Why Haven't You Invested in Commercial Real Estate Yet?

[Joshua Dorkin]

I'm curious to hear why some of our successful investors haven't yet transitioned into commercial real estate?

If you haven't yet done a commercial deal, why not?

[Don Konipol]

I have done the opposite. I have invested in and owned commercial real estate since 1989. However, I am liquidating most of my commercial portfolio and investing in high end luxury condos. The reason is two fold. First is that one year leases offer the ultimate in inflation protection as opposed to the long term fixed rate or fixed increase commercial lease that can run 10-15 years or more. Second, a residential tenant tends to be easier to replace than a commercial tenant, and don't require costly build outs.

However, I continue to provide private hard money loans for commercial property, realizing that this side of my portfolio does not offer protection against inflation. However, with the ability to earn 20% on my invested capital, I am willing to leave the inflation risk unhedged. I have found that the default risk on commercial hard money loans is significantly less than that of residential hard money loans.