All Forum Posts by: Ash Patel

 @John McKee - I am in the non-residential commercial space (office, retial, industrial etc)  and our loans are typically 80-85% leveraged 5-10 years locked and 25 year AMT.  Because there are no secondary markets or agencies to trade these loans on, our loans are portfolio loans that typically stay on the banks books for the life of the loan.  The banks scrutinize our balance sheets and track records.  The residential lenders typically make sure they can check all the boxes so they can sell the loans.  

I interviewed Matt for the Best Ever Podcast. I was shocked by two things. He blatantly admited that he finds high networth W2 earners (typically doctors) and helps them purchase CRE. With cost segs and bonus depreciation the doc is able to offset their W2 income. Great strategy because high earning W2 employees don't typically have ways to reduce taxable income. When I asked about RE professional status the answer was, (paraphrase - we make the doctors wife who doesn't work a RE professional). I cringed everytime he said that, why not "doctors spouse"? Further, he only buys NNN properties. The IRS does not allow passive or NNN investments to count towards your 750 hours. I think there is a whole new world of scrutiny if the Feds decide to pursue the RE professional tax status that many if not all of his clients benefited from. Most people think RE Professional is arbitrary but I caution you, there is a lot of case law where the IRS challenges this qualification and wins. It sucks because this gives the industry a black eye.

@Ryan Phu - Don't be dissapointed, I have a whole network of non-residential CRE investors that are dying for office, retail, industrial, flex, warehouse, land, medical etc. We all look for value add vs. stabilized fully leased properties. Typically $1-2mm and above sweet spot being $3-8mm.

I have been a full time non-residential CRE investor for over 10 years and have purchased everything from retail (vacant --> fully leased NNN), warehouse, office, flex, land, industrial, mixed use, restaurants, medical and have done ground up development. Most of what I do is heavy value add vs. parking money. I wish I had a mentor but its hard to find others that do exactly what I do. I have learned from making every mistake you can imagine. I have mentored people individually for many years and recently started doing that in a group setting. Please don't take this as a solicitaion and I am no longer accepting new members. I will tell you that we met every Tuesday for six months and each session was 4 hours long. The six months ended in May and we now meet every other Tuesday and still learn a lot from new deals that people are evaluating. Everytime you read a lease, you can learn something new. There are so many different clauses in leases that affect how you underwrite deals. There are countless factors that go into evaluating buildings, guaging the health of the area, calculating how long it will take to fill a vacancy, stress testing deals, projecting on the upsides as well as downside, dynamics of having an anchor tenant lease renewal on the horizon, guaging competition and surrounding vacancy, looking at future development of the area, understanding how local politics are affecting growth, traffic patterns etc. Imagine a shopping center where certain tenants pay taxes, insurance, maintenance while others pay a flat rate or a capped amount for maintenance. With MF, you have comps, single year leases and a lot of precedent for your playbook. We also have tenant improvement allowances where we give them money upfront and that has to be factored into the proforma. A mom and pop tenant will trade at an 8-9 cap where as a high quality nationan tenant can trade at 5 caps. There are very few books written on CRE relative to MF and other residential becuase there is no simple formula. There are tons of masterminds on MF, flipping, wholesaling etc. Very few on CRE. My advice, find someone that specializes in the area that you want to dive into and add value to them in return for education and mentorship.

This is for a center we have in DD.  The seller is an attorney and has asked for financials a number of times in accordance to the lease and has never received them.  Apparently there are companies out there that do audits specifically for grocery stores.  A bit of forensic putting the peices together and exposing any funny business.  

Hey BP!  Does anyone have referrals for a Grocery store auditor?  We have a tenant that has a $10m rent threshold before they kick up a % of sales.  Of course for years they have been hovering just under $10m.  Would also love to hear any stories of landlords auditing tenant financials.  Thank you!

Most commercial investors have never had to evict a commercial tenant.  You are dealing with business owners instead of residential tenants.

I am asset class agnostic. I would rather focus on high returns. I have purchased warehouse, retail (mom and pop -> NNN), industrial, land, mixed use, restaurants, medical etc. I prefer non-residential commercial.

How much was the winning bid?  

This may help you compare. We are selling a building that we built six years ago. Two medical tenants 7400 sq ft, 6.28% cap $144k NOI, leases good through 2032, $311/sq ft. Multiple offers on an asking price of $2.3m. One tenant is a stand alone therapist that has an indoor therapy pool, the other is a podiatrist that is part of a large group and corp guaranteed lease.

These often have very high margins.  Neighborhood centers with the right tenants can be a great asset.  Suburban office in walkable downtowns are on fire right now as well.