All Forum Posts by: Evan Polaski

@David Switzer, while I am 100% for staging residential properties and I completely understand your thought process here, the challenge is knowing what use you will be putting in your commercial space. In retail: coffee shop vs clothing store vs jeweler, or industrial could be warehousing or some type of entertainment type use, i.e. axe throwing.

In general, if I had a tricky space with a pretty strong grasp of the use I wanted to put in there, and the staging was very inexpensive, then it certainly could help.  But, given most mom & pops won't have the budgets to do full build outs anyways, you may need to be careful with any visions you provide, because they could be coming back to you for the TI.

@Frank Nguyen, I am only echoing the other comments: if you have a verbally agreed upon price, personally, stick with it and get the lease signed.  A bird in hand is worth two in the bush...

There is always a chance the tenant will pay the higher rent if you renege on your verbal agreement, but like all relationships, trust will be broken.  And of course, they may choose to not renew.

Also remember, many listings are priced with the LL assuming at least some improvement costs needed for new tenant, which you don't have.  And if the market rent is only 10% more than current, you have to rent the space pretty quickly to not end up losing money on the turnover.  If the market rent is 20%+ it makes more sense to have some vacancy, but again, you will likely have some buildout for new tenant.

@Dani Beit-Or, I generally align with Stuart.  Not to say you are implementing these things to share with LPs to help build trust, but if you had me interested in investing, then went down a rabbit hole of all the ways you are protecting the investment, I would actually start to second guess my investment.

But more to your practical question: the best way I have seen this done typically requires a fairly large scale.  Your PM/CM has authority to sign contracts, and all are on 30 day payments.  Any contract over $1000 needs to be approved by VP of PM or VP of Construction.  Contract input into accounting system, which creates the payable for your AP department.  Your Accounts Payable department cuts checks for those contracts, directly to the contractor, through the accounting system.  The property accountant performs a bank reconciliation each month confirming checks cleared and tying to terms of the contract.  The Chief Accounting Officer signs the checks.  The third party auditor performs annual audits on assets and funds.

Clearly the process outlined requires at least 5 people to issue a payment, more if you include the third party audits each year.  But the standard saying of: don't let the people that keep the books, write the checks; is the simpler version.  You need at least 2 people: accounts payable writing checks, and bookkeeper recording the transactions to keep things fairly safe.

@Chris Guldi, while I have not done this type of deal before, I would think your best bet would be to go to the actual syndicators you know and ask if there is interest in partnering and what that partnership may look like.  If this is a great deal, I have yet to meet a syndicator that isn't interested in being involved in a great deal, typically. 

On the more "inexperienced" side, I have a friend that partnered with a syndicator, and that syndicator outlined the following, typical, structure:
Deal Sourcing: 20%
Underwriting: 20%
Asset Management: 20%
Capital Raise: 40%

Others will partner where splits of various fees/carried interest vary based on each partners roll: i.e. if one person sources the deal, underwrites and asset manages, they get say 70% of AMF, Dispo Fee and Carried interest and 40% of acquisition fee, while the capital raiser keeps 30% of those fees and gets 60% of the acquisition fee.


 

@Justin Walker, before paying any mentorship, I would spend some time doing research online for free. As you experienced, most "seminars" are marketing funnels to upsell something more. And honestly, MOST but certainly not all paid mentorships are just mid-level marketing funnels to get you to do more (common examples are deal sourcing or raising capital, where you do the work and keep a cut, but the mentor also gets a decent cut, too) Not to say it isn't worth it, but a multifamily mentor will not help you on NNN deals, and at this point you don't know what is better for you.

Additionally, I always recommend you start doing smaller deals first before hiring a mentor.  Some mentors are more marketing focused, some are operational, some are just high level logistics items.  If you learn that operations are pretty straight forward for you, but you need some pointers on marketing to bring in more capital, then it would be better to focus on marketing-biased mentors.  

