Recession Proof Commercial Real Estate
Real Estate Coach · Malibu, CA · Member since 2020 · 34 posts · 5 votes
Recession Proof Commercial Real Estate
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Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
6y@Terry Hale If its all the same, I'll save my time, and yours, and avoid a sales pitch that will go no where.
I have looked at a few SS portfolios and am well aware of the intricacies of the business model. I know for a fact they they are not "fool proof" because no investment is fool proof; they have their own unique challenges and pressures, just like any other asset class.
Sounds like you buy under-performing assets that have been mis-managed, which a is great niche. However, that's a J O B and not passive by any stretch of the imagination.
Free advice is worth what you pay for it, but I'd re-read read the forum rules about self promotion. BP is a great community and it seems like with your unique perspective you could add a lot. However, it isn't a place to come and lead generate for your business without giving anything back. If you want to stay long term, I'd tone down the self promotion and let your high quality posts, based on years of experience and expertise, bring clients to you.
46 Replies
- 6yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
Originally posted by @Storm S.:
@Terry Hale it’s all about cell towers and data centers, the only two sectors that are doing better right now.
Industrial due to ecommerce is doing very well.
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes6y
@Courtney Duong I know you tagged Joel on this but as a currently not practicing martial artist I’d say they are pretty risky bets. They tend too be teacher/sole proprietor driven which has a built in shelf life and the best martial artists usually aren’t the most savvy business people and it’s pretty easy to grab a matt and set up somewhere else:)
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes6y
@Joel Owens wow never would have posted if I’d seen your reply 1st :)
Osu.
- Property Manager · TX · Member since 2019 · 327 posts · 69 votes6y
@Jonathan R McLaughlin thanks for chiming in and sharing. I appreciate it! That's what I thought too but since I don't know many of them I thought it's just my thinking.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes6y
The martial arts schools I see typically do well are in very affluent areas of high income. National median income average is about 54,000 a year. In most states that is barely enough to survive and pay the bills. So a family signs up for martial arts on a special and typically they might be able to pay those high monthly member dues for about 2 to 4 months. Money is so tight for them that buying more sparring gear, paying for testings, traveling to tournaments, etc. takes all their money.
Eventually they come to the instructor and say they no longer can afford the school. Then the owner cuts them a break usually because is emotionally involved helping the students and see them as extended family. That sadly doesn't pay the bills and have them make profit. So lots of parents stop the karate and then put their kids in cheaper cost sports so they can pay for it.
That is why for a school I like to see only so many martial arts schools in a certain radius and very high incomes with younger families living there. The people bringing in 300k,400k a year typically don't have much thought of paying 200 to 300 a month for their kid or kids to go to a high quality school. They also have money for buying shirts and other profit generators (fancy weapons, etc.) from school.
If you open a school in a low to medium income neighborhood then it has to be a labor of love teacher type thing where you make enough money to live but not much else. You get paid more in emotional currency and memories seeing the kids grow up to be awesome adults and knowing you had a positive impact that changes their lives forever.
Jonathan I was fixing to test for 4th degree black belt soon but was many years ago. You get so high in the system it's mainly political and can become your whole life. They want you to judge tournaments for free, go to headquarters, put pressure to open schools to further the brand, etc.
I enjoy it for exercise, friends, and the spiritual side more. My commercial real estate business keeps me busy full time so that is my main focus.
- Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes6y
@Courtney Duong you could try and get more upfront rent from him, or a fat deposit, if you can. Sounds like it’s a short term (1 year) solution for you anyways, so some money is better than no money. Commercial tenants usually don’t squat (and they have little legal protections to do that.) You could try that, especially if you sense that he is a decent guy. Here in San Francisco, we don’t dare try anything like that with residential tenants. I’d rather have a vacancy any day than a risky tenant. But then again there is a ton of throughput; just keep advertising until the right people come along. With commercial, your volume of prospects is much lower.
- Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes6y
@Terry Hale
Thats a big depends. Alot of overbuilding going on and alot of people
are already aware storage performs well in down economies. Couple that with extremely loose financing and its makingit extremely difficult to get storage at a reasonable CAP rate.
Anything can be a good investment but pricepoint, ability to execute and a host of other things matter as well.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Matt R.:
Originally posted by @Rich Weese:
I wasn't going to reply originally but I think I need to add my two cents. Storage units are not foolproof. I'm speaking from experience as I spelled out a few emails above. When real estate is not moving, neither our people or units in a storage facility. I purchased my building as stated above at 50% occupancy. There were empty commercial strips up and down the street as well as many single-family residences, near new, under $100,000 and not selling. I was "lucky enough" to purchase at the right time and able to increase the occupancy rather quickly to over 90%. People started selling and people started moving and people started needing storage space. It was not foolproof for the people that owned it before me......
