All Forum Posts by: Michael S.

It's a balance for sure and definitely not an easy question to answer due to how many variables there are. However, in general what I've found is if you have multiple vacancies its best to redo at least one. From there, you can show folks the other spaces but lean on that space to show them what the building is capable of. If you sign a tenant for that redone space (which you probably will), agree with them that you can let folks take a peak at it after hours to understand what they can do with other spaces. Better not to do too much though as it can be like Ronald said and you end up ripping things out you spent good money on. Welcome to commercial real estate, where it takes $100 to make $1 :)

That's how I handle smaller commercial tenants, the big ones don't care about that stuff and have engineers/architects to understand what the space is capable of from the get-go. 

If the property has current income, and it is enough considering the debt you are applying for, they will use the income of the property. Nevertheless, they will usually make you cross-collateralize and sign a personal guarantee.

Generally around here (more expensive markets) we've found banks debt coverage ratio (DCR) requirements (usually 1.25) to be the limiting factor of debt before the LTV has a chance to come into play. Be careful with that one as you can enter a deal under funded from an equity standpoint because the DCR limited the debt below your LTV expectation with the banks.

For our modeling we take the lessor of the value, the cost, or the restraint from the DCR to estimate bank funding.

REITs are garbage as they make most of their money on the fund size; not based on how the investments individually do. They constantly have to apply the capital and the more they raise the better off they are; therefore they're less careful on which deals they take down ultimately meaning they overpay and overpursue. REITs are fine in an up market but historically do poorly compared to individually run investments in down markets.

All of our investments are fine right now as we bought them below market value knowing the market was high; REITs in our area have been overpaying for years.

Hi Larry,

I feel for you, this is a hard time for everyone in the business.

Regarding their response, it does make sense. As a commercial investor who raises private funds; its very hard to let someone exit in a time like this as the investing market is often frozen in a time like this. The investor/developer has debt/equity obligations so they can’t just return investment capital assuming they executed on the deal.

In a smaller environment we’d do what we reasonably can to work with someone but you can’t let someone exit from the investment without a replacement investor.   At times like this it can get turbulent with multiple cash Investors wanting to exit. You help where you can but at some point; assuming the investment is still viable, the GP has to focus on the investment and move forward for the sake of the investor group as a whole. It can be a vicious cycle constantly spending time trying to raise money to replace past investors, the project doesn’t get focused on... and that’s when people really start to lose money. The GPs fiduciary responsibility is to do the work and get the investors the best return possible assuming the investment is still viable. If not they should exit as best they can and return as much of your capital as possible. Assuming they’re also invested they are surely doing this calculation and trying to optimize the situation.

Hope it works out for you and they work with you as best they can. Just another perspective.

Take care,

Michael

 We've had a few of our commercial tenants (Office) initiate requests for rent relief for April. For the businesses where their service type is effected, we offered April deferred, requesting they pay the month prorated from July through December. We had some push back as it seemed they were expecting April to be given to them for free. We sent a letter showing them the government programs built for their businesses, explained our own lending situation in that we haven't received government relief, and so far that's been enough. We are expecting this issue to continue much longer than folks think, therefor setting an early precedence could be a major problem this early on.  

In general, commercial retail is going to be a very tough asset class during the crises and after. Commercial office would be next. Those two have higher chances of permanent issues. Multifamily is challenged in the short term, though banks will be more forgiving as it will bounce back faster and has better long term upside.

California.

We have a 60k sqft retail space in a desirable retail center location. We’re looking for a lease broker with big box contacts similar to the following:

BevMo
bestbuy

Target

Officedepot/staples

Big lots

Trader Joe’s

Etc.

Referrals or direct contacts are welcome!

The answer depends on what your typical return on capital is.

Is the return with the equity higher if you sell and pursue a new venture (risk adjusted) or are you better off retaining ownership with reduced cash flow but slightly less capital for a new project?

The answer is simply math and it depends on what opportunities you have available to you to use with the capital.