Investing in Gas Stations, Underwriting Faster, Environmental Surveys (Office Hours)
This episode of Office Hours dives into whether or not c-stores (gas stations) are a good investment, how to underwrite deals faster, when you should do a Phase 1 environmental survey, and more.
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Key Takeaways:
Tyler visited a large office building in Dallas that was converted into corporate co-working space and thought it showed the future of office space.
He thinks gas stations, especially in rural areas, can still be a good investment even with the rise of electric vehicles since many vehicles and equipment won't be electric anytime soon.
He recommends always doing a Phase I environmental report for commercial real estate deals to understand any contamination risks.
He thinks value-add deals that require renovations can be a good way for first-time commercial real estate investors to build wealth faster than with passive triple net lease investments.
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:
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This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com.
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Welcome back to the commercial real estate investor podcast live from the cobble group Studios here in Nashville, Tennessee. And we are doing our weekly office hours every Tuesday 8:30am Central Standard Time, feel free to jump in and join me live each week with your questions on commercial real estate. As always, super chats get bumped straight to the top of the list, we tend to run out of time before I run out of questions. So definitely jump in as quickly as possible is what I have been recommending. As we're going through this process, I wanted to give you guys a couple of updates on what I've been up to this past week, we actually flew out to Dallas Fort Worth on Thursday. With with the team it was me and Zach and Phil, to check out very space and various headquarters really cool, really interesting Office product they've got going out there, we're going to be releasing a couple of videos on our trip to Dallas. Because if you follow me on LinkedIn, you might have seen my post, I think we found the future of office space. Really interesting what they're doing there and how they are rethinking the way that office is run, really at scale. I mean, it was a really interesting building, it was probably 400,000 square feet, that sounds like the one that we wouldn't visited, that they had converted into essentially, corporate co working. You know, it was very similar to most office spaces, but they ended up adding a little twist to it, which made it really cool, and had more of a campus like feel, which I think is going to kind of help bring people back to the office because that's let's, let's be honest, at the end of the day, you've got to create something that is compelling enough for people to want to go to it. Now, I know we had a super chat drop in but for some reason it is not showing in the live chat anymore. So I'm gonna go ahead and pull that up. While we are getting this thing rolling. Yeah, it was good trip. Happy Halloween, everybody. Obviously, I'm clearly not dressed up if you're joining me on YouTube Live. But you know, we we do all we can around here. I guess. I usually Halloween is one of my favorite holidays. But for whatever reason this year, I just I did not have time to. to even worry about a costume. It's been crazy around here with everything that's going on. I know that we had a super chat. I don't know why it's not showing up. But if you if you were the one that dropped that super chat in there, let me know. Actually, I think I remember what it was it was about it was about investing in gas stations, C store triple net investments. So I'll go ahead and answer that one. Sorry, I can't remember who asked him. They were asking what my thoughts are on C stores as an investment. When you know, there are potentially environmental issues, you know, with the advent of electric vehicles, or maybe not even the Advent, but just the how popular electric vehicles are becoming our C store is going to be a good investment in the future, I'm actually going to have some representatives from Big C stores come in and talk. We're still trying to nail down which group it's going to be. So stay tuned for that interview here soon. I'm going to talk to them about you know, what electric vehicles are doing to C stores how C stores are preparing for the future. I don't think that C stores are gonna be going away anytime soon. I don't think the gas is going to be going away anytime soon. I actually think that C stores are still a solid investment today. I think that you want to make sure that you know you're you're focusing on the fundamentals whenever you're buying these assets. Right? Because if you're buying a property that's in a strong location, high visibility, good corner lighted intersection, that could easily be adapted to something else, I think you're gonna be totally fine. You know, it's it's really when you start getting into these smaller towns, maybe you're on a gas station that's on a side street where you could probably get into some trouble. You know, that being said, should cap rates start to move up on these assets. I think that they will over