for comps from more than one real estate agent. 5. The lease for the nail salon, they were on a month-to-month lease and I wanted to understand if they were below market or not. It’s also important for us to have a copy of that. 6. Who the owner of the building next door was, because we were sharing a wall with them and we needed to understand if they did anything to the wall or not.  --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


5 Apr 2019

Rank #9

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How to Analyze a Commercial Property

In this analysis, I will be using a real property that I came across. It is a self-storage portfolio in Missouri. They had four properties and an additional property was in a strip mall, so they were leasing it. This property was interesting because it was in one of our target markets. You can read this entire episode here: https://montecarlorei.com/how-to-analyze-a-commercial-property/ We asked for the offering memorandum, sometimes the OM is readily available on the website that you find the property, sometimes you just need to sign a non-disclosure agreement before getting it. The first thing we do when analyzing a property is taking all of the financial analysis numbers and putting into a spreadsheet. That’s all of the existing income, and all of the expenses on the Excel spreadsheet. Everything is broken down as it shows in the OM. Some of the expenses for this particular property are: online advertising expenses, bank charges, employee benefits, insurance, here is a line item for the leased property that is on the trip center, payroll expenses, management fees, security expenses, telephone expenses, repair expenses, general and admin, utilities and the most important one, property taxes. Property taxes are the expenses that can kill deals for inexperienced investors. Why? Because the real estate agent is going to put the existing property taxes on their analysis. And typically you are buying the property for a higher price than what the seller bought it for. And so property taxes can double and sometimes triple as it is in this example. And if you don’t realize that until the last minute, or even until after you purchased the property, that can be a huge problem. So in this example, the real estate agent put the existing property taxes, and for a 3 million dollar property, these taxes were $20,000 per year. I asked the real estate agent, what do you estimate the property taxes will be at the $3 million purchase price? And the real estate agent answered $61,000. That is three times what they had in their financial analysis. This is something that you really need to be watching out for, for these type of deals, and also for other asset classes. As we have talked about before in the retail world, even though your tenants will pay for that tax, you really want to be considering if they can afford to pay for these additional taxes. And in the retail example, a lot of times they may have in their lease that the only increase in tax that they’re willing to pay is an additional 10 percent per year, for example. And 10 percent per year isn’t going to cut it if your property taxes are being tripled. Contact me here: https://montecarlorei.com/contact-us/ Subscribe to our newsletter on top of our website. --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


16 Jan 2020

Rank #10

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Loans: The Good, the Bad and the Ugly - Self Storage, Who is The Best Commercial Lender (Part 2)

Today we cover self storage lending, how long should you stabilize a property before refinancing, and the best kept secret is out: who is the best commercial lender in the world? We are interviewing Billy Brown, the Vice President of Business Development for Alternative Capital Solutions. You can read this full interview here: https://montecarlorei.com/loans-the-good-the-bad-and-the-ugly-self-storage-and-what-is-the-absolute-best-commercial-lender-part-2/ Self Storage Loans Did you know that SBA will lend on self storage? SBA has a lot of options for self storage if it's the right size. Even for ground up investments. What would be a typical loan size? Probably over a million. If you're going to do anything ground up on the self-storage, it's going to be over a million because the price of steel right now and the price of land. But you can get up to four years interest only. This is one where you come in and do some fun stuff where you go build it, lease it up, let it season a few years. Then once you have a couple of years tax returns, the property becomes more valuable because the NOI goes up and then you can do a cash out refinance. For how long should we stabilize the property until we do the refinance? I would start on the front end because sometimes I can even help you give me some tips on negotiating the financing because I love seller financing. The triplex we bought, as well as the office complex that we're buying is under land contract, also called seller financing. You can do some fun stuff with the seller financing. There are many strategies when you have seller financing, for the triplex that we bought, I negotiated a low interest rate of 4% and I negotiated 90 days before my first payment. And you'll justify by saying "I want to give you your price, but my term, and my terms are this: lower interest rate, 90 days before my first payment because I have to stabilize the property. I've to get tenants in there, I've to put a lot of money into this I don't have more money into it for somebody to back out. And I want a longer loan with a couple extensions built in. And they did it for me. You can also negotiate a limited recourse or non recourse. How long was the loan for? It really just depends on the terms that you’re negotiating. If you get decent terms, why would you want refinance? Most sellers want an in and out in six to twelve months. As a lender, we want to see 12 months of financials from the owner. The story also helps, and we can help with that as well. Many sellers, especially the mom and pop deals on self-storage, or multifamily, or smaller multifamily don’t have very good financials. They mix their personal expenses in with the deal, therefore, they can’t get the prices they want. So you can come in and say “I’ll give you your price, but under my terms”. But because you don’t have proper bookkeeping, I need at least a year, 18 months, two years, to go run the property professionally so I can go get a proper loan. I usually start at two years and negotiate down to one if needed. Typically you can get a decent lending after one year. Who is the absolute best commercial lender in the market? The seller. Why would a commercial lender like myself, and an investor, want to tell you “Go get seller financing”? Here’s a little secret: commercial lenders are much better at refinances than they are at purchases. Billy Brown www.billybrown.me www.altcapsolutions.com Subscribe to our newsletter here: http://montecarlorei.com --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


