Finding distressed commercial properties in a healthy economy?
FL · Member since 2016 · 912 posts · 107 votes
Finding distressed commercial properties in a healthy economy?
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
8yGood luck with that. I look at about 1,000 a week for clients. I only work with buyers who send financial statements so I can see capability.
Buyers have to demonstrate they are paying all cash or they have funds say buying 3 million property and they have 750,000 down and get a regular loan for the rest.
There is an incredible amount of wealth out there right now.
40 Replies
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes8y
Good luck with that. I look at about 1,000 a week for clients. I only work with buyers who send financial statements so I can see capability.
Buyers have to demonstrate they are paying all cash or they have funds say buying 3 million property and they have 750,000 down and get a regular loan for the rest.
There is an incredible amount of wealth out there right now.
- 8yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
We have a very strong economy. Unemployment, rents, net population growth. if you want distressed, go buy an office in NNJ or Youngstown, Ohio. Or North Dakota post-oil boom.
- FL · Member since 2016 · 912 posts · 107 votes8y
Originally posted by @Joel Owens:
Good luck with that. I look at about 1,000 a week for clients. I only work with buyers who send financial statements so I can see capability.
Buyers have to demonstrate they are paying all cash or they have funds say buying 3 million property and they have 750,000 down and get a regular loan for the rest.
There is an incredible amount of wealth out there right now.
So you agree with what he says?
Any tips on finding distressed commercial properties at a time like this?
- Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes8yIt seems personal network and relationships are even more important in commercial than residential . The distressed properties these days are likely more in distressed areas too . I don’t hear about much flipping in commercial . There is value add but the properties usually aren’t sold for several years . Not sure if that is the type of flipping you are talking about or buying and literally selling it within a few months .
- FL · Member since 2016 · 912 posts · 107 votes8y
Originally posted by @Joseph M.:
It seems personal network and relationships are even more important in commercial than residential . The distressed properties these days are likely more in distressed areas too .
I don’t hear about much flipping in commercial . There is value add but the properties usually aren’t sold for several years .
Not sure if that is the type of flipping you are talking about or buying and literally selling it within a few months .
Either one. What should I look for in value added? Vacancies and maintenance issues?
- Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes8y
@Patrick Philip distressed commercial exists in the smaller property/ less hot markets like I am in. From what I've seen there is either a structural problem or possibly just an owner not paying attention. For instance in my town there are a lot of vacant medical office properties right now. That's a structural problem because there are just less small medical practices than there use to be to rent them.
Combine that with the fact that a lot less small businesses use office space now because it's much easier to just operate from home these days and you get a lot of vacancy. And because they've sat vacant awhile there's lots of deferred maintenance.
I bought up some of these type office properties last year at good prices with the intent to fix them up a bit, and find new tenants.
I'm having mixed results and I suspect it's going to be a 3-5 year project because I'm having the same problem trying to find good office tenants and it takes much longer than residential would. The payoff could be much higher than residential but there is more risk and a longer time-frame involved.
You can find the same situation in some areas of retail today due to the Amazon effect/'retail apocalypse'. There are companies out there 'flipping' at a higher level focused specifically on old Sears and Kmart stores.
- Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes8y
There are always business failing. If the business owns a building it will fit your criteria. Last time I went to title company finding a 150K sf building the owner was behind and ready to get foreclosed it was one of the largest public cable services call center. A public company. If you are a licensed realtor you can possibly acquire a business opportunities that is not making it. Often it is a restaurant, dry cleaner. You will not able to acquire the property, however.
- FL · Member since 2016 · 912 posts · 107 votes8y
Originally posted by @Sam Shueh:
There are always business failing. If the business owns a building it will fit your criteria. Last time I went to title company finding a 150K sf building the owner was behind and ready to get foreclosed it was one of the largest public cable services call center. A public company. If you are a licensed realtor you can possibly acquire a business opportunities that is not making it. Often it is a restaurant, dry cleaner. You will not able to acquire the property, however.
Why wouldn't I be able to acquire the property?
- Rental Property Investor · NJ · Member since 2018 · 5 posts · 2 votes8y
Commercial property is a bad place to be in. Like several posters mentioned above, there is a constant revolving door of businesses in and out because they fail or can no longer pay their rent and they remain vacant for months, sometimes years. Also, a lot of freelancers and contractors operate from home because we’re heading into a remote and mobile economy
I leased an office space unit in a suite of 6 different units for 2 years and in that time I saw those units change hands 7 different times. One of the units was vacant the entire time I was there.
Better off flipping residential. My 0.02.
- FL · Member since 2016 · 912 posts · 107 votes8y
Originally posted by @John Ferrughelli:
Commercial property is a bad place to be in. Like several posters mentioned above, there is a constant revolving door of businesses in and out because they fail or can no longer pay their rent and they remain vacant for months, sometimes years. Also, a lot of freelancers and contractors operate from home because we’re heading into a remote and mobile economy
I leased an office space unit in a suite of 6 different units for 2 years and in that time I saw those units change hands 7 different times. One of the units was vacant the entire time I was there.
