Single Tenant QSRs, Off vs. On-Market Properties, CCIM for Analysts (Office Hours)

Tyler shared insights on various commercial real estate investing strategies, emphasizing the importance of understanding the local market, having a solid business plan, and prioritizing cap rate and interest rate arbitrage. He also discussed how to handle zoning and planning challenges, manage construction projects and real estate investments, and navigate challenges in commercial real estate investing. Cauble highlighted the value of building relationships, understanding the needs of the neighborhood, and handling situations in a professional manner.

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Key Takeaways:

• Inflation is significantly impacting QSR tenants, so it's important to consider risks for single-tenant net lease investments in that sector.

• Relationships with local authorities, neighbors, contractors, and banks are critical for successfully developing commercial properties.

• Off-market deals can offer better terms than on-market listings, but creative thinking allows finding value in on-market properties as well.

• Handling difficult situations professionally, such as by negotiating solutions during COVID-19, can turn problematic relationships into valuable partnerships over time.

• Commercial real estate investing offers various opportunities, from rehabilitating mills to partnering on sale-leaseback deals to developing education programs.

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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Are you looking to take the next step toward investing in commercial real estate but don't know where to go? Series central offers a comprehensive education and coaching platform designed to help you get started. Our online courses cover a wide range of topics from the fundamentals to advanced strategies, ensuring you have the knowledge and skills needed to thrive in this competitive industry. As a member, you'll gain access to our exclusive online community and monthly group coaching calls, providing you with valuable networking opportunities and personalized guidance from experienced professionals. Whether you're a beginner or looking to take your career to the next level, cre Central has the resources you need. Visit www dot cre central.com to learn more. Welcome back to the commercial real estate investor podcast live from the cowboy group studios in Nashville, Tennessee excited to be back with you all today. Diving into another round of office hours. If you have questions around commercial real estate and you don't know where to go to get the answers or you just want my advice, jump into the office hours live streams We're going live most every Tuesday at 8:30am Central Standard Time. I say most because sometimes I am traveling or having to give a presentation to the city as I have had to do twice in the past month unfortunately. So thank you all for bearing with me and jumping in to the live chat. Let's let's hear your questions as to what you've got going on a couple of quick updates from me. This gosh the past couple weeks have been crazy busy for me. So as you all may know if you are watching these every week, I was in Sea Island a couple weeks ago and took a nice family vacation I was out for about a week. So of course you know I've always said this when you miss a week of work in real estate somehow it creates too. So we are slammed my my schedule is just 7am to 6:37pm Most every day so bear with me if you're you're reaching out you're emailing me or anything like that I will get back to you I promise. I'm just trying to stay above water right now it's a good problem to have I enjoyed it is night and day different compared to how it was back during the pandemic. That was a wild time. Happy to talk about that some time if if anybody's ever interested to hear about that but it is very different today. Compared to how it was back then. headed to New York for wedding this weekend. Excited to see that go into skinny Alice I've never been to that part of New York before so we're flying into Syracuse. Excited to see that part of the world. And you know, experience maybe a little bit of cooler weather Nashville has been unbelievably hot so excited to get to that past week. I've been underwriting a deal in Texas really excited to move forward on that one I think we're about to put it under contract we've been negotiating a purchase and sale agreement with them it is a sale leaseback with a 10 year brand new lease, so very excited to be moving on that would love to find some more sale leaseback opportunities. So if if anybody out there listening knows a business that owns their real estate, and they need to free up some cash or they're just tired of dealing with the real estate side of things, and are interested in doing a sale, leaseback reach out to me, we'd love to talk to them, happy to bring you in as a partner on the deal, whether you've got money or not, we could figure something out there and get you some experience on negotiating deals like that. Because their gut, you know, it's banks like them, because the business has already been there. And you know, you're getting a brand new lease out of it, it's a win win for everybody, because the business gets a lot of cash, they get free up, and then you get to buy the real estate, which is what I like. You know, it's, it's, it's kind of one of those. I mean, that brings to mind, you know, one of the questions I get asked a lot is why would a business not want to own their own real estate? And there's actually a lot of reasons why. If you are, for example, like McDonald's is the exact opposite, because