10 Oct 2019

Rank #11

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Making a Case for Self Storage Investing

In this episode we're learning  why you should invest in self storage, how to select the location to invest, what are the biggest challenges with self storage and how to select and hire the best property manager for your locations. We're interviewing Ryan Gibson, a co-founder of Spartan Investment Group. You can read the full interview here: https://montecarlorei.com/making-a-case-for-self-storage-investing/ Why should real estate investors invest in self storage? Self storage is something that we looked at back in 2016, we made a pivot from investing in residential real estate, we were building condos, new houses, flipping houses, and we landed in self storage for a couple of reasons: 1. We liked how straight forward it was, how operationally easier it was to manage than a multifamily property. We looked at vacancy trends, rent growth, saturation and all the things that people like about self storage. It is also one of the least foreclosed upon asset classes during the last recession. How do you guys go about deciding where to invest in self storage? We focus on 150 MSA’s across the United States. And those MSA’s have a key component of population growth. Population growth is the number one driver of self storage utilization, overall market saturation, job growth, demographics of our ideal consumer, income levels, job placement, migration trends, and we look for cities and areas, or an MSA that are trending positive and have a good outlook for population. We look at rental rates as well. We have a hard time justifying building in certain markets, brand new storage, if the rental rates are, say less than $6 a square foot, it would be difficult to do that. What are some of the biggest challenges with self storage? I would say the number one challenge is finding the right projects. We looked at 880 projects last year, we put out six offers, and we bought three. It's a very institutionalized asset class. A lot of projects that are over $5 million are getting all cash offers, so it’s very difficult to compete with a lot of the institutional capital, and larger players in the market because they have a lower cost of capital than we do. Because we're offering our investors a market rate return on equity and they have a good team of folks that can find the same data that we're finding. Moving on to property manager, how do you select and hire the best property manager and what do they do all day long?  Some folks will hire third party property management companies like Cubesmart, Extra Space, West Coast Self Storage, Public Storage. They might hire a company like that to come in and do the property management for them, but they're still going to have to hire somebody that works at the desk, that the owner is responsible for covering that expense. The property management companies will take a fee, usually 6% of gross revenue, to manage that facility. We do the property management asset management in house. What is your second favorite asset class after self storage and why? We own an RV park in west Texas and that has been my favorite deal ever. Very similar in characteristics to a mobile home park in that the tenants are there full time and they live there right now, rent is about $800 a month (and utilities are included in that). Not to have a whole lot of amenities and have the lowest entries for housing, we just collect a lot rent and the folks bring in their own RVs and mobile homes, they purchase their own homes, it does well in good times, and in bad times. Ryan Gibson www.spartan-investors.com ryan@spartan-investors.com --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


11 Jul 2019

Rank #12

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What is a Syndication, How to Underwrite Deals for a Recession, What is Replacement Cost