time. I don't know that that that we're going to start to see that today or in the near future. But it does make sense that cap rates will start to go up on these assets and And then eventually, they're not going to be very investable as a triple net tenant anymore, it's going to revert more back to, you know, the quality of the land, the zoning, and really its overall location for you to kind of focus on, or we've got a whole bunch of comments dropping in, let's say, Joe McCoy saying, Do you think your journey into commercial real estate would be similar? If you had not joined a brokerage early on? That's a pretty good question. I have no idea. You know, let's, let's talk about it. So, you know, when I got started back in 2013, as the in house leasing agent for a boutique development firm, I think that no, I think that my my real estate investing journey would be very different. Because I was actually working for my grandfather, he had a construction company, I was a project manager over there for all three months. So I didn't even really manage any projects. But, you know, I would have taken the same route that he had taken in life, which was, you know, I was going to take over his construction firm, I was going to build it up even bigger, and start buying and building houses from there. So, you know, commercial real estate may have been something that I got into further down the line, but I probably would have started on the residential side, just with building, you know, developing building and selling homes, as well as doing some third party work. So no, I actually think that if I hadn't gotten into brokerage, my journey would have been very different. Because, you know, like, you all, commercial real estate was not something I knew or understood when I first got into real estate in general, right? Because we all grew up knowing how kind of how construction works. And we all know kind of how residential real estate works, right? But commercial real estate, like, I mean, seriously, until I got until day one on the job, I didn't even know what I was doing. And you know, it kind of dawned on me like, oh, somebody represented Chipotle and put them into that shopping center. Oh, somebody owns that building that Chipotle is I just, I mean, it makes sense. Right. But I was I was also 21 At the time, so I didn't have that much exposure to that that market. But you know, I just never really thought about it. So yeah, I think I think my, my journey would be very different. And what he's saying Tyler wanted to know, your thoughts on investing in commercial real estate in an oil boom town, who Edwin just be careful, I've got some buddies that invest in Odessa, Texas, which is actually where my dad's from. I think that as long as you're buying smart, and it really depends on what you're buying there. You know, self storage units in a town like that industrial in a town like that can usually be pretty decent. Housing always kind of kind of scares me. Because you know, these oil, boom towns, they're really interesting, because all of a sudden, you could have, you know, within a year, four to five times the population of what you've got houses for. Right. So you can very quickly have a housing crisis. But then overnight, you know, when oil goes down, all of those people are leaving that town. And now you might have a glut of of residential real estate, right? So I think that, you know, it's, it's, I personally would not be investing in an oil boom town, unless I was getting such a screaming deal that it could also sit vacant for two to three years at a time. And we'd be fine. You know, it just it just, I just get worried about, you know, towns that see these massive fluctuations both up and down, what's going to end up happening to them in the long run, in most oil boom, towns don't really have another economy that helps drive it. So if oil goes down, the entire town is in a depression, which means that retail is probably not going to be doing so hot outside of your basic services. Can you say good morning, Tyler. Good morning, Kenny. Thank you for joining us. Edwin, can you get good deals on loop net, I certainly believe that you can get good deals on live net. I think that a lot of people overthink, finding good deals, you know, the the phrase and commercial real estate is
you know, LoopNet is where deals go to die. And a lot of that is there is some good reasoning behind that. And that's because most commercial real estate brokers have a pocket full of investors or tenants that they will go and show these properties to first. Right, and if they all turn it down, then it makes its way on LoopNet. That's not necessarily a bad thing, though. You know, I mean, I tell my agents this all the time. You know, they're the perfect user is out there. So just make sure that we're marketing to them. You know, it may be somebody that we've got in our pocket, but it's probably not. I mean, how many phone calls can we make to people that we know that might be interested in that 10 2050 100 But there's 1000s and 1000s of buyers I have sellers of tenants out there that we've never even met before. So I think that you can find really good deals on loop net, I've actually found a handful of really good deals on new debt. A lot of it is because I see things that other people don't necessarily