corporate buys all of their locations, but the franchisees don't, right? They're buying the business. If you are a manufacturing company, and you get 10x return $10 back for every $1 you spend on manufacturing, why would you go to real estate and get three to 5x returns on every dollar you invest? It doesn't make sense. It's not their core business. And so it makes sense for us as real estate investors because we know how to go and make those deals very lucrative for ourselves. But more often than not for business owners. It's more of a burden than anything else. caveat being it depends on the type of business and the level that that business is in and the ownerships perspective, right? Typically when I see the commercial real estate making a lot of sense for business owners is when they're planning their retirement, right. They buy up as many of their locations as they can they sign 10 year leases They sell them off. They sell the business to, you know, their CFO or their VP, or to a completely different entity. And now they've got a tenant in there for the next 10 years give or take, that is going to be paying them rent. So it works as a retirement plan is, you know, as, as business owner says, real estate investors, we don't have 401, Ks. This past week, I was in Chattanooga, I drove up there on Saturday, to just check on the peerless mill, see what's going on out there. Always a good time. Getting to actually, I mean, I know there's while I've owned that property for two years, I saw some stuff this weekend that I had not seen before. Just because there are so many rooms, that it's one and a half million square feet, I mean, to put that in perspective, I've read the math once it's like 50, or 80, football fields of space. So I put that in perspective, when there's more space at this mill than there are teams in the NFL, like their football fields, probably, but twice, twice that give or take. So it's a lot of space, and you start adding up nooks and crannies. And there's just a lot of things that you don't think about. So we are in the middle of promoting our apprenticeship for the mill. If you're on my email newsletter, or you follow me on Instagram, you've probably seen that we are bringing on one apprentice this summer to work on that project with us. And you will get to learn kind of be my right hand man or woman on that project. And you'll get to learn some really cool things. Because we are about to kick. Some pretty exciting things off at that, that property. So it'll be a good summer for sure. But yeah, it was a good day, we walked some of the roofs, I'm looking at building out a little space out there so that I have somewhere to stay. When I go to Chattanooga, and then I was talking to my girlfriend this weekend. And we might start spinning every other week in Chattanooga, just living halfway between here and halfway between. You know that town, just so I can work on that project a little bit more. I love it out there. I've always told myself, I could never move to Chattanooga, mostly because I have to convince myself that I won't do that, because it's such an amazing town. But I do love spending a lot of time there. Alright, let's get to the questions. We got a lot of questions dropping in the live chat, want to make sure that we get to these, if you have any questions I do answer them in order. If you do one of those super chat things, that you get bumped to the top. I mean, I don't really do that. If it gets called a super chat, that gets bumped to the top. Otherwise, just drop your questions in there. And I'll try and get to them. And if I can't then leave a regular comment under the video and I promise you I will answer just to the saying ideas or suggestions for what to do with the current office depot building that sits on the periphery of the CBD. Od does not have any more renewal extension options. Owner has no debt on the building. Okay, so for those of you that aren't familiar, CBD is the central business district. So this is pretty close to downtown. I actually liked the fact that Office Depot doesn't have any more renewal or extension options, they're probably not going to renew, they probably wouldn't renew or extend anyway, considering where that company is. However, if they do want to, because it maybe it's a good location for them, I would see if you get sales numbers for that store and compare it to the average door, if they've got above average sales volume at that store, they may want to stay. And what you could do is go and negotiate with them for market rate rents, or at least an increase in rents that makes it make sense for you to buy. If the seller doesn't have any debt on the building, I would 100% go for seller financing, and just see if the owner would be willing to take that. So it's a big benefit to them, right, because they don't have to worry about paying all that capital gains tax today, if they were going to 1031 exchange, they may have limited options, right? So they may not be able to get a good enough deal for what they need. Whereas if they just seller financed it to you, they would have passive income, essentially day one, it's already built into the deal that they are doing. But they also have no responsibilities. They don't have to worry about paying the taxes, mowing the lawn, maintaining the building, whatever, you'll have to have an insurance policy to cover all of that. And if you miss a payment, they get to foreclose on you and take it back. So I love those situations. I've got a deal. I just seller financed just got my first mortgage payment a couple of weeks ago. Pretty great. It's nice not having to do anything with it. So that's what I would do and if