Today we'll learn what is a real estate syndication, what types of asset classes are safer so we can be prepared when we go into a recession, how do to underwrite and pick deals, as well as what does replacement cost mean. We're interviewing Matt Shamus, the founder of Driven Capital Partners, a real estate private equity firm based in California.   Read this episode here: https://montecarlorei.com/what-is-a-syndication-how-to-underwrite-deals-what-is-replacement-cost/ What is a syndication? A syndication is pooling assets together to achieve something that neither of us could achieve on our own. That term is used very commonly, especially today in real estate investing for a structure where you have the sponsor who is outsourcing the deal, underwriting the deal, packaging it together, and then raising money from individual passive investors, that structure is called syndication. I actually don’t love the term syndication or syndicator, and I don’t really apply that to what we do because it has a bit of a connotation. In fact, one of our investors recently told me that he considers our group a little bit more like an investing club than a syndication, and I think that’s the approach that we’re taking. Is there a particular asset class that you prefer today? “Today” is a very important modifier to the question because we are in May, 2019 and in the middle of a trade war between the United States and China, there’s a lot of uncertainty in the stock market. There’s a lot of uncertainty with regard to when are we going into a recession, and our belief is that we will be entering a recession at some point. What that means as a real estate investor is that you have a choice: Do I stay on the sidelines and see what happens and forgo potential gains for the sake of being “conservative” and waiting it out? Or do I take the approach that everything that I’m investing in, I’m looking at a little bit more closely, specifically through the lens of “we’re going to enter a recession at some point”. Our investors want the benefits of investing in real estate, but they don't have the time or expertise. Can you elaborate on what does it mean when a property is below replacement cost? I’m writing an offer today on an industrial warehouse, it’s 86,000 square feet, it’s mostly warehouse in a great location appealing to someone that needs a distribution center, high height space, which is essentially space that a large truck can back up into and you can stack the merchandise very high so you can maximize the square footage, and also has office space. That combination is very appealing in this particular market. We are looking at buying this property for less than $60 a square foot. If I were to build this exact same property on a similar parcel, I couldn’t build it for $60 a foot. I’d have to pay more just to build the property and then I would have a vacant property sitting there waiting to be leased. So the risk associated with the development is meaningful. What we look for is where can we buy something that is below the cost to replace it. That’s one way of determining if it’s undervalued, and it’s one way that a lot of brokers will use if you look at an offering memo. One thing to watch out for is that brokers are salespeople. It’s easy to say that this asset is below replacement cost, but what they will never they tell you is “this actually would be replacement cost, and here are the real numbers that we used”. Below replacement cost is a term that is used very loosely with a lot of brokers. Matt Shamus matt@drivencap.com www.drivencap.com --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


6 Jun 2019

Rank #13

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Top 3 Things to Know Before Investing in Hotels

Today we’re learning what are the top things to watch out for when investing in hotels. We’re interviewing Jerome Yuan, CIO of ASAP Holdings. He has assisted with acquisitions and dispositions of over 33 hotels in the past 9 years. You can read this entire interview here: https://montecarlorei.com/top-3-things-to-know-about-investing-in-hotels/ Why should investors invest in hotels, especially nowadays? I heard that where the economy might end up going, it might be a bit risky. But let's let's see what you have to say on that. They say the hotels are probably the most sensitive to economic cycles. They're probably the first to get any type of effect, but they're also the first to rebound out of any type of recession as well. For us, investing in hotels is both a real estate play and also an operational play. We believe that hotels are like 50% real estate and 50% operations. Location matters a lot too, just like any other commercial real estate deal. But then you also have, depending on the hotel, 50 to 100 employees there that you have to take care of. You have guests checking in and out on a daily basis. The operational side is really where you can make a difference and improve the cash flow of the property. And we believe that improving hotels are are the fastest and easiest way to improve cash flows in commercial real estate just because of the daily transactions that you have with customers and hotel guests. What is a typical management fee? The property manager usually takes a 2.5-3% percent fee off of the of the gross income. It's pretty reasonable. What are some of the top things that investors should keep in mind and watch out for when investing in hotels? 1. Investors should really look at the brand of the hotel, or if there is a brand, and if you're buying a boutique hotel or independent, those hotels rely on the location. If it's a beachfront property, you won't have any problems. But if you have an unbranded hotel in a suburban area where it's mainly business travelers, you're going to need to be careful and make sure that the brand is the right brand for the hotel. 2. The other thing is really the renovation costs after purchasing the hotel. Every brand requires the new owner to renovate it. They call it a property improvement plan that's issued by the brand. You've to make sure that you cost out every item and avoid any cost overruns because that just eats into your return on your investment. I think those two main things are the bread and butter of what to invest in for hotels. 3. Location. As long as you're in a good location, you might not need a brand. But some brands are stronger than others, so a Marriott would be stronger than a Four Points or something like that. So that's very important. Do you look at Airbnb laws in that particular city? We don't focus on that too much. The way we invest in hotels, they're mainly business travel hotels. We'll have hotels in the suburbs, or near office parks, and things like that. We don't really compete with Airbnb, at least we don't think we do as much. They definitely do affect hotels stay, I do believe that, but the business traveler is there for one night, two nights, and then they're out of the hotel most of the day at business meetings. If we were to start transitioning our investment to resort, luxury, or tourist type of hotels, then we would definitely be looking more at how the local Airbnb laws are changing. Jerome Yuan www.asapholdings.com Subscribe to our newsletter here: https://montecarlorei.com/ --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


