Commercial Real Estate 101 - Terms and Techniques

I'm a real estate investor working my own business, and am primarily involved with residential property. In the past I have toyed with the idea of commercial multi-family and quickly became overwhelmed with all the perceived variables. My mentors, Jayme Kahla, Bob Leonetti and Roland Frasier put on a fantastic 3 day Commercial Property & Paper Boot Camp. It covers the commercial business in some very non-traditional ways, and walked you through the entire commercial process from finding properties to exit strategies!

The first day was to ground set the audience to make sure we all knew the key phrases and terms. While most in the room had plenty of residential investment experience, commercial is a very different animal with its own language.

Terms:

• Double Net
• Triple Net Lease
• Gross Rents and Vacancy
• Variable Costs
• Fixed Costs
• Cap Rate
• Price Per Square Foot
• Number of Square Feet In An Acre

I get laughs after revealing to the class how to remember the number of square feet in an acre, which I learned in real estate school years ago: 4 agents on interstate 35 going 60 miles per hour = 43560! Thanks Dan Hamilton!

Next we focus on types of commercial properties, which were grouped differently than what I have been exposed to as a real estate agent.

Major Types of Commercial Properties:

Income Producing:

• Office
• Retail
• Mixed Use
• Industrial
• Warehouse
• Multifamily
• Hotel
• Healthcare

Non-Income Producing:

• Entitled Land
• Un-entitled Land

After a thorough review of terms and property types, we reviewed the importance of a team.

Who should be on your team?

Brokers

• Real Estate Broker
• Commercial Mortgage Broker

Commercial Appraiser

Property Inspector

Financial Professionals

• Acquisitions Finance Specialist
• Long-Term Finance Specialist
• Local Banker
• Private Equity Firm

Attorneys

• Real Estate Attorney
• Litigator
• Securities

Title Company

CPA

Management Company

Insurance Agent

We overview of the entire commercial deal process that walked students through how to identify the type of property you want to own, how to market for that property, performing due diligence on the property, purchasing the property, and implementing your exit strategy. Identifying Your Commercial Property Type

Next comes an in-depth exercise of how to determine the type of commercial property you want to own:

Determine the market where you want to invest

Market for sellers using:

• Direct Mail
• Brokers
• Websites
• Referrals
• Networking

Determine your purchase price

Last 3 years operating statements

• Current rent roll
• Sales and rental comps
• Recent improvements
• Deferred maintenance
• Management company

Commercial Paper

When working with commercial paper, the same rule applies as with residential paper - don't buy the note unless you want to own the property! There are several types of commercial paper:

• Permanent loan
• Bridge of mezzanine financing
• Construction loan
• Second lien - although not recommended for purchase

Finding commercial paper is remarkably similar to finding residential paper. Initiate a line of communication with small to medium sized banks, and/or hard money lenders. We reviewed the scripts for talking with commercial lenders and role played during class.

In Conclusion

We conclude the day with Mistakes to Avoid and defined Action Steps:

Mistakes to Avoid:

• Looking where everyone else is looking
• Lack of consistency in marketing activities
• Failure to follow up with leads
• Lack of lead tracking system
• Not branding yourself
• Limited marketing plan
• Focusing on too many types of properties

Action Steps:

• Get a Commercial Broker List
• Review Provided Broker Script
• Role Play w/ Fellow Students
• Call a Commercial Broker
• Place an Ad on Craigslist
• Identify 5 Ways You Will Market for Commercial Properties

Want to learn more? Jayme and Bob put on a fantastic 3 day Commercial Property & Paper Boot Camp several times a year. It covers the commercial business in some very non-traditional ways, and walks you through the entire commercial process from finding properties to exit strategies! The next event is May 27 - 29 right here in Dallas! Contact me for more information and schedules.

Happy hunting!