What I'm Bullish On Right Now, Building Relationships with Banks, & How to Find Deals (Office Hours)
This episode of Office Hours dives into which assets I’m bullish on in our current market environment, how to build relationships with lenders and contractors, and how to find commercial real estate deals.
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Key Takeaways:
Tyler is most bullish on flex industrial properties going forward due to high demand and lack of new construction.
Tyler thinks interest rates could drop before the 2024 election but is planning for rates to stay higher for 12-18 months.
Finding good deals is one of the most important skills for commercial real estate investors.
Building relationships with sellers, lenders, brokers, and contractors is important through regular communication.
A downturn in commercial real estate is anticipated in the next 6 months as consumer debt levels rise.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:04
Welcome back to the commercial real estate investor podcast live streaming from bigger pockets conference 2023 here in Orlando. Sorry if the camera is a little bit dark. Unfortunately, there's just not a whole lot that I can do about that. Maybe I can change the angle up a little bit.
0:21
Oh, yeah, that's much better. There we go.
0:25
Yeah, so we're live from bigger pockets. conference down here in Orlando, which has been a lot of fun. It's been a great time. This is day three, I guess we conference hanging out. And I'm catching up with with my friends and investors from from all over the country, which has been
0:41
really nice. We've created a whole bunch of content for you all.
0:45
asking some of these top dogs, you know, their thoughts on the market? What are they doing in 2024? So we're gonna have some fun with that coming out over the next few weeks.
0:56
Yeah, done a whole bunch of networking, learned a whole bunch created a whole bunch of content. It's been really good. Morning, Anthony. How's it going? Good to hear from you.
1:06
Mike is asking a saying Hey, Tyler. Last week, he recommended taking the c ci M 104. Course, cci M is suggesting that I start with a CCI M one a one course is a require necessary to complete the one on one before enrolling in the 104. You know, I?
1:25
I think it's good to take what I mean, that's what I did. I took one on one, then 104. It's nice to have the base that you get out of one on one before you go into 104. Now, if you're already experienced in commercial real estate, I don't know that it necessarily matters. But one on one does kind of open you up to how to learn from CCM.
1:47
But you know what, at the end of the day, they can't tell you I mean, I guess it could it's their curriculum, if they will not let you take 104, then you're kind of stuck. But I would say your if you don't want to take all the classes and you just want to take CCI M 104 I don't see why that would be a problem.
2:08
Don't think you're really going to be missing out on a whole lot. So hopefully, hopefully that works for you. Let me know how it goes. Mike.
2:14
Rusty, what asset class? Are you bullish on going into the next few years? That's a great question. I
2:23
really like flax, I really like flex. You know, it's always tough for me to answer these questions like What is my favorite asset class? Because at the end of the day, I mean, we're I'm an opportunistic investor, right. Anything that comes up, that is a good opportunity, we're gonna jump on it, you know, we don't focus on one single asset class. We don't focus on one geographic area necessarily. So
2:47
you know, it's tough because, you know, everybody, you know, you want to say like, oh, office, I'm staying away from office? Well, but that's not true, right? Like if a deal comes up, that's a really good office deal, or office to storage, conversion, or something along those lines that like,
3:03
Yeah, I'm probably going to jump on it. But I would say flex space, for sure. Is the one that I'm most bullish on. Because flex space, you just can't build it fast enough.
3:16
I mean, think about it, right? You've got a product type, with a lot of demand from small business owners, and you know, blue collar businesses, they're all really good businesses that need space, a lot of the flex space is getting torn down. Because it's in a higher, it's an area that has a higher and better use, typically closer to the urban core.
3:35
And it's not being built back. Really, I mean, there's not a lot of developers out there that are building flex space. So if you can, if you can build flex buildings, I mean, you are going to have them full before you even for even deliver them usually. So I would say 100%. Very, very bullish on flax.
4:01
Evidence asking, do you think rates will go down after the elections, and sorry that I don't have all of my technical gear here. It's a lot of fun. I get to like, share comments on the screen and do all that kind of stuff. It's not really possible to do for my laptop, in a hotel room, but we'll get back to that next week.
4:19
But I've been saying do you think rates will go down after the elections?