21 Nov 2019

Rank #14

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Things to Do When You’re in Contract to Purchase a Commercial Property

What happens as soon as you get in contract to purchase a property? What are some of the things that you need to keep in mind? What do you need to do and how do you need to organize yourself? You can read this entire episode here: https://montecarlorei.com/things-to-do-when-youre-in-contract-to-purchase-a-commercial-property/ The first step is to have something really simple, like a word document where you will have all of the information on the property in this document. My document has: - The contact info for the real estate agents. - The timeline for the deal. - The link to the property listing. - How many days I have until closing. - A link to all of the documents for the due diligence. - All of the information from the lenders that I have so far and that I have contacted. - A list of potential property managers for this property. - My to do list for the next week. - Things that the real estate agent owes me in terms of documents. - A list of things that are outstanding that I need to take care of in terms of hiring people, or asking for recommendations for lawyers. - A list of "surprises" that you find out during the due diligence process. Week 1 - Reach out to a couple of lenders and finalize a loan application. - Look for a few more lenders that are local to the area, as well as about three national banks. - Break down the finances for the lender, and this is going to be breaking down what you're going to do to the property to increase value. For example, we can increase rents on the property by about five to 10 percent (this is self-storage). We can also decrease vacancy. This is going to have to be completely broken down into an excel sheet, by unit. - Pick a shortlist of inspectors for this property that are local and that can deliver the inspection within a few days of having it done. - Review a copy of the existing management contract. - Find a lawyer that is local and familiar with that states laws. - Find a copy of the state's lease which is a standard lease for that state. - Get all the documentation for that income and expenses for the last two years for this property. And this will also be for the lender. - Look for potential new property managers, if that is our plan. Week 2 - Have the lawyer review the management contract and make any adjustments for the actual lease contract for the units. - Finalize the profit and loss statement and our projected vacancy for that first year. - Finalize how we're going to structure the payment for a potential contractor that will work on renting the vacant units. - Finalize the loan packages for the banks. - Call the remainder lenders that are on our list that we found on the first week. - Look for an insurance company, and we might just continue using the same insurance company that is insuring the property to make things easier. So we need to get their contact information. Week 3 - Make sure that we get the final inspection reports from the inspectors. - Start narrowing down the list of lenders that will move forward with this property. Week 4 This week is currently open for the items that will come up during weeks 1, 2 and 3. We're going to be dealing with whatever we uncover, or still need at that time. Week 5 - Finalize things with the lender and we will be looking at the miscellaneous things that we need to get done after we close on the property. - Find phone centers that are familiar with taking calls for self-storage properties. Subscribe to our newsletter here: https://montecarlorei.com/ --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


5 Mar 2020

Rank #15

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New Year, New Life: How to Make Your Real Estate Dreams Come True