I have never found a foolproof investment and I've been doing this for nearly 50 years. My history is on my biography and I'm not attempting to sell anything on bigger pockets.
I would agree with there are few or any risk proof in RE. As I recall funeral homes have the lowest failure rate in the small biz sector. I think Harvard Endowment has a billion or so worth. Still not risk free but maybe as close as possible.
Just like Timberland Harvard Endowment owns LOTS of Timberland those trees grow no matter what you do. Talking Northwest Doug fir.
I know pine beetle has decimated the western pine forests..
- Property Manager · TX · Member since 2019 · 327 posts · 69 votes6y
@Amit M.. That's what we are trying to do, asking for 2 months deposit or 3 months up front, no TI.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes6y
Originally posted by @Jay Hinrichs:
Originally posted by @Matt R.:
Originally posted by @Rich Weese:
I wasn't going to reply originally but I think I need to add my two cents. Storage units are not foolproof. I'm speaking from experience as I spelled out a few emails above. When real estate is not moving, neither our people or units in a storage facility. I purchased my building as stated above at 50% occupancy. There were empty commercial strips up and down the street as well as many single-family residences, near new, under $100,000 and not selling. I was "lucky enough" to purchase at the right time and able to increase the occupancy rather quickly to over 90%. People started selling and people started moving and people started needing storage space. It was not foolproof for the people that owned it before me......
I have never found a foolproof investment and I've been doing this for nearly 50 years. My history is on my biography and I'm not attempting to sell anything on bigger pockets.
I would agree with there are few or any risk proof in RE. As I recall funeral homes have the lowest failure rate in the small biz sector. I think Harvard Endowment has a billion or so worth. Still not risk free but maybe as close as possible.
Just like Timberland Harvard Endowment owns LOTS of Timberland those trees grow no matter what you do. Talking Northwest Doug fir.
I know pine beetle has decimated the western pine forests..
You would know better than I would, but hasn't Harvard's endowment been selling off their timber holdings because they drastically overpaid for them?
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Bill F.:
Originally posted by @Jay Hinrichs:
Originally posted by @Matt R.:
Originally posted by @Rich Weese:
I wasn't going to reply originally but I think I need to add my two cents. Storage units are not foolproof. I'm speaking from experience as I spelled out a few emails above. When real estate is not moving, neither our people or units in a storage facility. I purchased my building as stated above at 50% occupancy. There were empty commercial strips up and down the street as well as many single-family residences, near new, under $100,000 and not selling. I was "lucky enough" to purchase at the right time and able to increase the occupancy rather quickly to over 90%. People started selling and people started moving and people started needing storage space. It was not foolproof for the people that owned it before me......
I have never found a foolproof investment and I've been doing this for nearly 50 years. My history is on my biography and I'm not attempting to sell anything on bigger pockets.
I would agree with there are few or any risk proof in RE. As I recall funeral homes have the lowest failure rate in the small biz sector. I think Harvard Endowment has a billion or so worth. Still not risk free but maybe as close as possible.
Just like Timberland Harvard Endowment owns LOTS of Timberland those trees grow no matter what you do. Talking Northwest Doug fir.
I know pine beetle has decimated the western pine forests..
You would know better than I would, but hasn't Harvard's endowment been selling off their timber holdings because they drastically overpaid for them?
Dont know but If they were selling last few years saw record prices so that makes sense.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes6y
Originally posted by @Jay Hinrichs:
Originally posted by @Bill F.:
Originally posted by @Jay Hinrichs:
Originally posted by @Matt R.:
Originally posted by @Rich Weese:
I wasn't going to reply originally but I think I need to add my two cents. Storage units are not foolproof. I'm speaking from experience as I spelled out a few emails above. When real estate is not moving, neither our people or units in a storage facility. I purchased my building as stated above at 50% occupancy. There were empty commercial strips up and down the street as well as many single-family residences, near new, under $100,000 and not selling. I was "lucky enough" to purchase at the right time and able to increase the occupancy rather quickly to over 90%. People started selling and people started moving and people started needing storage space. It was not foolproof for the people that owned it before me......
I have never found a foolproof investment and I've been doing this for nearly 50 years. My history is on my biography and I'm not attempting to sell anything on bigger pockets.