4:24
I think rates could go down before like that's the wildcard when it comes to this market right now is, you know, it seems to me like it should stay where it is for like 1218 months. I don't see any reason for it to go down.
4:38
But the election is the big wildcard, you know, what's going to happen is the incumbent gonna drop or forced the Fed to drop interest rates that, you know, the economy can look at going into the election. Who knows?
4:52
I'm planning on it being like this for 1218 months, I think that we're gonna just gonna have higher interest rates and we're just gonna have to deal with it and
5:00
And the thing is like, going from 5% to 8% interest rates is not,
5:07
it's not a deal killer. And once you just really weren't negotiating bad deals. But, you know, one of my biggest takeaways from from this conference is that 2024 is gonna be a rough year for real estate, but a good year for real estate investors. So if you're smart, you're working on, you know, finding good deals, and you're, you're looking at every opportunity and just turning over every rock, you're gonna find some properties that are on discount. And if you get him today, on discount, in a couple of years, when interest rates drop, you can refinance it, you've got yourself a home run of a deal, right? Maybe it's a single today, but in two years at a 5% interest rate, it's a home run, you know, those, those are the opportunities that we're looking for. So I don't think that interest rates will go down before the election. But it's such a it's such a wild card, you never know when it comes to those things.
5:59
Anthony, two questions, best practices for building credit, and financing relationships with lenders, best practices for building relationships with quality general contractors? Thanks, Tyler. Oh, man, those are two really tough questions.
6:14
So building credit, I mean, look, I'm not the best person to talk about to talk about building credit, because I have like, I think my credit score is under 700. I paid cash for everything for so long.
6:29
Up until like, I think, put two years ago, I got my first credit card.
6:33
So it's it's so funny, like, we're out here, you know, buying all these buildings and all this kind of stuff. And I can't qualify to buy a house because I didn't have credit. Because I paid cash for everything. I think I think the credit market is so broken, doesn't make any sense. Like, if you don't have enough credit, you're penalized if you apply for more credit, you're penalized if you use your credit, you're penalized if you pay down credit your PIN, none of it makes sense. Like every way you turn around, and you just get you get points taken off. I know there's ways to hack the system, but I just I couldn't care enough. As far as financing relationships with lenders, man, I think that just reach out to him take him out for watch. And it's the same with contractors reach out to him take him out to watch and just you know, stay in touch with them every every few weeks Bom coffee.
7:25
I mean, at the same time, though, like they should want your business, they should also also be reaching out to you try to get business from you, because you're the one that's going to be paying them for the work that you want done. Right. So, you know, as far as like courting different general contractors goes, I mean, we like to have people come in and, you know, review plans with us on a project that we're seriously interested in having them take a look at bidding. That way, we're not wasting anybody's time, but you get to learn a lot from a contractor as you're going through that process. Same with lenders, honestly, like it's, it's tough to get to know a lender at first, until you like go through an actual deal with them. So I mean, we'll send them you know, it's a winner, I just got introduced to well, we're sending them the package on the property to see what they can come up with. Because if nothing else will spark a phone call. And then we can see kind of how they looked at the deal and how they're going through that process. And again, same with the contractor, we get to see how they look at the set of plans and you know how their team thinks about doing certain parts of the build out all that kind of stuff.
8:32
Dukes prepper County. Good morning, Tyler, is there any website or resource to locate a potential ground up flex property or commercial realtor than anything like phase one or two? That or other pitfalls that we should avoid?
8:50
Yeah, Dukes, I mean, you know, you've got Luke net, you've got Craxi you can use
8:57
the MLS to find commercial, you know, land that can be used for flex space.
9:05
I mean, there's, there's even like, I don't know what land for sale.com. There's a whole bunch of there's a whole bunch of websites out there, where you can go and find land for sale. So I think you know, taking that approach, I always recommend hiring a realtor. Well, not a realtor, a commercial real estate broker.
9:25
Most commercial brokers are not necessarily realtors.
9:29
But yeah, hire a Commercial broker to work alongside you doesn't necessarily mean that you have to pay them.