In the light of setting goals for the New Year, improving our personal lives, as well as our professional lives, we're going to talk about a course called the Landmark Forum that has had a huge impact in my life, as well as my friend Bronson Hill's life. Bronson has been investing in real estate since 2006 and is an active general partner in over 700 multi-family units. Link to available courses throughout the world: https://www.landmarkworldwide.com/searchResults?prgid=7&pgid=117&crid=840&ctid=-1&sdt=-1&ofr=true You can read this entire interview here: https://bit.ly/35DoNkb Why did you decide to take Landmark after we were having a conversation at an event earlier this year? I'd heard about Landmark from several people and they all were very successful people. Then I heard your endorsement when you said, hey, you have to take it, it's just going to change your life. I was like, OK, I guess I have to take it now. I guess it's going to change my life. That's what got me to sign up. I really didn't have much by way of expectations. I just kind of just went in with an open mind and the results of it were pretty profound. It really lived up to that endorsement that you gave that it really has substantially changed my life in the areas of communication, becoming more authentic, particularly in areas where I've been inauthentic with people, correcting some of those things, and really opening up all different types of new possibilities for business, and for relationships. Just pretty much in every way in so many aspects of my life. I have not found a personal development event that is better than this event. One of the distinctions that is near and dear to my heart was when they told us to, "Give up being right, even though we think we might be right." I was thinking what do you mean? If I'm right, I'm right. What do you mean give up being right? And I vividly remember when someone close to me said something, and I was doing my homework of giving up being right. So I was going to react to what that person said. And I chose to zip it. And it turned out that that person was saying something completely different than what I thought he was saying. So that has been super helpful as well. What other distinctions are now part of your life? Being right is an issue for a lot of people and of me, I've always right, but everybody else isn't. It's something that we all think that we're right. It can be hard to let go. And I felt like this gives a real, authentic way. And I keep using that word authentic. I think there's a lot of ways we can move forward, but we really lose connection with people or we don't really live out of a place of integrity with ourselves. And this program really gives the opportunity to walk in a way that feels more authentic, where you can actually be closer to people. And I've experienced that. I think when we can let go of having to be right, and this will give you tools on how to do that. Landmark Forum classes available can be found here: https://www.landmarkworldwide.com/searchResults?prgid=7&pgid=117&crid=840&ctid=-1&sdt=-1&ofr=true Let us know if you end up taking it: https://www.linkedin.com/in/steffbold/ Bronson Hill www,growingcashflow.com/ --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


19 Dec 2019

Rank #16

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How You Can Lose 50% of Your Property Value in One Downturn: The Quadruple Whammy

In today's episode I go over how you can potentially lose 50% of the value of your property in one economic downturn. You could potentially lose less, you could potentially lose more, the point of this episode is to share with you the key points that make property values go down in a downturn. You can read this entire episode here: https://montecarlorei.com/how-you-can-lose-50-of-your-property-value-in-one-downturn-the-quadruple-whammy/ Let’s take an example of a commercial retail property that you purchased for 10 million dollars at a 5% cap rate. This means that that property is currently making $500,000 in NOI. Let’s say, for example, that this property has 25,000 square feet. You have now have a 10 million dollar property making $500,000 NOI. 1. In this great economy, the rents are higher. Let’s say you were getting $20 per square foot per year across the board on all of your 25,000 sf of property. 2. Your property is 100% leased. 3. The interest rates are low. When property prices are rising, that means that interest rates are decreasing and more people can buy more property. When interest rates are higher, you do not qualify for as big of a loan as when interest rates are low because you have a specific dollar amount to pay every month. 4. And that brings us full circle. When interest rates are low, you can buy more property. More people are buying properties and naturally cap rates compress, they get smaller and smaller. So that’s what brings us to the 5% cap rate that you bought this property for. Quadruple Whammy Gone Wrong – Economic Downturn Let’s say something pops in the economy. Here is what is going to happen to all these four bullet points that I just described. 1. Your rents are going to go down. Instead of leasing for $20 per square foot per year, let’s say that about 25% of the property is now renting at $16 per square foot per year because some leases are going to be long term. Therefore, 75% of your tenants are still going to be on the $20 per square foot per year lease. Now, we dropped to $16 per square foot per year just because people cannot afford the $20, and your neighbors are also charging $16/sf so you cannot charge more. The total net operating income on that property is now $475,000. Again, this is if you are 100% leased. 2. Vacancies are higher. You are going to get some vacancies in that property, and is going to take longer to get them filled. Let’s be conservative and have a 15% vacancy rate at that $475,000 that you are now making because you’re charging a little bit less rent. You’re now making $403,000 in NOI. Now that your property just lost almost $100,000 in that operating income, unfortunately everyone is selling, because nobody can afford their mortgage, because they bought at a super high price, and they don’t have enough rent income to pay for the mortgage. 3. Interest rates are up, and buyers can afford less “property”. 4. Cap rates are higher because it’s a buyer’s market. Let’s say that from a 5% cap rate, the market is now selling properties at an 8% cap rate. So that $403,000 net operating income divided by an 8% cap brings the value of your property to $5,037,500. You just lost five million dollars of property value. Let’s just let that sink in for a bit. Another important side of this coin is the potential lost income of not making an investment. Let’s say that you found a great deal back in 2016 that was bringing you 20% cash on cash return. At a $1,000,000 cash investment, you’d have lost $600,000 so far in three years (we’re currently in 2019)  if you had not made the investment at that time. Subscribe to our newsletter here: https://montecarlorei.com/ --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


