Investing in commercial real estate for the first time can be daunting. For starters, it requires significant capital, and like anything, it comes with its own nomenclature and nuances that can make one property a winner and a very similar property a big loser. For those who don’t have any previous exposure to the industry, it can feel like a mountain too steep to even start the journey, let alone make the steady climb to the summit.
The Hurdle
In recent years, we have advised many of our landowners to consider diversifying into commercial real estate. As you might expect, landowners are quite hesitant to invest in new property types they don’t know or understand. In fact, for many landowners, a disproportionate share of their wealth is locked up in land holdings, most of which produce little to no income. Having all their eggs in one basket can create a multitude of unnecessary problems, including increased risk through lack of diversification and missed opportunities.
The Approach
At Saunders Real Estate, we have a broad array of advisors who are generally grouped into land or commercial specialties. These advisors often connect “at the water cooler” and refer clients to one another across specialty types and geographies. One such instance occurred recently when our founder, Dean Saunders, approached me to help one of his ranching families invest in commercial real estate. They had just sold a conservation easement on their land and were looking to complete a 1031 exchange into a new property.
The buyer was attracted to a multi-tenant investment because they wanted a slightly higher yield. Many single tenants like convenience stores and fast-food chains often have lower cap rates than multi-tenant centers.
Multi-tenant retail centers may present a compelling commercial real estate investment for rural landowners seeking a 1031 exchnage.
The Support
The thought of buying commercial real estate was foreign to them, but they understood the benefits of diversification and the attractive “mailbox money” that can come with owning commercial property. They were initially intimidated by the new language they had to learn, but they were soon at ease, realizing we had a very capable team of advisors and property managers who could identify opportunities, negotiate on their behalf, and steward their new asset for years to come.
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The Exchange
This particular family identified a new construction, multi-tenant strip center in an emerging market. I worked together with our commercial property managers to underwrite the property, review the leases to verify landlord and tenant responsibilities, and hire third-party vendors to inspect the property. After completing due diligence, the family closed on the building. Now that they own the retail center, our property management and leasing team remains engaged to assist with any issues moving forward.
We have helped other families buy everything from convenience stores to medical offices. There are many opportunities out there, and not every opportunity is a good fit for a given investor, but with the right team, you too can find a commercial property that meets your goals and objectives while protecting your family’s legacy for generations to come.