if they choose not to renew, the great thing about Office Depot buildings, it's basically an air conditioned warehouse, right? I mean, seriously next time you guys go walk in a big box store. Next time you walk in a Walmart, a target, Best Buy Stein Mart, whatever it is, look at the actual space and imagine there being no retail goods on that floor. All it is is a warehouse. It's is literally a warehouse with a pretty face. So it is. So it could become flex space, it could become indoor climate controlled storage, it could become distribution warehousing. There are so many cool industrial uses. I mean, we're looking at a lot of retail right now that's, you know, leasing for 10 to 12, bucks foot, NAB going, maybe we should just convert this to flex, because it probably get 12 to 14 bucks a foot. And they're easier dentists to deal with sometimes. So that's how I feel about that. Let's see, Peter saying what are your views on single tenant net lease in the QSR space, considering the inflation that has affected the QSR Tennant severely? Is there too much risk there for the near term until inflation has cooled? Oh, that's a great question getting deep into the economics, Peter. So here's, here's where I am. on that. I don't think there's that much risk to it. And let me put that in perspective. Because if you look at like I saw the pricing change in McDonald's this week, there's a chart that's been going around, I'm sure some of you have seen it. The cost of like a Big Mac meal in 2014, compared to a Big Mac meal today. And if you're not familiar, QSR is just quick service restaurant, it's basically a new term for fast food right? Now. QSR has also include brands like Chipotle, right, which is technically fast food, but it's just not McDonald's. Right. So QSR is more all encompassing. You know, McDonald's has like more than doubled their prices. And I don't think that it has affected their sales volume that much. That's the interesting thing. I think a lot of Americans are just saying, Well, I guess I've got to pay this. Now. The other thing is to I don't believe that a lot of the food pricing. And I could be totally wrong. But this is based on my research. I don't think that a lot of the food pricing is out of necessity. I don't think that it's because these brands are feeling some major price squeezed from their vendors that they now have to raise prices. I think it's the same with groceries. I think that brands realized how much they could charge for things during the pandemic. And they're not lowering their prices now. Because why would they? You've already shown that you were willing to pay it. Why would they? You know, if? Why would they turn around and what you pay something lower. So I think that, you know, push comes to shove, and people start actually voting with their wallets and saying, You know what, yeah, I'm not going to pay that, then yeah, they have room to lower their prices before it starts affecting their profit margins. I think that Americans are going to continue to eat out a lot. I just don't see a lot of like, I mean, at least in my friend group, my peers, the people that I grew up with, a lot of them don't really like cooking, or cooking from home. So I liked the QSR space. If I was going to be investing in that today, it would 100% have to have a drive thru. I would double check and make sure that there's no COVID language in there. Chipotle is notorious today for having a clause in their lease that basically states if there's ever a global shutdown, again, they can continue opening and operating as well as much as they want to, but they don't have to pay you a dime. Which to me, like I get in principle, like you have the world a shutdown, then maybe we can figure out what to do with your rent. But if you're still open and like selling food out of your to go window, you should still be paying rent like that, you know, that's, that's my opinion. That's my one punch up always. But I mean, for the time being Peter, I would 100% Consider the cap rate, interest rate arbitrage that you're playing, and that today, it's tough. It's tough to make those deals work, even if none of the other stuff scares you. Just because, like, if you're not in a 1031 exchange, you're gonna be bringing debt to the table and you're gonna have negative cash flow. So, you know, I mean, let me put this in perspective, when we were in. And actually, you know what, maybe I can share this chart on here, I'll have to pull up Twitter. But when we first started working on Triple Net investments, oh gosh, nevermind, I have to sign it on my computer. Not going to happen. I'll show it later. But when we started working on Triple Net investments back in like 20 2001 It was kind of a slow ramp up, but people were very interested in it. By 2022. We had $50 million of tenants or I'm sorry of buyers looking to buy at any given time $50 million. That is insane for