24 Oct 2019

Rank #17

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How to Find & Analyze a Real Estate Market

Learn how to find, analyze and learn more about micro markets for your real estate investments. Victor Menasce has been investing in real estate for the last nine years in both Canada and the United States, and has done all kinds of commercial projects. You can read this entire episode here: https://montecarlorei.com/how-to-find-and-analyze-a-market-for-your-real-estate-investments/ What are some market conditions that people should be looking for in real estate? I’m not actually a real estate person per se. I really think of myself more as a business person. When you talk to real estate people, they tend to get wrapped around the axle talking about things like comparable sales and things like that. And that’s useful, but it’s not the whole picture. I’m a much bigger believer in the fundamentals of the very simple law of supply and demand. If you’ve an excess of supply and a shortage of demand, you can predict what’s going to happen. Prices are going to fall if you have a shortage of supply and an excess of demand. And those conditions are going to persist. You have a really robust market from the point of view of an investor or developer, because there’s going to always be upward pressure on prices, upward pressure on rent, upward pressure on valuations. And that’s what I look for. I want to find markets, and when I say markets, I really mean micro markets. Micro markets where those conditions persist, they exist. They’re not artificial. They’re going to be there for a long time for some good reason. How do you come across these locations, typically? Is it someone that just mentions it to you, or you come across an article? It’s almost always through a conversation where someone will say something and we’ll say, that’s intriguing, and then look into it a little bit deeper and see if there’s really something there. Not only to see if those market conditions are there, but who else is in the market? Is it a market where it’s a closed market and there’s only two or three players? Or is it one that is open to other folks coming into the market and adding some capacity. We talk to a lot of investors every day, and I think most listeners of your show would agree that today, there’s more money chasing deals than there are in fact opportunities, at least at a decent price. And because there’s so much money chasing deals, prices are getting bid up into the stratosphere. Prices are getting bid up to levels that frankly don’t make sense. And my calculator works the same this year as it did two years ago, as it did four years ago. And it’s funny how for some investors the math changes, and it shouldn’t. When you are assessing a particular property, how do you approach it from it being a fit for the monetary goals of the project? Our focus is on things that are recession resistant, recession proof. I don’t want to be subject to the vagaries of a market cycle. For that reason, I won’t go into retail, for example, if I have a vacancy in a retail strip mall, that location could be vacant for a year or two if I’m waiting for that perfect tenant who’s looking for exactly that square footage. And then of course, you’ve got to do tenant improvements, you’ve got to do a build out. So you really are looking for that needle in a haystack type of perfect fit. One way is to find them. The second way is to manufacture them out of thin air, to create them. Victor Menasce victorjm.com Magnetic Capital – How To Raise All The Money You Need For ANY Worthy Venture --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


6 Feb 2020

Rank #18

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Leasing Retail Property to National Tenants and What to Look for During Due Diligence (Part 1 of 2)

Today we’re interviewing James Chung, he is the Executive Managing Director and Managing Principal for the Western US for Cushman & Wakefield's Retail platform. He has been with the company for 15 years and has worked with over 30 national tenants and over 9 million sf of retail across the Bay Area in Silicon Valley. Some of his clients are: AT&T, Chase Bank, Adidas, In&Out Burger, and Sur La Table. Read the full interview here: https://montecarlorei.com/leasing-retail-property-to-national-tenants-and-what-to-look-for-during-due-diligence-part-1-of-2/ Tips for Listing Retail Properties for Lease and What to Charge Tenants per Square Foot First you need to understand the health of the shopping center, and one way to do that is to understand the health ratio of the tenants. The health ratio is the relationship between gross sales and total occupancy cost. Then go through the health ratio tenant by tenant, and understand if the rent they're paying is equitable to their sales performance. The challenge with pricing is that geography will often dictate pricing. However, you can have an asset next door to you charging half the rent! Part of that reason is co-tenancy, part of it is how updated the center is, part of it is who anchors the center, as well as how accessible the center is. Retail is not commoditized in the way where we can say "By virtue of being on this block or that block, your rent should be X", it's like when you are getting comps for a home, the price/sf in that area gives you an indication, but it is within 10 to 20 to 30% of where things could be, depending on the home itself. Block-by-block can change dramatically. Are the tenants in place at highest and best use for the positions that they are in the shopping center? What are the lease expiration dates, who's lease is coming up and when, who is healthy or not, where we could reposition tenants, etc. What are Good Types of Tenants to Have in Your Center? It depends on the opportunity, if it's a neighborhood shopping center, the most coveted asset class would be a grocery anchored shopping center. One of the most desirable investment opportunities for people, especially in the Bay Area are grocery-anchored centers in the retail space. If you're in any neighborhood, if there is a strong national grocery tenant who is the hub of the center - that is typically the most desirable. Besides that, there are lots of asset classes like malls, lifestyle centers, outlet malls, and so many different types of shopping centers, but if he had to pick one, he would probably say grocery anchored. How Can We Make Money in Retail When the Cap Rates Are so Low in This Market, and What Should We Look For in a Deal? Low cap rates are actually not necessarily a bad thing if the income on the property is under market. Even if you're paying 3.5% cap on a deal but the rent is 50% of what it should be, that's when market intelligence comes into play, and understanding how things are being underwritten. There is currently a compression in cap rates just by virtue of geography and being in Silicon Valley, but there still are great opportunities out there, you just may not find them listed openly. It's about understanding how to unlock the value in whatever asset you're looking at because there are many ways to skin the cat, and oftentimes people are looking at it very one-dimensionally, when in fact there may be multiple ways to create value. Contact James Chung here: http://www.cushmanwakefield.com/en/people/james-chung --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


