Owners of Commercial RE?

[jyl]

Anyone here own commercial property? Thinking mostly retail use type? That you rent out, or occupy?

Curious what issues, challenges, etc you think are the most non-obvious about it? For someone whose only RE experience is a house.

[id10t]

Mom rents out the small office in a medical park that she used to run her speech path practice out of

All the normal stuff - finding a renter, that renter paying on time, etc

No meth heads, Venezuelan gangs etc to worry about at least

[john70t]

Commercial RE is probably going to fall hard soon. AI. Local prop taxes. Work-from-home. Wages. etc
Cheap big structures F.S.

Local zoning for 'mixed-use' determines a lot of an area's viability, going forward.
i.e. people with money.
Neighborhoods can crash so hard and so fast.

I personally would be wary. For now.

[LWJ]

I own some apartments. Considering warehouse type space.

The single biggest challenge was all of the bankers BS'ing me BEFORE I had commercial. They didn't want to work with someone who didn't have experience and would lie about loan structure and downpayment requirements. Now? They fall over themselves to earn my business.

The banker BS cost me 10 or 15 years. They were very effective in screening me out.

Other than that? Owning an apartment is almost identical to owning a duplex. Can't speak to other categories.

[t6dpilot]

Demand for office space is way down and has been since before Covid. Retail is a mixed bag, all dependent on location, amenities, and demand. Flex and industrial is in high demand. I am an investor in a large, newly constructed industrial space and we had most of it rented before construction was complete. Cost per sq ft of industrial here has almost doubled in the last 7 years.

You are going to want to look very closely at building condition and what will need to be done in the coming years. What occupancy rate is there currently and historically. Look over the financials with someone who is very familiar with CRE. Are there any challenges to the renters? Ingress, egress, visibility, parking, etc.

[jhynesrockmtn]

I have a small apartment building that is classified commercial for lending and insurance purposes. Commercial loans are structured differently than for small residential. Make sure you know how they work with balloon dates, variable rates and the rates available. My loan with 5 years fixed at 3.9% adjusts to market in Aug of 2025 and last time I looked, will adjust to 6.7% and is then due in Aug of 2030. I'll be retired by then and either sell or pay it off. Currently paying ahead about $1,200/month on the principal.

Office space is obviously a mess right now. Commercial retail space can be a boom/bust scenario. I like the idea of smaller industrial spaces. I have three friends that rent space in a small industrial park that has been full for many years now. They all use the space for their car collections, both storage and projects. All have lifts in their spaces and work on their cars there.

[1990C4S]

I own a large warehouse near a large airport.

I have made more money on this building than every other investment I've made in my life combined.

Almost zero work, high rent, great property appreciation, zero headaches generally.

The tenant looks after everything in industrial real estate, taxes, maintenance, everything except paving and roof roof repairs.

[Tobra]

Commrercial RE is tricky, what with online everything

[Dantilla]

I've had both residential and commercial properties.
With commercial, you're dealing with higher caliber people than those just wanting a one-bedroom apartment.

Best way to describe the difference-
With residential, you're constantly putting out little fires.
With commercial, business owners tend to roll up their sleeves and take care of little fires themselves.
Phone doesn't ring as often, but when it does, it's a bigger fire.

[3rd_gear_Ted]

My friends who own commercial RE have absolutely NO need for the stock market.
They all say keep it real, as in real property.
Legacy prop 13 building owners are sitting pretty here in So Cal.

[craigster59]

Commercial RE here in SoCal is a good market to get into, especially warehouses over 5k sq ft.

Many here in the San Fernando Valley are used to grow marijuana. They are "Triple Net" meaning occupant pays taxes, maintenance and repairs. Expensive to buy in but a great investment in the long run.

[jyl]

I’ve been thinking about finding and buying a small building that I could divide and use for my office and for a cafe/bookstore my daughter wants to open. Pickings are slim, this is a pretty specific set of requirements. Initially, we’d have two reliable tenants (us). If cafe fails and when I retire, then I’d get to find out if there’s rental demand for that specific setup. I’m bothered by how idiosyncratic commercial is - not like residential which is pretty fungible.

[Bill Douglas]

Originally Posted by 1990C4S

I own a large warehouse near a large airport.

I have made more money on this building than every other investment I've made in my life combined.

Almost zero work, high rent, great property appreciation, zero headaches generally.

The tenant looks after everything in industrial real estate, taxes, maintenance, everything except paving and roof roof repairs.

Well done. I have friends in this great situation too. They also said the beauty of it is you sign a 10 year lease, the money rolls in, they do building maintenance, pay taxes.

[WPOZZZ]

Just go in with your eyes wide open. Commercial office space and retail took a giant hit from Covid. Businesses went under, and many got used to WFH. Here, entire Class B office towers are being converted into condos.

[wildthing]

Do REITs count?

I've got Prologis, Simon Property Group, and Equinix. Just waiting for dividend payouts without the headaches of managing the properties themselves.

[jyl]

REIT wise, I own some multi-family (apartment) REITs. My logic is that mortgage rates and high prices are keeping people renting, the huge drop in new project starts in 2022-2023 mean new supply will dry up in 2025-2026, the big REITs tend to focus on states with population growth and no rent control, and current interest rates and bank aversion to CRE lending have developers in a bind so the big REITs can buy developments in lease-up for cheaper than they could build them.

[jyl]

But my little venture, IF I do it, would be more of a way to pay mortgage instead of rent.

[jyl]

Around here (Portland) office RE in the central city is dying/dead. WFH, overbuilding, taxes, homeless, have chased so many companies to the suburbs or to employees’ kitchen tables. You can get space in the best class A building for $30/sf, half of what it used to be. Our biggest office tower is losing its anchor tenant and will be 20% occupied by end 2025. Older class C buildings are emptying out as tenants upgrade to Class A/B, many are ghost buildings now. Our local class C building owners don’t seem interested in converting to residential, and many don’t have the $ to do so. Really sad, there are dozens of lovely pre-war office buildings that would make great condos/apartments but will sit vacant until they are demolished, then sit as surface parking lots until the next development cycle.

Meanwhile my office rent goes up every year. They have me trapped because this older building has parking with reserved spaces (incredibly rare) and is on the same side of the Willamette River as my house. Did I mention they are going to close one of the main bridges over the river for five years to build a replacement? Traffic will suck, even fewer people will want to go downtown. I certainly won’t.

So I’m looking for an alternative.

[Rot 911]

If I could find vacant land around here, I would build storage units. They rent out as fast as they are being built.

[LWJ]

Hey JYL,

I get what you are trying to do. I have several customers who did exactly this.

Here is something to contemplate. In the past (no idea about today) you could get a SBA loan for shockingly little down. Memory says 10%?? The building needed to be for your business. BUT, a significant part of the building could be rented to others.

Summary: It is the lowest downpayment method percentage wise to get into a building.

Side note: The SBA sucks and it is full of red tape.

Just a point of interest. Good luck!