9:36
More often than not, they get paid by the seller. But even if you go find the deal, you know, chances are good, you're probably going to want them involved in the transaction anyway because they're going to help you coordinate everything and make your life a whole lot easier. But they've already got all those connections and they know where to look where to find these things are probably already talking to these property owners.
9:53
But if you're if you're looking for it for yourself, I mean, what I do is is I'll either let all the brokers know what I'm
10:00
Looking for,
10:01
post it on all my social media channels, go through LoopNet CoreXY
10:08
Craigslist MLS, you know, whatever's whatever's potentially out there.
10:14
And then, you know if it's something that we can't find, but we're really hardcore on finding will start sending mailers right I'll go to the tax records and pull list of every industrially zoned piece of property in that county, and will start sending me mail letters to try to dig up.
10:34
dig up some potential sites that way. Anything like a phase one or two, there are other pitfalls that we should avoid. So like the second part of your question, it sounds to me like you're asking about environmental on this because you're asking about a phase one or two or other pitfalls?
10:49
Yeah, I mean, with every commercial property that you buy, you're going to be doing at least a phase one. Right? And that's just a,
10:56
you know, documentation of what's going on with the property, right? Because you might,
11:03
they're just gonna go back through the historical records to see if there's anything ever nearby or on this site that could have caused environmental contamination.
11:11
So yeah, always get a survey, always do a phase one environmental.
11:16
If you're gonna be building anything, always get soil tests, right? You know, I mean, I've seen guys buy pieces of land that they think are good, and they start core drilling in there. Turns out, you've got some incredibly soft dirt. And you've got to dig down like 80 feet deep to get footers in.
11:34
Which is not a good place to be, obviously. And I've also seen the opposite, right? People get in there, they, they think that oh, you know, we've got some really good soil here, it turns out, it's just solid rock, you're not gonna have a fun time building on them.
11:47
Due to seeing the rates will go higher, but that isn't a bad thing. The higher the rate, the better the deal, the seller has to give concessions. I mean, look, there are plenty of sellers out there that have to sell no matter what, like they have to sell. I mean, I was talking to a group yesterday here at the conference, that you know, they have to sell their property. So they're asking me what they should do with it.
12:08
You know, I mean, there are plenty of those sellers out there where the the loans coming due, the bank doesn't want to refinance it, they don't want to refinance, because the interest rates are so much higher. Some people just want to retire, they just want to get out of it altogether. They're tired of it, whatever. And look, this is one thing that I talked about yesterday, in my panel discussion, we had a panel discussion about commercial real estate getting started. There is seller fatigue out there, there are sellers that have been under contract once or twice, the buyers ended up terminating the contract because they couldn't get financing, and the sellers are tired of it. So it's a good time to negotiate seller financing, because you can basically guarantee them that you will close. Right? So keep that in your back pocket as you're going out there.
12:56
Michael, how would I get a good appraisal on a commercial lot in an unsophisticated market? by that? I mean, everyone here with on the regular MLS? I don't think they know how to value properly.
13:09
How would you get a good appraisal on a commercial? What I mean, I would go through, you know, you can't really control who the appraiser is if the bank is picking the appraiser.
13:20
But what I would do is I mean, if it's a commercial appraiser, they're not going to do what residential agents do when they're trying to give you an opinion of value.
13:30
I mean, they're going to actually go through and pull comps, like they have to, like appraisers have to study quite a bit to get their appraisal designation. So most of them are pretty good. What I usually do when it comes to appraisals on my properties, is I'll go through and pull a worst of all of the cops that I think are comparable to the property. And you know, worst of all the improvements that we've made, or what could be built here, all of that kind of stuff. And I try and meet them on site and talk to him and give it to him. Right because it makes their lives so much easier if you've already done a lot of the research. Now as long as it's like realistic, and you're not saying hey, you know, this lot is comparable to Maine and Maine and downtown New York City. Obviously, it's not going to be that right like as long as it is realistic, they're probably going to use your comp set.
14:24
Now they may go through and add their own or take a couple out, but I mean, it helps them do their job better.
14:31
So I mean, that's that's how we'll typically try and get involved in that and then I'll ask him questions, and just make sure that they fully understand what the potential what that lot is or why I feel it's worth X, all that kind of stuff. So that's that's typically what we'll do is we just try and have his hands on about approach as you possibly can. Because often that is the most important part of the process. You got to make sure that appraisal comes in where you needed to.
