Investing into commercial real estate out of state (Vegas).

[Igor Nastaskin]

Hi,

I came across a commercial real estate opportunity in Las Vegas (a small strip mall, 3 tenants). Since I am based in Los Angeles, what are the pitfals to pay attention to and to cover during due diligence process as related to out of state investment? Do I need to retain an agent to represent me who is from Vegas or to utilize one I already have in Los Angeles? Thank you,

[Joel Owens]

Hi Igor,

I can tell you the commercial market is heating up. I have many clients ready to deploy capital.

My personal view focusing on commercial full time as a broker is that now is the time to deploy capital. If you wait I see the interest rates rising because of the feds eventually pulling back with QE and buying less bonds.

So say right now this very second you can land a high quality retail strip at a 8.5 to 9 cap. Debt you can get close to 4.6% fixed for 10 years with 30 year amort., non-recourse. Many local banks are not selling these loans. You have to go higher in loan about 2 million and up after down payment so 2.5 mill and higher.

I think rates will go into the 5's and caps will compress by 7's early next year due to demand. I have been getting many phone calls lately from purchasers saying residential is drying up. They are selling off assets and doing a 1031 into commercial or they are doing refis to pull liquid cash out. Everyone is searching for the most safe yield versus cash on cash and locking in the debt.

There are many other to look at with these strip centers. I know we have communicated before. If your current broker/agent cannot help you or doesn't have that experience you need to get someone else. It's great that they are a nice person but that doesn't mean they have the skills to help you the most. ( I wanted to add in to this after reading it back to myself that I am not saying a plug for me in anyway whatsoever . I am saying if you have been looking that long with the same broker/agent then you are not finding the right opportunities to purchase or there is a missing piece to the equation).

I just know from previous posts on here you have been looking at properties for awhile. I know commercial and the markets in the future are tightening. Waiting longer is just getting reduced supply, tighter return margins, and higher debt rates. If the retail center is value add know that lenders will want recourse against you.

With just a three unit retail center the tenants have to be very strong on the leases. If the breakeven occupancy is say 66% on the loan you are there if one tenant goes out or worse if they are the larger tenant. If you have a 10 unit strip center you have to be about 4 units down for the same affect.