you know, the small little at the time, two person three person. It was a two person brokerage in Nashville. Right so we were busy with triple net deals. Now we've got probably less than 5 million less than $10 million on the books. Triple Net investments across the country are down 80 plus percent year over year, strictly because of interest rates. So I'm ready for interest rates to go back down. So we can pick up that business again, because all of those buyers are there, they still want to work with us, they still want us to help them buy investments, it just doesn't make sense to you have to bring 50% down and even then you're not cash flowing that much. Joseph is saying what's the difference? If I go with on market properties versus off market properties? Joseph, I'm assuming that you're asking, like in terms of is it a better deal or not? And here's here's my philosophy on on market versus off market, I think that you can almost always find a better deal off market, however. And that's and that's because you're going directly to the seller, right? You're negotiating without there being some sort of feeding frenzy, you know, they probably haven't been influenced by some broker that thinks it's worth twice what it actually is. You'd be amazed at how many times we come across those kinds of deals where it's somehow on market for literally two times what we think it's actually worth. And I'm not saying that I know that I am the end all be all expert when it comes to value in commercial real estate, but I'm usually pretty damn close. So you know, there's a lot of brokers that will just come out there and tell you like, hey, it's worth twice, one and a half times what it is, just so they can get the listing because it sounds good to the owner of the property, like oh my gosh, I could get $2 million for this property that I bought for 500,000. Well, it's actually worth a million. But anyway. So here's here's the difference, I think off market deals are better. Nine times out of 10. However, one time out of 10. If you know how to look at properties differently, you can get phenomenal deals on loop net, right? Everybody loves to talk trash on loop net and say, Oh, that's where deals go to die. And look, let's be honest, the majority of the time, you're not wrong. You're not wrong. They are their trash deals. However, let's let's take the wash for example. That's a pretty good example here. That was a six day carwash, we bought it for $412,000. And it was on a 10th of an acre very small, non operational, which meant it needed all new carwash equipment. Anybody looking at that for a carwash would have said $412,000 for that piece of junk that is basically rundown and needs all new equipment, you know, I mean, you'd have to spend several $100,000 more just to get it up and going. Of course, nobody's gonna buy that's not a deal. Now, it wasn't a market, but nobody would have bought that it wasn't a deal for them. However, I wasn't looking at it for that. I was looking at it to convert it into restaurants. So if you can look at things differently, you can find some pretty good deals on market because a lot of people look at an office building and they see an office building. When I look at an office building. I see. Maybe that's the flex space conversion. So there you go. Jorge, good. Great to have you back. Morning Tyler morning, Jorge. Great to be back. Always love love doing us. monopoly is saying love what you're doing, bro. Can't wait to bring you a deal. Monopoly. Love what you're doing. Dropping in the comments here. Bring me a deal. Let's talk we'd love to see what you got. And desert saying Morning guys from Boston. Welcome. Mendez from Boston. William, let's see what's your opinion on the CCI and designation for someone interested in the analyst side of commercial real estate rather than brokerage. You know what, if you want to get into an analyst, I actually think that CCI M is great. I think that you should take all four classes and get your pen if you think that's worth it. I don't know that the pin necessarily matters for you as an analyst. But if you're able to show any potential employers have completed these classes, and you know that you've got the education great. You know, for for some brokers, I don't think it actually makes any sense at all, to fully go through CCIE am typically, what I'm recommending is do one on one, because you have to do one on one, and then do 104 Because 104 teaches you how to underwrite a deal. And like you could learn that and you know, on my YouTube channel here, I've got a bunch of videos on doing it. And I've gotten into my group coaching program as well. But the nice thing about taking CCI and 104 It's like two or three days straight, all you're doing is underwriting right. So it's like an intensive Deep Dive. And, you know, I didn't find a lot of value in 102 and 123. Maybe that's personally me.

