Commercial Real Estate: Why Now?

Question

I think commercial real estate is getting really interesting right now.

Not because I believe every commercial property is a great deal. Spoiler alert: it definitely isn't. 😂

But I think investors are getting more opportunities to actually negotiate.

Higher rates, changing property values, vacancies, refinancing issues, and owners who may need to make a move can create situations that simply weren't as common a few years ago.

For me, the important question isn't:

“Is commercial real estate a good investment?”

I'd rather ask:

“Does THIS property make sense at THIS price with THIS financing?”

I believe that's where investors need to focus.

Look at the numbers:
• Current income
• Operating expenses
• Vacancy
• Financing costs
• Potential rent increases
• CapEx
• Exit strategy

A property can look amazing on paper and still become a very expensive headache.

I think this market rewards investors who are patient, understand the numbers, and aren't afraid to walk away.

What are you seeing in commercial real estate right now?

Are you seeing better opportunities, or are sellers still holding onto yesterday's prices?

David Switzer · Answer

I only do commercial real estate and am up to 4 small (600-2000 SF) retail units in Jersey City. There is a lot of opportunity in commercial because it's the reverse of residential:

Residential: Hard to get property, easy to get tenants.

Commercial:  Easy to get property, hard to find tenants.I only buy vacant units and then find my own tenant.

The funniest negotiation in commercial which I have experienced twice (and others in commercial have also found) is when a seller will say:

"The property is vacant BUT it's worth $X using the NOI valuation".

I respond buddy, if you want to use the NOI valuation, I am happy to pay because the value right now is $0. You find a tenant and get that NOI yourself and we can discuss.

Michael K Gallagher · Answer

@David Switzer tell us more about these retail units - are they multi tenant buildings? any particular asset class or user you like to go after?  you say you like to buy them vacant and place your own tenant, just curious what you look for with that in mind?  I do some retail deals so just curious more than anything.

Denise Supplee · Answer

I agree that there are some interesting opportunities right now, but I think patience is really important. A property isn't a good investment just because the seller is willing to negotiate. I want to know why they're willing to negotiate, what the income and expenses really look like, and what could happen if things don't go as planned. As a passive investor, I also pay a lot of attention to who is operating the property. A good deal with the wrong operator can still turn into a bad investment.

John Chandler · Answer

There are a lot of factors. Knowing the numbers is only the first step. Ask questions, do your research and dont let emotions sway your discussion.

John Chandler · Answer

"I respond buddy, if you want to use the NOI valuation, I am happy to pay because the value right now is $0.  You find a tenant and get that NOI yourself and we can discuss." Lol Yup!!!!

Commercial Real Estate: Why Now?

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