25 Apr 2019

Rank #19

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Office Leases: Lease Negotiation Points, What Makes for a Good Landlord, What Does "Base Year" Mean on a Lease

In this episode we cover what does the base year mean in office leasing, what are specific things that startups want to negotiate on a lease, what happens when a startup goes out of business, LOI’s, lease negotiation & TI’s (also called lease concessions), and lastly, what makes for a good office landlord. You can read this episode here: https://montecarlorei.com/office-leases-lease-negotiation-points-what-makes-for-a-good-landlord-what-does-base-year-mean-on-a-lease/ For offices, are the leases typically NNN? No. It's typically what's called a "full service lease" where you pay your rent, and it's pretty much in all in rent. The landlord covers the utilities, the janitorial,  the operating expenses, and real estate taxes. The way that it works is you get what's called a base year. So let's say we completed our lease in 2019 and we do a three year term. You get a "base year" and 2019 is your first year, you don't need to pay any real estate taxes and operating expenses. But in the following year you are responsible for paying your proportionate share of the increase in operating expenses and real estate taxes. So let's use round numbers, for example let's say that you occupied 10% of a building. The operating expense in real estate taxes were $100 in 2019 and they went up to $200 in 2020, a $100 increase. All you need to pay is your proportionate share of $100, in this case $10. But as you do a long term lease, 7-10 years, it's growing every year, and that number can become significant. So a lot of companies will renegotiate their lease, they will do what's called an extension, or they'll expand and renegotiate the lease to get a brand new base year so that they don't have to incur those costs. Has it ever happened that a startup went out of business, and what happened to that contract? What are the recourses for the landlord?  They go into what’s called a default and the landlord eventually ends up needing to collect their money. This situation has come up numerous times and what we do is find a new tenant to sublease the space. We market it for sublease, and once you come to an agreement on terms, the landlord will say “Okay, instead of subleasing from this company who has gone bankrupt, we’ll wrap up that lease and do a new direct deal with this new tenant”. So we’re able to bring a new tenant into the space and, by doing that, cut our client out of any rent responsibility moving forward. What are some specific things that startups want to negotiate in a lease that we haven't covered yet? The few things that we've covered so far are the big items such as rent, term, free rent, tenant improvement allowance, and the security deposit. Things we haven't talked about yet are: let's say a landlord is forcing us into a five year deal, but we know we're not going to be able to make it for the full five years. We try to negotiate a termination option where after three years we can terminate with no penalty, or a very small penalty such as two months rent. Another item is sublease rights, a landlord will generally give you the right to sublease, but any profit that you get for that sublease is split 50-50 between the tenant and the landlord since they want to discourage tenants to take space and sublease for a profit. When you're in rapid expansion mode we try to negotiate what's called a right of first refusal, where if a space becomes available in the building, the landlord is required to present it to the startup first at a fair market value. Reuben Torenberg reuben.torenberg@cbre.com Steffany's Linkedin: https://www.linkedin.com/in/steffbold/ --- Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support


30 May 2019

Rank #20