Alternatively, NNN properties can be a lot of things. My mind always goes to retail: the free standing restaurant or Walgreens, for instance, which have their own nuances for finding good deals. But technically, most industrial (single and multi-tenant) and multi-tenant retail, are NNN too. They have their own nuances. When underwriting deals, they have different management fee structures, leasing commissions, expectations on tenure of any vacancies, TI allowances, etc.

@Karolina Powell

Generally, I would say your tenant pool in a the same submarkets will be the same, outside of single family rentals, which by default have "more" amenities than any multifamily (no one above of below, yard space, etc).  

Beyond that, I would say the actual amenities will drive more, to a point.  But there are certainly some tenants in all markets that prefer smaller properties to big, or bigger properties to small.  

And, as noted above, more tenants means more chances for disagreements, but that is a biproduct of size, not directly correlated to how I read your question.

@Cody Caswell

4. Be PRESENT and COMMUNICATE with the contractors.  

Even the best design board, electrical plan, etc will encounter real world issues.  My wife is a designer, as well, and does all of these things.  But, whether she has done new construction design, or renovations, nothing comes out perfect.  Whether it be a ceiling height that is off an inch or two, and therefore the perfectly aligned tile lines for the tub surround that now need to be biased up, down, or split in half...  Or a perfectly centered vanity light that actually has a stud right in the way...

She has to be present nearly daily on renovation projects.  This is not a hands off field.  And the number of nuanced decisions that need to be made in order to have a well-executed design simply cannot be fully covered prior to demo, and often even after demo, especially if you are talking renovations.

@Elizabeth Seiferth, this is a cruddy situation.

I personally have not found penalties is either easy to enforce or effective.  Even if you have penalties available in the contract, given your "small payment" left, you may basically be telling the contractor to work for free from here on out (they won't).  And they very well could argue that your change orders due to inspections are what slowed it down so penalties are not applicable, anyways.

I have offered INCENTIVES to finish when I have been in situations closer to yours.  "I will give you $2,000 MORE than I owe you if you finish in the next two weeks, with full C of O". Yes, it costs you more, but at this point, firing them and getting a new person in will very likely cost you more than you owe the current guy, and anyone that is available at the drop of a hat is not likely to be someone you want working on your property, anyways. 

For future reference, I have basically started working with contractors that a VAST majority of bill is due upon completion.  These contractors often cost a bit more, but they tend to be more professional across the board because they a) have a bigger carrot at end and b) have better financial management skills.

@Naresh Yegireddi

Generally, I like the NNN space for stable, long-term cash flow. But like all things real estate, one Dollar General may be worth it all day long, while another may not even be worth being given for free.

Given we are talking about the dollar store concept, any macro economic issues will apply universally.

If you are talking about Dollar General, specifically, and all are corporate guaranteed, tenant quality is equal across all possible properties.

So then you get into market analysis, store sales, lease terms, structure condition of property, specific location (mid-block with no left turn vs hard corner at signalized light), traffic patterns, re-tenanting ability and demand, current rent to market rent delta, etc.

All deals are unique, but I would not go in with an assumption that all Dollar General's appreciate.  Not all have rent growth built into their lease, and some may be above market rents.  So you could be buying an 8% cap on in-place numbers, and in 5 yrs, you have an empty building that will cost $1mm to redevelop just to get half the rent from local, non-credit tenants.

@Kiswood Diogene, real estate investing is still investing.  Your goal is to make a financial return commensurate with the risks associated.  

I guess I am not sure what your goal is, but I guess funding capital improvements is one way to get involved in CRE, but like Don noted, if you don't understand the concepts of investing nor the specific risks of any of those options, then you are not investing, you are gambling at best, and throwing money and time away at worst.

I.e. a quick search of Cincinnati for industrial properties under $300k, and I have about a dozen.  That doesn't make these a good investment, per se, but for $100k down and $200k loan, you have a property.

You could be a lender. You could invest as an LP in deals or more directly in a JV structure with others to buy bigger or lower risk properties. You could offer your services in exchange for ownership. You could start a build a business, make a bunch of money and start buying the real estate you are using for your business...