14:57
Oh ma'am, Starbucks is not nearly as good as Richard berry
15:00
coughing, that's for sure.
15:02
Okay, let's see.
15:05
Joe is asking Where do you find good contractors for industrial, talk to engineers, talk to your civil engineers,
15:13
civil engineers are dealing with industrial developers all the time. I mean, your civil engineers, and architects to be fair, but more often than not on the industrial side, you're probably going to have engineering involved and not necessarily architecture
15:27
depends on the style of the building.
15:30
But yeah, your civil engineer is going to be really good, because one, they're working with all the contractors that are doing industrial projects, but to the civil engineers overseeing a lot of the work that the contractors are doing. So the civil is going to have a better idea of who the better contractors are for a specific type of development, or construction than pretty much anybody else. So highly recommend just talking to your civil engineer and saying, you know, who they like, who's out there working on that type of product? It's definitely the best way to find them.
16:04
Luke, do you tend to build a relationship with the seller? So hopefully, you can close on a property? If so, do you do mailing campaign?
16:14
I'm assuming like by build a relationship with a seller meaning I just getting brand recognition with them, because you're talking about doing a mailing campaign?
16:23
Yeah, I mean, it depends, right? Like sometimes.
16:28
I mean, I don't personally do that anymore. Right. My brokers do all of that. So I'm not involved on like the day to day unless it's somebody that directly calls me and says, Hey, I want to sell right now, let's talk.
16:40
But yeah, my brokers are fostering those relationships, and making sure that they stay in touch, you know, I mean, you want to stay in touch with these people once a month, maybe maybe a little bit less. But I mean, you never know, right? And you want to make sure that you're the one that's top of mind whenever they do decide to sell. So that could be as simple as putting them on a newsletter, calling them every other month.
17:04
And making sure that they get a mailer once a quarter, right. I mean, I had a group that called me like a year or a year and a half after sending them a mailer. Like they had kept it, put it on their fridge, they tried to work on the property themselves, decided they didn't want to deal with it after like six months, and just called me and said, Hey, we come with this
17:25
was seriously like a year and a half later. And I went back and looked, I'm pretty sure it was like the only mailer I ever sent them.
17:33
Which is pretty funny. So yeah, I mean, it's any way that you can build a relationship with the seller, highly recommend doing it, because you just never know where that's going to come back and help you. And obviously, people want to do business with people they know. Right? So the more that they know, I can trust you, the more likely that you are to get that deal.
17:53
Let's see, can you join us? And can you get a construction loan on a seller finance deal?
18:01
That's good question. So when you when you do seller finance, the seller is typically going to want a first position loan, or lien. Well, also when but when. So when you go to get a construction loan, that bank is also going to want a first position. Now the construction loan is typically going to be done through a traditional bank, which is going to argue heavier for a first position than a seller finance would.
18:31
But if I was a seller on seller, finance, not a chance, am I taking a second position? There are a lot of sellers out there that do it, they get comfortable with it, and that's totally fine. I'm just saying from my perspective, like I wouldn't do it.
18:45
So in many cases, no, you will not be able to get a construction loan on a seller finance deal. You end up having to refinance the entire debt out and put a new loan on the property unless the seller is willing to take a second position, which if they are and your senior debt is willing to accept a second position, then you're good to go.
19:06
Gabe is asking any update on the salt ranch project? Yes, we finally got our permits, like, I don't know, a month ago, after 10 months of working through that with the City of Nashville just absolute nightmare.
19:20
It's tough to say I mean, they just haven't really focused on improving what they're doing. Yeah, they're in Metro permitting and zoning, planning and zoning.
19:31
So we are we are back at it. We're under construction aiming to deliver in the spring. So really excited to get that one going. It's going to be a lot of fun.
19:43
Yeah, you'll feel free to jump in with any other questions that you've got. It looks like we've got about 10 minutes more remaining on this office hours.
19:53
I just got the Oculus this past week. I don't know if y'all have ever looked at that. I'm not a big fan.
