Is Commercial Real estate in Jeopardy due to Covid 19?
Commercial real estate is not dead by any stretch of the imagination. Rei Capital Growths Alan Blair says it is vital to focus on open air, grocery-anchored strip centers, and secondary markets That have great demographics. To find the best commercial real estate investment opportunities you must be very particular with what you are looking to acquire. we are very selective with the kind of properties that we want to buy because we, not only select the location but we also strictly buy stabilized properties, which means they are fully rented.
We are acquiring stabilized properties that are at a minimum 90% leased, but 100% occupancy is preferred. When we research these properties, we can review all the leases and previous years of business history. We can see who these tenants are, and We know who they are because for the most part, they are national tenants. We can make judgments based on the stability of their business and their track record from previous years.
It’s extremely important to be particular and selective to find the right properties. We know what to look for and how to be selective to acquire these kinds of assets. We know what to look for because we have the experience to do so.
What kind of commercial retail real estate does REI have experience with?
We have been dealing specifically with multi-tenant retail properties for the last 10 years. I initially started with multifamily in NYC but got out of that market. Over the last 10 years, we have acquired, eight different multi-tenant retail properties for one-off, friends and family investment deals as well as with multiple investors. That is in addition to the two that I did for my family. So, regarding our track record, we have been doing this for quite some time and at this point, we have perfected this process and know exactly what we are looking for. Now we want to move forward into this fund and make this an investment opportunity that is available to every day investors from all over the world.
How has the pandemic affected these current commercial retail properties? Whats the outcome for commerical real estate in 2021?
How has the pandemic affected these current properties? Well, everybody has been affected, but the reality is that we did not lose a single-tenant due to COVID. Needless to say, COVID has been devastating to everyone. Due to our hands-on approach and our understanding of all aspects and the dynamics of owning, managing, and financing these properties, we just got busy right away, back in March.
We went to all of our lenders and persuaded them gently, to provide forbearance on each and every one of our properties. Doing so, we would not have to pay our mortgage debt for three to four months. And it varied between the different lenders, but we pushed that can down the road on our debt. That gave us the flexibility to work with each and every one of our tenants that needed help. And a lot of them did need our help, so we were able to give forbearance or forgiveness to tenants with regard to the rent. It’s a lot less expensive to forgive a tenant some rent, because their business was shut down through no fault of their own. Rather than being ridiculous about it, forcing them to go out of business and then spending three times as much trying to re-lease a vacant space.
It is very important to us to make sure we worked with each one of our tenants that needed our help. We did work with each of our tenants and now fast forward come August and September of 2020, everybody is back up and running except for maybe one is still having some issues in a particular city, but we’re working with them. While we would forgive some rent, we would always ask them to make sure they continue to pay the triple-nets, which we will talk about in a second as to what that means.
What are triple-net expenses? And why use a triple-net lease?
What are triple net (NNN) expenses?
The triple net expenses are the tenant’s responsibility to pay their pro-rata share of the expenses associated with operating their business at that property, specifically real estate tax, property insurance, and the common area maintenance (CAM). So, in multi-tenant retail; tenants pay a “rent” which is a certain dollar amount per square foot. Plus, their pro-rata portion of the expenses to operate it.
By doing that, we continued to collect the triple nets and we were able to pay all the real estate taxes on time, no problem. We are able to maintain the property at the level of excellence that we always do. Once our tenants get back in business, we don’t want the property to be a mess or to look bad or to have the parking lot all cracked or the lights out, etc. We will make sure everything is maintained perfectly. Once they are back up and running in a business, they start paying rent again under the various agreements that we made with them during the last year.