see. Right? You look at an office building and a lot of people will skip over office. But if you look at the underlying zoning, you might go oh, well this could actually be converted into flex space and if I get it at this price, then I can justify the construction to convert it to flex space and then this is actually a screaming Good deal. So I highly recommend, you know, searching through loop net look through Craxi, you know, look through Craigslist, we found surprisingly good deals on Craigslist before. So yeah, don't don't discount the online listing services. Mike Becerra, dude, love this question. Good morning, Tyler. How are the predators looking this year? Mike knows I'm a huge Preds fan. I've had season tickets for the last three years. That is hands down my favorite thing to do in Nashville, I go to every single game. There's like 41 games a year. And you know, this year is really interesting, because Barry trots, who used to be the head coach of the predators is now back in Nashville. He has overturned probably half the team, which we really need it. We had a lot of guys that were getting complacent. They were you know, as he says, this is a place where we come to win championships not to retire. We had a lot of guys that were just kind of, you know, skating on there. How good they used to be, honestly. So the predators I think we're like four and four this year, or something close to that. At least I was when I was when I checked a couple days ago, we had an incredible game against Toronto on Saturday night, we won in overtime and the three V three, just absolutely amazing. I'm a huge predators fan. So, you know, I don't know how the season is gonna work. If we make it to the playoffs, I'd be surprised. But I think that we're gonna have a better year than at least I was anticipating going into what the season was gonna be. So thanks for that question. I love I love hockey. Alright, Antoine is asking suggestion on a faster underwriting software for 40 Plus units? Who? That's a good question. I don't know that there's really any fast underwriting software when you get to 40 plus units, because there's just a lot of data in there that you've got to input. You know, I've got a pretty good multifamily underwriting spreadsheet that I put together with Bruce Peterson. It's available on my website, if you want to go check that out. But honestly, it's going to be as fast as any other underwriting spreadsheet out there, I think the fastest software that you have is the one that you're most familiar with, because you'll be able to crank it out. Unfortunately, when you get to, you know, a 40 plus tenant type of deal. It just takes time. It just takes time to underwrite it, you'll get better at it with with each property that you underwrite. But it's, it's just going to take a lot of practice. There's there's really no way to kind of speed through it. Okay, just saying it was me. Okay, so Okay. H was the one that was asking the question. Gas stations, the gas stations they were looking at were in rural areas. Yeah, I think they can be fine. I mean, especially in rural areas, like, let's be honest, you know, most most farmers or people that live in the country are, they're probably the last adopters for electric vehicles. So I think gas stations in those areas are going to be fine. You also think about all the farm equipment, and other types of vehicles that are not going to be electric anytime soon, that are still using gas, right? I mean, you think about lawn mowers, tractors. Depending on the tractor, you're probably using diesel, but I don't think we're gonna see electric tractors anytime soon. Let's see. Jason is saying good morning. Tyler washed your commercial real estate conference. Online. YouTube. Yeah, the bigger pockets one. Hope you enjoyed it. I'm in a very interesting situation would like to know, if you do a one on one session? How can I go about that? Hey, Jason. Absolutely. Yeah, man, I do one on one. Just one off consulting calls. If you want to book one of those, I also do some one on one coaching for clients that are looking to buy their first commercial property in the next year. So you're welcome to go to Tyler cauble.com/consulting to check that out and see the options there. But happy to do it anytime or you're also welcome to just jump in into the live chat here and ask whatever questions you got this is always free. Can you sing any idea if an environmental report is required for redevelopment of a burned down building? So Kenny, that depends on how risky you want to be. And if a bank is involved. i Every deal that I approach we're anything that we buy, we're always doing an environmental survey. That's probably a phase one. If warranted, we'll do a phase two, but more often than not, we're just doing a phase one. I think that you know what winners require you to do a phase one of our Mental no matter why, more often than not, there are some exceptions, you know, if the property is small enough, if they can, you know, go and pull records, I've had one bank do that before on a 2000 square foot building, where they just went in and pulled, you know, looked at something online some sort of data source that they have as a bank, where they didn't require us to do a phase one. But every single project, whether its development value, add or even