Better off flipping residential. My 0.02.
The only reason I might be attracted to commercial is the size of the deal. If I could flip a $5 million hotel into a $7 million hotel or something like that. But I've never actually been able to run numbers on a potential deal because I haven't found any.
I'm going to call large commercial brokerages just for fun even if I don't end up buying anything they send me.
- Austin, TX · Member since 2018 · 51 posts · 48 votes8y
In North Austin I'm seeing a fair number of retail vacancies at the moment - a RE attorney I work with said that rising property taxes are putting extra pressure on NNN tenants to the point that some owners are eating part of the rent increases so to retain tenants. We are in the process of selling a commercial property in downtown but will be using the proceeds to purchase MF. IF I was to shop for commercial space it would be service oriented (can't buy it from Amazon) or a medical office space near a hospital or medical center. Specialists still need space for patient visits - be a while before telemedicine allows them to examine patients remotely. Bars and restaurants can be okay if they have the traffic or draw. If you are looking at a building that formerly housed one or the other, investigate why they moved on.
On the other hand, yoga studios seem to be doing great . . . this IS Austin, after all.
- Rental Property Investor · NJ · Member since 2018 · 5 posts · 2 votes8y
Originally posted by @Patrick Philip:
Originally posted by @John Ferrughelli:
Commercial property is a bad place to be in. Like several posters mentioned above, there is a constant revolving door of businesses in and out because they fail or can no longer pay their rent and they remain vacant for months, sometimes years. Also, a lot of freelancers and contractors operate from home because we’re heading into a remote and mobile economy
I leased an office space unit in a suite of 6 different units for 2 years and in that time I saw those units change hands 7 different times. One of the units was vacant the entire time I was there.
Better off flipping residential. My 0.02.
The only reason I might be attracted to commercial is the size of the deal. If I could flip a $5 million hotel into a $7 million hotel or something like that. But I've never actually been able to run numbers on a potential deal because I haven't found any.
I'm going to call large commercial brokerages just for fun even if I don't end up buying anything they send me.
Yes i understand your mindset there. The larger the size of the deal, the more cash. Those deals are extremely hard to find and usually only can come by extremely wealthy people who have the ability to throw down 500,000 to 1 million in cash and not even realize it’s gone. That’s the difficult and unfortunate part about it. The little guy is completely squeezed out.
- New to Real Estate · Dedham, MA · Member since 2017 · 85 posts · 21 votes8y
As a dissenting opinion, in the area I'm in, there's quite a bit of opportunity for free standing retail. A friend of mine is trying get me involved on the side due to the # of projects and opportunities he comes across.
We've created a separate entity to his current long term hold properties and are targeting flips into REITS/Investment funds. The last 2-3 deals gave him 40-100% returns in less than 6-9 months. I don't have meaningful capital but hope those returns can better position me in the future to get involved more.
Finding the properties doesn't seem to be the issue. Sourcing the national tenants outside of his current contacts is the present bottleneck. He's had success not using tenant reps till now so that will likely change. You can only find so many locations for the same 4-6 tenants in the Boston South area.
Just my unqualified comment.
- Chicago , IL · Member since 2018 · 23 posts · 4 votes8yHi Patrick! Distressed commercial property is mostly what I invest in here in Chicago please PM me for a possible discussion thanks
- Westlake Village , CA · Member since 2018 · 27 posts · 9 votes8y
I think Multi Family is your best bet. You will have to search areas outside major metros since those are being gobbled up by large investment firms but finding a privately owned and not terribly well maintained multi family should be an easier proposition than trying to jump in and using Hotels or Office Space as your starting point!
- FL · Member since 2016 · 912 posts · 107 votes8y
Originally posted by @Eric Stafford:
As a dissenting opinion, in the area I'm in, there's quite a bit of opportunity for free standing retail. A friend of mine is trying get me involved on the side due to the # of projects and opportunities he comes across.
We've created a separate entity to his current long term hold properties and are targeting flips into REITS/Investment funds. The last 2-3 deals gave him 40-100% returns in less than 6-9 months. I don't have meaningful capital but hope those returns can better position me in the future to get involved more.
Finding the properties doesn't seem to be the issue. Sourcing the national tenants outside of his current contacts is the present bottleneck. He's had success not using tenant reps till now so that will likely change. You can only find so many locations for the same 4-6 tenants in the Boston South area.
Just my unqualified comment.
So who do I call to find those deals? Is it a broker?