20:00
No game guy at all. I mean, I haven't really played video games since I was for like, I don't know, eight or 10 years. But the the things that you can do architecturally, with the Oculus are pretty wild. I mean, you can like, zoom in on for plans and look at these things 3d and change all this stuff up. It's pretty wild. So I'm going to be messing around with it for a little while.
20:24
Once I kind of learn how all that stuff works, we'll do a video on it. And we'll get you guys some information on how the Oculus can actually be in like a huge game changer for real estate. The more that I was watching my buddies use it and like looking at the the programs that it had for design, and being able to tour spaces. I was like, Man, this is this could be a huge, you know, like I said, game changer for real estate.
20:50
Sophisticated investing with Joseph was saying, Hi, Tyler. Just curious. What did you do before you started in commercial real estate? When did you leave your day job. I love that because I never had a day job. I dropped out of college.
21:04
That's it dropped out of college. I was in sales. I mean, I sold knives at Cutco.
21:11
Like the summer that I graduated from high school did really well with that made like $30,000 that summer realized that I could sell and got bored of sitting in class. So
21:23
dropped out after my freshman year got offered a job from a boutique development firm that I had sold some Cutco knives to the owner for his beach house. Whenever there worked for four and a half years as the in house leasing agent and then left and started my own thing in 2018. So we've been doing it ever since.
21:45
Michael, is there money to be made in finding deals and bringing them to brokers? Oh, that's an interesting question.
21:53
One, I think, I think the majority of the money to be made out there is in finding deals. I mean, I That's funny, because I actually talked about this yesterday, at at our panel, I think that that's the number one skill that you can have to get started as a commercial real estate investor, even if you have no money, if you have no skills on how to get a project across the finish line, or funded or any of that. Finding a deal is a great way because you're going out there and finding something that everybody wants right now bringing them to brokers, I don't know that there's any money to be made in that because
22:29
brokers don't like to share their Commission's brokers don't even though they like, you know, they'll have it in their agreements that they will split commissions with other brokers, all this kind of stuff.
22:38
Not every broker is this way, there are some really great brokers out there. But we've dealt with some brokers that have tried to cut us out of a deal when we're clearly representing the client.
22:48
And they just make it an absolute nightmare to work with them. So I mean, Michael, I would skip bringing deals to brokers, I go straight to the investors, you know, and you can build those lists up from your property tax records, from watching.
23:04
You know, transactions in the Local Business Journal, you know, that you can always I mean, there's always, at least in Nashville, there's something every day going on. So we're like, oh, that's a new group out of, you know, Miami core, what's happened to the west?
23:16
So we just pay attention to that for quite a while. But yeah, I think finding deals is the best way. I mean, one, you can get paid for it or two, you can just get equity in the deal. Right. There's so many different ways for you to negotiate that and get involved. I think it's I think it's a great thing to do. And I think it's one of the best skill sets that you can have in commercial real estate.
23:34
Joe, are you a kneadable, of Land Acquisition Manager on your team?
23:40
If you're talking about on the development team? No, sir. We are not I've run a very lean development team. And I handle all the acquisitions on that front.
23:51
If you're talking about on the brokerage side of things, like if you've got a skill set to go out and find land for clients, then yeah, absolutely. What's talking about we have a minimum requirement of $25 million a year for our commercial real estate brokers on my team. We'd be happy to talk to you.
24:10
Joshua, in the weeks, you said, You've been looking at flips on the residential side could make this pivot. Did you think there could be downturn in commercial industry right now?
24:22
So, yeah, I mean, we've been anticipating a downturn for a while. That doesn't mean that we're getting out of commercial by any means. We're just sitting on the sidelines at the moment waiting for the right opportunity to come along. Because I strongly believe that, like in six months is when the Buying Opportunity is going to begin. If you look at the economy, this recession is really going to be based in my opinion, or at least that's what I feel is gonna be based very heavily on consumer debt. Right, like 2008 was based on you know, junk mortgages. And, you know, the consumer debt is going to max down at the end of this month.