stabilized, more often than not, we're getting a phase one environmental report, because we want to know, one, if there's any contamination on the site that we need to deal with, to, if there's anything that poses a danger to our tenants, because we don't want to be dealing with that, right. We don't want to we want to be good stewards of the properties that we own in three we don't want to contaminate our neighbors, right I mean, that's a that's a pretty big deal right there. Because if your neighbor can prove that contamination on their property came from your property that you are legally responsible for that as well. So you know, environmental is definitely not something that you want to mess around with. I always recommend doing a phase one they're relatively cheap, you know, it's kind of like, like paying for an attorney to do deals. Is it a check Do you want to write never but is it always worth at least 10 times what you pay for it? Absolutely. Let's see. I wouldn't say that's where I live in Odessa. Oh, nice. Yeah, Odessa is a great part of the world. It's if you if you want to know what Texas is really like go to Odessa it is it is kind of in the middle of nowhere oil boom town. My dad played football for Permian, which y'all might know is the the team in the Friday Night Lights. He was actually on that team. Husky jujitsu is saying we have an 18 room. old hotel in South Pittsburgh. 30 miles west of Chattanooga, and downtown. Nice. Let's Oh, he's saying Let me buy you lunch at High Point in Moneygall. And let's talk real estate in areas just outside of Chattanooga. Happy to do it. I mean, I come down to Chattanooga once, once a month, give or take, depending on what I've got going on. So be happy to get something scheduled and hear what you got going on. Shoot me an email at office at the cowboy group.com. And we'll figure out a time to make it happen. Joey, Tyler, brother and I have an old commercial property want to retrofit it for a micropub? Love that best way to go to renovate finance? What type of loan? How does that process work? Okay, great question. So you're basically asking how do I do a value add or adaptive reuse project. So the first thing that you want to do is do all of your due diligence on the building, make sure that one it's structurally sound, right. So you may want to get an engineer there, to make sure that it is zoned for what you want to convert it into, then you'll want to go to an architect and have them you know, inspect the property, put together floor plans, and you know, really kind of lay out the design of what you guys are gonna want to do, then once you kind of have your plans pulled together, you'll go to a lender, and you know, show them the plans. And hopefully by then you've got a contractor to give you at least a high level budget. That way, you know, when you're going to the winter, hey, here's how much money we're going to need for this whole project, the better of a picture, you can paint for the winter as to exactly how this is going to happen, the better they're going to be able to understand it. So that will help you get financing on him. Typically, you're gonna go for it sounds like on this one, you know what's called an acquisition and development loan, you're not really doing any development, that's just what they call it. It's basically where you bundle up the acquisition of the property with the construction renovation budget, right? So let's say you're buying the property for a million, your, your renovations are a million dollars. So total cost is 2 million. You go to the bank and say, hey, you know, we want to we want to loan for 1.5 to 1.6 million, because that's going to give you around 20 25% down payment. And, you know, let's let's go through this process, what I'll typically do is put together a,
I'll do some underwriting. We put together offering memorandums and all of our projects because we're raising capital for it. And, you know, you may want to do something similar, where you're basically putting together your business plan for this property, that's what a bank is going to want to see is exactly how the money is going to be spent, and how you're going to be able to get to a 1.25 debt service coverage ratio and pay off that debt. Right. They're definitely they're definitely going to want to look at your financials. So make sure that you have three years of tax returns a personal financial statement. Well, and a personal financial statement pulled together, they may want to look at your credit as well. They probably will pull that before they finally approve you. But what I would say is, you know, whenever I talk to a lender, I tell them look, I'll send you my financials, do not pull my credit until this is past coming. Ready, or make this you know, 100% like it will pass contingent upon pulling my credit. Because, you know, I, like I have, okay credit. And the only reason it's not outstanding is because we go for so many loans that I just keep getting, you know, hard pulls on my credit, that's not a very sustainable way to do this long term. And, you know, you'll have some banks that just don't listen to you. And I've gotten on the banks for just going and pulling my credit without, you know, notifying me ahead of time or at least wrapping everything up. So I only want my credit pulled whenever the