- New to Real Estate · Dedham, MA · Member since 2017 · 85 posts · 21 votes8y
@Patrick Philip fewer come from using a broker. Most of the recent deals were off market. He finds that in the $600k-$1.5m range the owners don't want to give up $ for broker commissions. I originally was going to help my friend and make $ by getting my agent's license looking for properties. Once I noticed most of the deals were off market, I pivoted to take part how I can as an investor.
Finding those deals were either through networking, driving for dollars, or approaching owners @ locations which would be desirable for the tenants he has relationships with.
- Full time investor · Cincinnati, OH · Member since 2013 · 405 posts · 312 votes8y
"Commercial property is a bad place to be in" ?!?!?
I disagree. The residential market is saturated and MF is trading at ridiculously low cap rates. NNN Fully leased commercial is also tight. There are still opportunities in value add commercial. Properties from $200k - $1m. Find businesses that are closing or moving, owners retiring, half filled strips etc. They are not as prevalent as 2012 but you guys are just fishing for excuses if you think there are no opportunities out there. Finding a $5m hotel to flip for $7m, good luck. People selling $5m properties are usually a bit more savvy than that.
I personally (no partners or a company) have invested in residential, MF, office, medical, NNN, stand alone retail, mom and pop strips, syndications and several startups. I am mostly a value add investor. I still see deals out there. - FL · Member since 2016 · 912 posts · 107 votes8y
Originally posted by @Ash Patel:
"Commercial property is a bad place to be in" ?!?!?
I disagree. The residential market is saturated and MF is trading at ridiculously low cap rates. NNN Fully leased commercial is also tight. There are still opportunities in value add commercial. Properties from $200k - $1m. Find businesses that are closing or moving, owners retiring, half filled strips etc. They are not as prevalent as 2012 but you guys are just fishing for excuses if you think there are no opportunities out there. Finding a $5m hotel to flip for $7m, good luck. People selling $5m properties are usually a bit more savvy than that.
I personally (no partners or a company) have invested in residential, MF, office, medical, NNN, stand alone retail, mom and pop strips, syndications and several startups. I am mostly a value add investor. I still see deals out there.I wouldn't even know where to start. Locating the properties and getting in touch with the owners seems difficult enough...
But then figuring out what the price should be and the ARV too? I guess it's all done by cap rates?
- Full time investor · Cincinnati, OH · Member since 2013 · 405 posts · 312 votes8y
To some extent. When you are looking for value add properties, I have just gone on gut feel. After you analyze enough properties, you can look through hundreds of listings and certain ones will catch your eye. Also hard to determine cap rates for vacant or under performing properties.
- Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes8y
@Patrick Philip Just purchasing a commercial building and trying to flip it will be hard. You want to purchase a building that needs value add or is not fully occupied, then entice a business to move in and sign a long term lease. With the long term lease, the NOI of the building definitely increases and you need to hope that other businesses in the building won't fail or decide to move/exit. I'm sure your broker should know how much per square foot you can get for spaces.
- Real Estate Agent · Kokomo, IN · Member since 2018 · 129 posts · 69 votes8y
@Eric Stafford , curious to know what strategy your partner took in forming a connection with the national tenants that you speak of? Did he know someone working for the company? Cold call?
That explains the next step in my journey. Currently working on a deal for a 5-unit office/retail property in my town, fully occupied as of now (with "destination" tenants which I like and fit my building - financial service, tattoo shop, barber shop, etc.) and on the busiest street in the city. I want to learn the best methods of reaching out to those higher-quality regional/national tenants to fill future vacancies. Tenants that only need 800-2000 square feet.
Do you know how he managed to gain those connections?
- New to Real Estate · Dedham, MA · Member since 2017 · 85 posts · 21 votes8y
@Joseph Parker Of the ones I know of, he approached a neighboring property to find out who the owner was. Found out through that relationship that the owner is involved in a variety of franchises which they both own and operate. That lead to a national restaurant connection.
Another deal was via a tenant rep broker but through the relationship he connected with the owner. The owner offered him 6-8 additional locations in the area if he can source them in a window before branching out to others.
Another restaurant chain and auto parts store were connections from before he ran the company.
Last that I know of is a a gas company also through a franchise group.
It feels like a lot of luck in there vs. a real method. I'm trying to figure out if the next path really is having to deal with tenant brokers or if there's other ways to source the ideal tenants.
I always see that most big companies use big commercial brokers and you're forced to go through them. However, that cant always be the case and that has proven itself occasionally. I'm trying to figure out which do/do not and only use brokers as necessary.
Sorry for the long response. I didnt think I'd end up writing that much when I started.
- Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes8y
The strong economy has taken up a lot of the truly distressed an most profitable deals. There are still strong value add deals to be found. The gateway cities are going to be tough to find anything. There is huge institutional and foreign money looking for investments. They typically are looking for the highest grade properties and willing to pay a premium. They create a rising tide that pushes all investors to upgrade in search of a premium on their properties. Second tier cities have less of this upward pressure and as a result there are more value add and distressed properties.
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