When you think about the current climate in commercial real estate, there’s plenty of commercial investment interest in the Dallas / Fort Worth area. Jim Kelley welcomed Boone Nerren to the Champions DFW Commercial Realty Radio Show and Podcast to discuss commercial real estate investing.
Before you listen to the podcast, take a look at this excerpt from the conversation…
Jim Kelley: We’re going to talk about the why and how to approach to investing in commercial real estate. How does a new or modest investor get involved? And that’s why we have Boone back on the show, because he’s an expert at investment development and projects. So, Boone, let’s hit the ground running this morning. Let’s talk about your standard approach to projects size, location, and strategy in terms of your valuation.
Boone Nerren: Okay. And Jim, as you know, as we’ve been working together here really closely here the last few months, we see a number of people who start out with a commercial investment interest, and they’ll come to Champions DFW. They’ll want to research. They’ll want to know more about how they can get into it. Certainly, they know that the market and other opportunities may already have buckets filled for them. And so they’re looking to diversify and get into commercial real estate. I know you see that quite a bit.
So really the approach for what I’ve designed or what I’m going to talk about this morning is really suited for those. When we say modest, we mean someone that’s not Mark Cuban or Trammell Crow, but a couple, a working family who wants to invest some money into real estate. And oftentimes, you’re finding folks who like to get started and making their first entry. Naturally, if they’re seasoned investors, they’ve got strategies and experience and things that can lead and guide them. But today, this morning, I thought we’d talk a little about how I got started and what I used as strategies and analysis off the top to help guide me into investments that are suitable for smaller investors.
Boone: One of the niches we found, and I started 12 years ago investing in commercial real estate, was that the middle market is underserved and less competitive than the larger projects. Obviously, you led off the show talking about some of the really impressive projects that are coming. You got 50- and $100-million projects popping up in Oak Cliff, Bishop Arts District, in Vickery Plaza, in the Oak Lawn area, off Wolf and Mckinnon. Those are really impressive projects and a lot of fun. And there’s a lot of capitalization. There’s a lot of big partners. There’s a lot of institutional opportunity in those. Those are often hard for a smaller investor to even be invited to participate. It’d be great to go in and get a piece of one of those deals, but those are usually closed-ended.
What we do is structure things and open things out for the smaller investor. And the approach we take and the niche that we found that works best is when you get into the 1 to $5 million-property size. It can be office buildings. It can retail, small strip center. It can certainly be multifamily. And I think one of the easiest things for people to evaluate is multifamily. It’s very easy to go in and look at rent and collected income, look at your financials on an existing building, and then analyze the property for what you think you could do to it when you take it over.
Then, one to five million dollars gets you out of the range generally speaking. The folks who are interested in fixing flip models. We all see the bandit signs and everything else going on. Investor wants to buy your home, looking for an accomplice and targeting these kind of things. And it’s a great business. And there’s a lot of people who make 20 and 50 and above on fixing and flipping homes.
That investor typically doesn’t go into the $5-million multifamily deal, because it’s a whole different animal. You’ve got different operational needs. You’ve got different capitalization requirements. You got different financing needs. It’s a whole lot different. You don’t get a hard money loan on a $5-million project, but you can find that on a fix-and-flip thing.
So generally speaking, when you get into a smaller apartment complex that’s 30, 50 to 100 units, you’re going to be in this 1 million to $5 million range. So you get above the bulk of the folks that are really smaller investors and looking really more to the single family fix and flip model. But you also stay under the radar of the big groups. Your top five through A and B today, those are big projects. Those are projects that institutional capital wants to go after. Institutional capital doesn’t want to go after a 68-unit apartment complex in Fort Worth. It’s just too small for them to go in and spend time to put a small amount of capital to work when they’ve got 10 or 20 or 50 million that they’re wanting to put to work for them.
Have we piqued your commercial investment interest? Listen to the podcast below or visit us on iTunes.