loan is done. So that's how I would kind of go about that. Let's see, Matthew. Good morning, Tyler. Do you ever wholesale commercial real estate deals or do wholesalers ever bring you deals, we have wholesale deals before wholesale and commercial real estate is really tough. I've done a video on it before, you're welcome to go search that on my channel. I think it's just how to wholesale commercial real estate or wholesaling commercial real estate, something like that. It's, it is not an easy process. Because commercial real estate deals are just so much more complicated than residential. And there's, you know, in residential, it's kind of the same thing over and over again, it's never that case, in commercial real estate, every deal is different. But you know, every now and then it does make sense to flip or wholesale a deal. So we will do it, and wholesalers do bring me deals every now and then. The I don't think that we've ever bought through a wholesaler before. The biggest issue that we end up having with wholesalers, when it comes to commercial real estate is the amount of time that they have under contract. Because typically, they're residential wholesalers who happen to come across a commercial deal. And they'll put it under contract under the same terms may be what they think is a little bit longer, or acceptable in the commercial real estate world. I mean, I need 90 to 120 days from the time that I look at it in order to fully pull this deal together. Whereas most residential deals, you know, you'll put it under contract for 30 days. Right? So big difference in timing. Now, there's one thing that you could do if you if you really want to wholesale commercial real estate, you've got to take more risk, right? Go ahead and pull the trigger on a survey, pull the trigger on a phase one environmental, pull together any other due diligence items that you can because it would make my life that much easier, right? I mean, if I can skip 30 days, then you know, I can close in 60 to 90 instead of 90 to 120. So yeah, I mean, if you've got really good deals in Tennessee, you're looking to wholesale, shoot them over office at the cobble grip.com. Let's see Puget saying, Hey, Tyler, what are your thoughts on structuring real estate commissions for seller finance deals when buying specifically when the agent helps close? But you were already in contact with the owner? Oh, interesting. Well, first off, I would structure that agreement with the broker in such a way that if it's somebody that I've already been talking to, they're excluded from the Commission's right, it's not fair to have to pay them. Like this is coming from a broker, right? Like I'm a broker at heart, it is not fair to pay a broker commissions on a deal that they didn't bring you that they didn't negotiate just because you know, they were helping you look at other stuff. Right. So I have done deals like that before with with my investors, we will sign an exclusionary agreement to where, you know, we call it out in the you know, exhibit A, hey, these, you know, 234 10 people that you've already talked to or are in talks with, are excluded from our rep agreement. Now, there are several different ways that you could structure this, I mean, what the the broker is going to want to get paid out of whatever the downpayment is at the very beginning, right? They want their full commission paid out in the beginning. But it goes back to what your agreement says. I mean, if it says you're gonna pay them out, upon the close of the deal, you got to pay them then. You know, if you're working on it on the front end, you could say, hey, if we're doing a seller finance deal, we'll pay you monthly until you know, this is done. I've got a deal that we were getting paid Commission's on for the next, like seven or eight years. Because we're managing the property, the owner didn't want to pay it all up front. And so we just charged a little bit more, but I'm drawing it monthly as we collect rent from the property. So that is actually more common back in the day. That was how things were done. Most landlords would say, Nope, I'm only going to pay you as I collect the rent that way, if this tenant moves out, I don't have to pay you the full commissions. So let's see. They're saying, oh, second question. In order to rent a warehouse to multiple tenants on an industrially zoned property. Do you need a special build out or can you technically create co warehousing with one space? You could do both? You could do both. I was just talking to a group out of Canada yesterday. I think they're called tradespace. Where they're basically doing industrial co warehousing, where you've got kind of a group of offices up against one wall and then everybody's got their own designated warehouse space. That's all We'll shared, right, it's, you know, I've seen I've seen warehouses where they just paint the lines, and they've got cameras, and it's, uh, you know, hey, don't cross the lines that aren't yours. I've seen some that do more of your chain link fencing kind of deal where it's eight to 10 feet, a chain link fencing, with, you know, of course, double doors on or double gates for the chain link fence so that they can access and pull out, you know, larger items. And then I've also seen them where you've got a shared hallway for, you know, access