Commercial or Multifamily?

[Kevin Yi]

What are the pros and cons of buying a multifamily vs commercial property?

[Joel Owens]

It is true that people understand owning single houses and then place many of those into an apartment building it is easy for them to get it.

I would strongly caution people not feel an sense of EUPHORIA over apartment buildings. You can lose your *** every day of the week just like any other asset class.

Big box retail stores again I will say this those who are experts in the field have known about that going on 7 years folks. The ICSC is where reporters get snippets of info and then they sensationalize it and twist it to something it's not.

Most of what my clients buy today is small tenant retail that is thriving and doing amazing. People keep mentioning the internet. About 8% of all retail sales are online up from about 2% a decade ago. Of that 8% only about 4% is online only stores. The other percentage is made up of existing brick and mortar starting up or expanding an online presence.

Online only businesses have problems of their own being profitable and challenges to overcome.

Brick and mortar is not going away. On a national basis the U.S. does generally have more retail per sq ft than other countries. I would counter that statement with most of the product that is vacant should have never been built to begin with. It was either the wrong location, wrong design, or over exuberance hoping growth would come and absorb the project in a weak market to start.

Retail in the right areas is doing amazing. Cold belt states rural areas to weak suburban is really taking a hit. People are migrating away and those buildings can sit for years as the growth is not there.

Most of store closures these days for retailers are clothing stores, furniture,etc.

Things that are not daily needs tend to not do as well.

With anything find the asset class you like and then seek out experts in those  to get answers to your questions.

I started out with multifamily so also know that space. It's not all unicorns and rainbows............ : ) It has it's many challenges as well. 

Multifamily returns can be more cyclical with the economy. I saw in the last downturn vacancy rise, rent growth stagnate as landlords fought for market share, etc. People are not guaranteed to stay in an apartment in a down turn. They might move in with friends and family. Basements can be a popular option as they tend to be cheaper than apartment rentals. Apartment rentals have gotten a lot more expensive with the last 2 years rent growth. People's middle class debt to income ratio and ton of it is now going to rent and about the hit a ceiling of what they can pay. 

The low cap rates multifamily have today to syndicate those is tough. The cap is already so low that in a down turn property taxes go up, insurance goes up, tenants do not reimburse like commercial NNN so it eats into owners returns. Rents stagnate and do not keep up with inflation, utility companies if landlord pays water etc. can raise water and sewer rates even with no leaks and eat into returns.

Again I do not want people thinking multifamily is fool proof and can't lose proposition. 

I have some clients that buy mid 5 cap multifamily but it is class A brand new in last 10 years and 20 to 40 million in price. These are very deep pockets that are looking at equity growth over time and not cash flow today. They do not need much cash flow today being worth 9 figures and up.

I do not take stories and then tell everyone be careful I recently read this. People need to stay in their own lanes of expertise where they are a specialist.

I am 14 years in the business. I listen to my colleagues that have been doing retail 30 to 40 years or more and own many millions of sq ft of property. Those are who know what the challenges are to face and not a news reporter with the latest sound bite.