I would agree with there are few or any risk proof in RE. As I recall funeral homes have the lowest failure rate in the small biz sector. I think Harvard Endowment has a billion or so worth. Still not risk free but maybe as close as possible.
Just like Timberland Harvard Endowment owns LOTS of Timberland those trees grow no matter what you do. Talking Northwest Doug fir.
I know pine beetle has decimated the western pine forests..
You would know better than I would, but hasn't Harvard's endowment been selling off their timber holdings because they drastically overpaid for them?
Dont know but If they were selling last few years saw record prices so that makes sense.
I'm testing my memory here and the link is saved on my old computer but I remember an article from about three years ago about their endowment exited a bunch of positions at a loss or at flat. The point of the article was that Harvard's endowment was getting trounced by Yale's, whose is run by David Swensen. I think Yale beat Harvard by like 300 basis points over a decade and this caused some first world drama.
It turned out the Yale's endowment was run by around 20 people who only made asset allocation decision: this percent to stocks, that percent to bonds ect. Then they went out and found the best folks in each area and gave them the endowment's funds. Harvard on the other hand, being Harvard, had like 170 people running the money and made allocation and investment decisions. This meant they not only decided to invest $200m into timber, but then also went out and bought the actual land. If my memory serves, this didn't turn out well for them at all, since they overpaid by a long shot for a lot of their more niche investments, which caused them to lose a lot of money.
This lead Harvard to slash the endowment's staff and basically try and copy Yale's model, which in turn caused some more drama and intrigue.
All that backstory to say, I don't think Harvard made all that much money lol.
As the old saying goes, ' a great asset is a bad investment if you overpay'
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Bill F.:
Originally posted by @Jay Hinrichs:
Originally posted by @Bill F.:
Originally posted by @Jay Hinrichs:
Originally posted by @Matt R.:
Originally posted by @Rich Weese:
I wasn't going to reply originally but I think I need to add my two cents. Storage units are not foolproof. I'm speaking from experience as I spelled out a few emails above. When real estate is not moving, neither our people or units in a storage facility. I purchased my building as stated above at 50% occupancy. There were empty commercial strips up and down the street as well as many single-family residences, near new, under $100,000 and not selling. I was "lucky enough" to purchase at the right time and able to increase the occupancy rather quickly to over 90%. People started selling and people started moving and people started needing storage space. It was not foolproof for the people that owned it before me......
I have never found a foolproof investment and I've been doing this for nearly 50 years. My history is on my biography and I'm not attempting to sell anything on bigger pockets.
I would agree with there are few or any risk proof in RE. As I recall funeral homes have the lowest failure rate in the small biz sector. I think Harvard Endowment has a billion or so worth. Still not risk free but maybe as close as possible.
Just like Timberland Harvard Endowment owns LOTS of Timberland those trees grow no matter what you do. Talking Northwest Doug fir.
I know pine beetle has decimated the western pine forests..
You would know better than I would, but hasn't Harvard's endowment been selling off their timber holdings because they drastically overpaid for them?
Dont know but If they were selling last few years saw record prices so that makes sense.
I'm testing my memory here and the link is saved on my old computer but I remember an article from about three years ago about their endowment exited a bunch of positions at a loss or at flat. The point of the article was that Harvard's endowment was getting trounced by Yale's, whose is run by David Swensen. I think Yale beat Harvard by like 300 basis points over a decade and this caused some first world drama.
It turned out the Yale's endowment was run by around 20 people who only made asset allocation decision: this percent to stocks, that percent to bonds ect. Then they went out and found the best folks in each area and gave them the endowment's funds. Harvard on the other hand, being Harvard, had like 170 people running the money and made allocation and investment decisions. This meant they not only decided to invest $200m into timber, but then also went out and bought the actual land. If my memory serves, this didn't turn out well for them at all, since they overpaid by a long shot for a lot of their more niche investments, which caused them to lose a lot of money.
This lead Harvard to slash the endowment's staff and basically try and copy Yale's model, which in turn caused some more drama and intrigue.
All that backstory to say, I don't think Harvard made all that much money lol.
As the old saying goes, ' a great asset is a bad investment if you overpay'
exactly if you over pay you over pay.. does not make the asset class a poor one. Although the nature of Timber does have a way of working itself out since every year you have more of it without really spending any significant sums .. Trees just grow on their own :)
- 6yJoseph CacciapagliaBusiness MemberLender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
Self storage is definitely not recession proof. I worked on a ton of distressed self storage deals that struggled in the last downturn. Sure the asset class as a whole did better than many others, but there were plenty of locations that suffered. Financing was a major issue for for some smaller operators, especially if they were trying to refinance debt from pre-recession pricing.
