All Forum Posts by: Shane Melanson

Investment Info:

Industrial industrial investment investment.

Purchase price: $8,700,000
Cash invested: $2,700,000
Sale price: $10,720,000

Hold Time – 16 Months

Returns to Investors – 34%

Project Size $10,7200,000

24 Industrial Condo Bays developed and sold to end users.

Location: Calgary AB

What made you interested in investing in this type of deal?

I was able to secure 4 months due diligence for this property - to purchase 2.9 acres of land.
There were no Industrial Condo bays for sale under 1,500 sq.ft in Calgary
We hit a market demand and sold out before we closed on the land
Secured our Profit in 5 months.
Risk - mitigated with experienced GC and Architect.
Fixed price contract
Turn around (including slow DP / DSSP/ BP) process with city under 16 months.

How did you find this deal and how did you negotiate it?

Brokers had relationship with developer. Once we had meeting we essentially took over- but brokers made very good money. They got the land sale and industrial condo sales

How did you finance this deal?

Cash for land
Construction financing with big bank
Cash was raised - $2,700,000 in 10 days from my network of investors

How did you add value to the deal?

Purchased zoned IG land
Developed a sales plan
Executed fast
Significant energy selling condo units
Extensive market plan
Developed and executed

What was the outcome?

34% return to investors
More than $800k in profits for my partner and I with fees
Led to multiple developments and investors asking to invest with us

Lessons learned? Challenges?

Importance of big deposits
Flexible with buyers
Persistent
Taking action- market was in decline, no one was developing. We took a calculated risk

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Longboard
RBC

Hey @David Wilson - you raise a good point.  I suspect because you're in the Commercial Real Estate Forum that you've tried res real estate and found that in many cases, the size of deal is generally small- making it difficult to generate enough cash flow (or capital appreciation, unless you're doing a significant rehab/development - which is a 2nd job).

Here's the best advice I would give you, based on the limited knowledge I have on your situation.  I will base it off other physicians I've helped invest in commercial properties.

1st- investing activity in commercial real estate does require time and energy.  Now, the nice thing is, if you focus on Core assets or even light value add in good locations, you should be able to minimize the amount of time required.  

The bulk of the work is done upfront in a commercial deal

1. - finding the property
2. - negotiating LOI/PSA
3. - Due diligence
4. - Financing (equity and debt)
5. - leasing
6. - finding the team (management/leasing team)

I'd say, allow for 2-3 months (once you find a deal).  This is not all consuming during Due Diligence- but there will be time required to manage the process and consultants.

Ok, once you have the property and team in place to oversee- in most cases a professional property manager will minimize the time required on your part.  I'd say- 1-2 hours a month to 'Asset Manage' your property.  You make long term capital decisions and big picture. Your property manager deals with day to day.

Generally, I like light bay industrial and retail - as the leases are longer and thus less day to day.  Office can be ok, but your Cap X is more significant when a tenant leaves.

I've written a few articles and videos on this exact scenario.  Busy professionals who have money but not interested in creating a 2nd job.

The biggest challenge- I suspect, for new investors to commercial real estate is that learning curve to Commercial is steep.  There is little cross over from Res to Commercial.  

So finding a good team to help you identify the right properties and proper financing is crucial.

I think the bigger question is this: "Is it worth the energy and time to learn how to invest in commercial real estate?"

I'm bias- and believe the answer is yes.  Even if it takes you a year or 2 to get a great commercial deal - one good property in the right location can (or go along way) to replacing your income.

You control the asset.  You have cash flow today.  Attractive tax deductions.

Alternative: Find someone you trust to invest with.  It would still be prudent to fully understand the deal so you understand the risks and the partner.  But, that is a viable option and you can learn from the inside so to speak. Don't expect the GP to teach you- but, you will learn some valuable lessons during the investment.

Hope that helps.

Investment Info:

Retail commercial investment investment.

Purchase price: $6,500,000
Cash invested: $2,100,000

Retail Development - ground up. Purchased 1.6 acres of land and pre-leased 1/2 site to anchor tenant. Now, pre-leasing building 2.
Expected to 2x capital invested in 24 months.

What made you interested in investing in this type of deal?

Scale- has potential to return $3-4M in profit.
2x on our initial equity
Good fee's earned durring the construction and lease up phase
Able to secure pre-leasing prior to going hard

How did you find this deal and how did you negotiate it?

We found deal direct from vendor.
Previous buyer choked and we stepped in and closed

How did you finance this deal?

We purchased land - call cash (2.1M). Raised the equity in 7 days from LPs
We secured construction financing for phase 1 with preleasing in place from national tenant. This was banking relationship- no broker involved.

How did you add value to the deal?

We rezoned the land (to expand uses)
Leased up the entire site
purchased raw land and developed 14,000 sq.ft of retail

What was the outcome?

Currently - we have a project worth $5M (with 4M in). Once we lease Phase 2 (working with several tenants now) - value will be $8.7M-9.5M pending rental rates

Lessons learned? Challenges?

Pre-leasing critical
Getting time to lease up and find tenants
Finding a leasing agent that is going to work- and not take the easy road
working the consultants
not accepting the first quotes or bids

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes- pretty much all:
Commercial broker (leasing)- TBD
lenders- RBC (yes)
appraisers- Colliers good
Enviro- decent
General Contractor- Longboard (highly)

thanks @Don Van Nguyen  - keep me posted and let me know what you decide.  I have good relationships on the MF side in Dallas and Houston but not so much on SF.

One thing that might be interesting- with all the new development going on in Dallas/Houston.  If I were local, I'd be looking for SF homes in land zoned for MF (in Calgary that would be RM, C-Cor, M2 etc).  If you can land assemble a few, in a couple of years, with a lot big enough and zoned properly for a MF developer, you can sell with a higher a better use.  Make sure the numbers still pencil out for SF, but it is an advanced strategy that works well

@Don Van Nguyen - I remember buying my first investment property (2003).  I was nervous and didn't know what I didn't know.

Seems as though you've thought through your strategy well.  My high level advice:

Focus on a property in a neighborhood as close as possible to where you live.  Even with a property manager, no one is going to care more about your investment as you.  So, being close, so you can see how your property is being managed, the tenants etc- is vital.

Personally- if you're not going to actively PM it, I'd still be part of finding the tenants and vetting who is living in your property.  In real estate- you want Predictable cash flow and that is coming from your client (tenant).

Investing in single family (sf) is ok- but I've found it hard to generate enough passive income to achieve what you're describing.  I know it can be done, but seems to be a stepping stone to commercial.

I suspect, the majority of the money/profit you're going to make on this investment will come from market appreciation (TX is hot and so you'll benefit from this).  Which is good- gives you more equity to pump into larger deals.

Biggest mistake I see new investors - buying properties that are 'good deals' vs. buying properties in the best areas you can afford, while keeping your rental metrics in check.

Generally I use an 8-12 multiple (for quick math when looking at SF)  I don't invest in SF and haven't in years, but I think the math still works (at least in Canada).  

So- if the rent is $2,000/month = $24k/year

8x 24k = $192,000 (max price)

12x 24k = $288,000

Big range- so you need to refine using all your expenses- but sounds like you've got the numbers down.

It really comes down to finding the right property.  Find an agent who understands investing and has done this for other investors. Might be good to check out local investment clubs and talk to fellow investors.  who do they use.

And, probably goes without saying- if your agents finds a property that makes sense, pull the trigger.  In the past, I've worked with investors who wanted to buy, but never pulled the trigger.  You'll burn out good agents quick doing that (then get stuck with avg agents).  

Hope that helps.