All Forum Posts by: Chris Gentzkow

Is the property an office building that someone would want to redevelop into retail or is it still just land? A couple quick thoughts, I would call the adjacent retail property owners. They'll know the area best. Keep in mind a retail developer will want time to figure out the property, they typically won't buy on spec. 

A couple of thoughts on this topic, commercial brokers hate delayed commissions. The theory is that their work is done up front and its the LL job to figure out the risk. Also, while brokers don't participate in the downside (tenant leaves early) they also don't participate in the upside such as if a tenant is a huge success and becomes the next Starbucks or something and your property becomes a lot more valuable. Industry standard here in Southern California is 50% of the commission is paid on lease execution and 50% upon tenant opening or commencing rent. You will have a tough time finding a good broker that will agree to something different. 

Believe it or not, LL's investing in tenants is much more common today in retail. With consumers (especially in LA) preferring the mom and pops over the national chains, some of the most successful retail developments have substantial LL investment. This can take the form of a tenant improvement allowance or an actual equity position in the company. That said, do you want to be in the LL business or the restaurant (or whatever) business?  Maybe both. 

Also, it is very common to get a % rent clause in retail if you are investing or providing a substantial TIA. That way if the tenant is crushing it, you will participate in some of the upside. 

I would love to hear more about the project. I'm available anytime for free advice, and I promise I won't try to sell you on CBRE. 

Andre, my partners and I love Austin, and we would be very interested. We like any retail land or existing assets that need redevelopment (ie vacant box) or has some upside potential. Keep me in mind.  Also, I have another development partner that only builds hotels so if that is something you have let me know as well. Thanks! 

I once again agree whole heartedly with @Joel Owens. Find a niche and specialize! Don't try to do more than one of the big 4 commercial asset classes (Office, Retail, Industrial, Multifamily). And try to find a niche in one of them (ie. Single tenant NNN retail assets). Also find a mentor or someone that can teach you the basics.

I agree with @Joel Owens. NNN can be a confusing term. Single tenant NNN assets (aka coupon clippers) typically means the tenant does pay for all maintenance, taxes and insurance (but that is not always the case, and a careful review of the lease is necessary, roof, structural elements, utilities may not be covered) and you get a pretty check every month. In a multi tenant NNN asset, the LL typically does have a some out of pocket expenses and management work.

To your questions - cap rates are at historic lows for NNN properties. In my market STNL investments are selling around 3.5-4 cap for a credit tenant. Yes they fluctuate with the market, but they also fluctuate with the credit of the tenant. Banks are wanting to see at least 10 years remaining on the lease these days. That said, you should get a much better price on something with 5 years or less. You do have to be careful though as a lot of STNL investments are single purpose buildings and could take a lot of time and money to release. i.e. if Walgreens decides to move across the street when there lease is up, what are you going to do with that building? Distressed NNN property could be found if there is a great corner with a dilapidated building and you could possibly secure a lease with a Pharmacy, bank, restaurant, etc.

As I'm sure you know cap rates can vary widely based on the market, the position in the market,  the asset class, the lease structure,  and the credit of the tenant. A regional commercial appraiser is probably your best bet or a local commercial broker that specializes in the asset type you are looking at. Our CBRE cap rate study can be found here, but it could be off by hundreds of basis points based on the things I mentioned above.

A quick call to a local commercial broker/appraiser/expert is your best bet.