Don't get me wrong, I'm a big fan of self storage. I spent a large chunk of my career financing self storage deals, and even managed an 800 unit property for a short time and helped turn it around for a sale. It's just not true that it's "recession proof", and it's dangerously misleading to say that it is to all of the novice investors that frequent this site. We're also heading into a strange recession, so how asset classes fare relative to each other may differ this time around.
- Investor · Fishers, IN · Member since 2012 · 520 posts · 499 votes6y
You are correct Joseph, nothing is Recession proof, but there is no debating the fact that Self-Storage is more Recession Resistant than all other asset classes. We own over 2,000,000 sf and over 12,600 units nationwide, and absolutely LOVE the asset class! I got out of Single family rentals, apartments, office buildings, and never even looked at mobile home parks or other asset classes as they all tend to tank during a recession. However, Self-Storage is VERY recession resistant in a downturn, which is why it has the lowest loan default rate compared to all other asset classes. It ain't the prettiest sector of real estate, but profitable = pretty in anyone's book. But don't take my word for it, there are Several recent articles in Wall Street Journal, Forbes, Green Street Advisors, National Real Estate Investor and all over the web right now as Self-Storage is once again in the spotlight - so do your homework and make your own judgment.
Happy Investing!
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes6y
Multiple elements have to come into play when looking at various asset classes to invest in.
Does the investor want to be active or passive for the yield earned annually?
Does the investor want to be passive or active and own 100% directly themselves OR do they want to invest with a fund or a syndicator? ( Some investors might also want to do a combination of both).
What is the DEAL SIZE in that asset class needed to get PASSIVE?
As an example one benefit of commercial retail STNL I have seen is you can get passive at a much smaller level. There are properties that can be bought on a NNN lease for 1 million in price. There are some national essential businesses like Davita Dialysis you can get in for 1.5 million and be passive. Buy at a 6 plus cap rate and debt fixed in the 3's for 10 years.
Conversely with multifamily most buildings being bought at a price per door at 80,000 a unit you need about 100 units to get passive to build in full time repair person etc. to the cash flow model. That is a purchase price of 8 million dollars putting 30% down is 2,400,000 of your cash if you want to own directly outright. Lot's of investors might not be comfortable putting that high concentration into one property and location.
What is the investors risk profile to their capital at a certain stage of the cycle versus the asset class they are looking at?
Syndicators can point to large portfolios and a successful track record where they cash flowed high and had high equity payout multiples. Those properties also could have been bought at the bottom of the upcycle. So the passive investor has to ask the question ( Is the syndicator still buying GREAT deals today that mimic those of the past but their deal velocity is just down OR Are they pushing results of the past to invest now but syndicating deals today where margins have gone DOWN but risk is now HIGHER?).
- Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes6y
Originally posted by @Bill F.:
Originally posted by @Terry Hale:
I have my doubts about STNL @Joel Owens @Robert C.. Self storage is a fool proof investment. That's been the focus of my firm to great success. If a tenant leaves in STNL, you are left with zero. Self storage, you have hundreds of units and there is always a need. Why bother with uncertainty of retail, especially during these times!
1.What do you define as a fool proof investment?
2. If you have a STNL and a credit tenant, you still get paid until the lease expires under most circumstances. Not saying STNL are the end all and be all, but there are more to them than barber shops and dry cleaners.
3. SS is a great asset class, but like hotels, it straddles the line between business and RE. It is less business than a hotel, but more than lots of other forms of RE. It most certainly isn't a cure all panacea.
STNL NNN provides the passive freedom on autopilot for duration of lease. Before acquisition I am sure buyers will have multiple exit strategies planned out up until the building becomes dark.
As mentioned hotels and SS you still have to manage the business aspect of it.. it's almost like buying a job but I can understand at a larger scale if you own multiple you will likely have a manager that oversees that and frees your time as an owner/partner..
- Member since 2020 · 2 posts · 0 votes6y
@Terry Hale
Terry,
A client of mine with a small retail store that's been vacant for years asked me about converting it to self-storage. It's in a fairly wealthy suburban village and 5,000 sf total including the basement. What do you think? Is it worth looking into?
- Real Estate Coach · Malibu, CA · Member since 2020 · 34 posts · 5 votes6y
Hi @Peter Andreasian, thanks for your inquiry, in my experience this would be too small to be worth it
- Member since 2020 · 2 posts · 0 votes6y
I suspected as much. Thanks for your response.
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