25:00
Are sometime in November, meaning the majority of Americans will have maxed out their credit cards. So that's when we're going to start seeing the economy really take a hit. So I don't want to buy anything today, because people are paying rent, they are out there spending at retail shops, you know, et cetera, et cetera. But in six months, they might not be right. I already have buddies that are starting to say like, Yeah, I'm having a hard time collecting rents in my apartment complex. Yeah, you know, foot traffic is dying, and this retail shop, like once those tenants get into a distressed situation, that is when
25:39
real estate will be on sale. So that's what we're kind of keeping an eye out for, I think, I think there's a huge opportunity right now in residential, it's very secure. Like, I'm not gonna go do a single family,
25:50
buy and hold like, it's just not worth my time. But I will do a single family flip. I mean, like, every way that we look at it, there's 100 $250,000, in profit with this style of house flip that we're doing, which is very different from what most people do. But it's kind of hard to say no to 100 $150,000 a flip, you can do these in three months, you know, six months, depending on permits, we could have for those a year like, absolutely, yeah, we'll add that to it, we'll add that residential vertical door development firm.
26:21
And vstr. Z is saying wondering, how do you manage your money not invested in real estate? Also, do you invest in the stock market, money markets, et cetera, et cetera? Right now? I do not, I don't invest in anything other than real estate. I had crypto for a little while. And that was cute. But I don't know that market. I don't see why that market would ever do well.
26:40
So I got out of it sold everything. Ended up just adding some more stuff on my house. Because I'm like, Yeah, but that'll increase the value of the house. So I understand that.
26:52
At some point, I will diversify into stocks and bonds. I mean, I use
26:57
what is that app called? acorns. It's pretty great. I just connected my personal credit cards to it. And that automatically, you know, sets aside like, I don't know, 100 bucks a week plus, you know, rounds up every, you know, dollar that I spend or whatever.
27:14
And that's, that's pretty nice. It's just easy. It's on autopilot. But no, I mean, the returns that I can get in real estate, that on deals that I'm actively working on compared to the stock market, it makes no sense for me at this time to diversify. At some point, it will. And that's, you know, when I'm starting to get older is slowing down, or just, you know, trying to mitigate some risk. But right now, it's all in real estate, and business. I've got I've got four active businesses in Iran.
27:45
Michaels saying, yeah, we'll be 40 to 50%. off everything middle of next year. Couldn't agree more. I think we're starting to see that already. Who's Jay Scott yesterday was saying that cap rates have gone up, or maybe it was Paul Moore, was saying that cap rates have gone up 59% in Phoenix, Arizona, 59%. That means property values are down 59% in Phoenix, Arizona. Now, that doesn't necessarily mean that those are that's what they'll sell for. But, I mean, if cap rates are going up, and people are asking for a 59% Higher cap rate than what they're asking, that's a pretty big deal.
28:22
That's a very big deal. Well, I guess it doesn't necessarily equate to a 59% decrease in value. I don't know I'd have to run the math on that. But I mean, a cap rate if it's four, and now it's six and a half, that's or six and a quarter. That's a pretty high job.
28:38
Let's see Jordan, do you know any commercial investor boutique brokers in Tampa to join forces? That is a good question. I don't think I know anybody in Tampa.
28:48
But if you're a commercial real estate boutique broker in Tampa, and you're watching this live stream, reach out to Jordan McCoy.
28:56
Jordan, leave your leave your contact info in the comments, just in case somebody comes back and watches this. And I'll ask around today while I'm at the conference, see what all we got going on here. See there's anything else? But all right, well, that looks like that is all the time that we have for today. Thank you all for joining me for this week's office hours. We're doing this every Tuesday at 8:30am Central Standard Time. So feel free to jump in with all of your questions on commercial real estate. We'll get coached up and I mean, bring your deals, let's let's look at some deals, happy to help you underwrite and do all that kind of stuff. So I think it'd be a lot of fun. I appreciate the kind words guys do X is saying you're the best Tyler Michael is saying I'm a super fan. I appreciate you all. I couldn't be doing this without you all. So thank you so much again, for jumping in. I love spending this time with you guys. And I'll see you all next week.
Each week, I'm going live at 8:30am CST for my "office hours" to answer your questions about commercial real estate on the show. Let's hear what you'd like to know when it comes to brokerage, investment, and development!