to the loading docks or whatever. And then they've actually got their own individual spaces that are that are fully walled off. So it just depends on kind of how you want to set it up. But you know, tenants will pay you accordingly. Right? So it depends on how much money you want to put into the property, and what tenants are willing to pay you. Because you know, you're gonna get a higher valuation with higher rents, of course, but that means that you've got to spend more money on actually dividing up the spaces, you'll get lower rents, and probably a faster lease up if you do just do chain link fencing, but tenants aren't gonna pay you as much. So it just depends on what you want to do. Hard morning, dude, Friday Night Lights is one of the best TV shows of all time. Yeah, I actually have never seen the TV show. And it was, it was great movie. Yeah, my dad was a little bit or his parents moved to Brownsville for his senior year of high school. And that was the year that Friday Night Lights happened. So had an old Permian belt buckle for a while. It's pretty neat. Puget saying, Thank you, Tyler. absolutely happy to help. Appreciate you all jumping in and asking your questions. So again, we're doing this every every Tuesday, 8:30am, Central Standard Time, you know, when I was first getting started in commercial real estate, I didn't have anybody to bounce these kinds of questions off of, because, you know, this is back in 2013. There were definitely no YouTube channels back then. There were two podcasts when it stopped running, you know, probably about a year before I found it. And, you know, I just I just enjoy doing this. It's, it's a lot of fun. And, you know, try to try to give back. I mean, it's nice to have somebody to just ask these questions to, let's say, Grant saying, for a first deal, would you say go for value add or triple net? Grant? That's great question. So it really depends on your strategy, your risk tolerance, and how much time you can put into these deals. So you know, if you're, if you're looking to leave your day job, then triple net is probably not the way to go. Because it's more of the I compare it to the bonds or real estate, right, you're gonna get a nice coupon every month for 10 years, but it's not going to be a huge amount of cash flow. It's more for people that, you know, hey, I've got a $5,000,000.10 31 exchange, I just need to place the money, I don't want to have to worry about it ever. But if you're looking to build wealth, like faster wealth, and you're willing to take a little bit more risk than value, add is the way to go. Because you can get in there, do the renovations for some appreciation of the property sell at 1031 Exchange into a triple net and then set it on, you know, so no repeat. Just do it over and over again. It's kind of nice to, to do that. I mean, that's what we're looking at doing for some of our projects, I typically take the more active income that I make off of deals where we have to do a lot of work. Once we sell those, I throw it into something passive, right? So we've got a piece of land, it's 1.7 acres that we rezone for higher density, and we're going to sell it. And as soon as that's done, I'm going to move that cash into like a Starbucks and just forget about it. You know, we'll go rinse, wash and repeat. Notice and considering the convergence of blockchain AI and ESG criteria, how do you forecast value and trade tokenized commercial real estate assets globally? No, I will be honest with you, I am not even remotely paying attention to blockchain, AI and ESG. With regards to like tokenized commercial real estate. Of course, we're using, you know, AI for a lot of the different things that we do in commercial real estate, right? I mean, you see AI
advising you on how to manage your buildings, and it's integrating into your HVAC system and telling you when you should and shouldn't be running those units and stuff like that. So it's creating efficiencies. But you know, tokenized commercial real estate assets. I could be totally wrong. I just don't see it happening for a while. We all thought that blockchain was going to revolutionize commercial real estate when it first came out. It's not really gone anywhere. I think that in the long run, what it's really going to help with is title chain of title. Because, you know, once you've established it in the blockchain, then you don't really have to run a title search ever again, like it's there. It is there. So I think that it could change the way that title companies work. But, you know, as far as actual tokenized commercial real estate assets, we're just not really paying attention to him too much. I mean, I think at some point that might become a thing, but I haven't encountered it one time. I'm in all of the deals that we do. So I think it's something to keep an eye on for sure. But I don't know that it's going to really revolutionize anything. Can you saying thank you, Tyler, you always provide great content and wisdom. I really appreciate that. It's very kind of you. Again, appreciate you all joining us for these office hours. We'll be back live again on Tuesday, next week. 8:30am Central Standard Time. Come and ask your questions, and I'll see all them.
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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!