But I do think that the CCIE designation is great. I love what the CCIE Institute does. I think they're I think they're phenomenal. Say czar Good morning, Tyler. Good morning says or what are good resources platforms available for the service aspect of self parking for an iOS? Oh, that is a great question and I'm going to be honest with you, I'm probably not the best person to answer that. I had somebody asked me the other Today what Ron Rody was using, and I'll reach out to Ron and see what he's doing for his iOS property down in Dallas, we did a story of the deal on that one. If you're, if you haven't seen that video, it's called I think it's titled like 30k from a parking lot, or 30k per month from a parking lot. Go watch it, it's pretty great video. But I'll ask Ron, what he's using. We had the CEO of neighbor.com on the podcast about a month or two ago, and they have a phenomenal platform for for industrial outdoor storage, they started off as kind of like a, you know, hey, rent space from your neighbor, to you know, have your overflow storage, but then they actually grew it into, you know, here's a whole parking deck that can become storage, or here's this or that. So we're actually talking to them about peerless mill, and doing the industrial outdoor storage there. They have kind of an on demand, like Airbnb style platform where you go in, you book a spot, and they just send you a code and you know, then that person can drive any type of code in parked on the lot. And you're done. Right? It's pretty great. And then I think everything's kind of managed from there, but I'm not sure I haven't gone through the full process. But that's what I would do. Or you could just use a regular property management platform, you know, kinda like Bill Diem or AppFolio. We use resin. And that's not an endorsement of any of those three. So, you know, I think it just depends on kind of exactly what your needs are, how many, how many tenants you've got, and all that kind of stuff. Jorge saying, totally agree with you on price hikes, it is not at all inflation driven. I completely agree. I think a lot of its corporate greed. Like plain and simple, right? We'll leave that here. We'll wait. Well, if anybody in the comments as an economist, feel free to jump in and tell us what your thoughts are. That's my opinion as a as a layman. Economist. But based on my research, it doesn't seem to me at all, like it is it is really based on pure inflation. Tyler, how do you handle or get around planning and zoning board chaos with meetings, variances, etc. Like Commercial Property rehab in New Jersey is a nightmare right now, Joey? Man, the first thing I would say is get the hell out of New Jersey, I have never heard anything good about the processes up there. So that's step number one. Step number two, is make sure that when you're going through this process, hire an engineering or architecture firm that has really good connections with the city, especially in getting this type of project across. There are very strategic reasons as to why you hire certain architectural and engineering firms that don't have to necessarily do with design. That's one thing that a lot of people don't think about when they're going through this, like, Oh, I just want somebody that has very, you know, they're very good, they're very cheap, they're very, you know, whatever. I would rather pay twice the price for the group that I know, has really good relationships with the city, because they're doing a lot of deals, and they're talking to the city a lot. Because it can almost guarantee me that I'm getting my rezoning. Right. I mean, there's no such thing as a guarantee, but the better relationship that that engineer or architect has with their counterparts of the city, the better operator, just the higher chance of you actually getting that deal through. So that's what I would do. And then of course, if you can network with the neighborhoods and get to know the HOAs, and stuff like that anybody that might be coming out in opposition to what you're doing, sit down with them and make sure that they're heard, right, a lot of neighborhoods feel rightfully so plowed over by developers, because a lot of developers don't care what they have to say. That boggles my mind. Because you can make great allies out of your neighbors because they want good things to happen to their neighborhood, too. If you just sit down and hear them out, hear what they had to say, now is everything that they're every suggestion, they're gonna give you remotely realistic. No, I had I had my first I'll put it in perspective. My first investment was a 6000 square foot two tenant building. And I had a neighborhood meeting and I wanted to know what everybody wanted right in the neighborhood so that I could go find tenants that fit what they wanted. best suggestion I got was a pharmacy. I was like, I looked it up others no pharmacies, anywhere around, we put a pharmacy in that building. The worst suggestion I got was laser tag. This guy was die hard on it being laser tag. And I was like, dude, first off, there's not enough space in here for laser tag. Second of all, you're the only person within a 10 mile radius that would want to play laser tag in here. So that's that's not going to work. So yeah, interesting stuff. But you you will get some good suggestions. And guess what the neighborhood loved me when I brought in a pharmacy. They were super grateful because they really wanted one. Ever had a saint do you typically manage your own construction projects or have a specific person for that. So yes, we do manage the contractor. We are a developer. And we do third party project management as well. So I manage my own projects with my project, I've got a project manager on my team, he does most of that. And then I just kind of work with him. And then when we get hired by other builders or other investors or tenants to manage their construction, we're basically the owners rep. So we make sure that the owner is getting a fair deal on everything, because we do this every day, they don't write, so it's worth the money that they spend to hire us to manage those people for them. Jeff Harrison, Jeff, what's going on, buddy? Good to see in here this morning. Good morning, brother. If you have a relationship with a bank, and it's been a bit tenuous, because of a bad deal, but never late, on note, helpful or harmful to try to run another deal through them? Oh, ah, it Okay, here, here, here it is, it depends on how you handle the first note, in my opinion, if you worked with them to pay it back, or you came up with some sort of plan, or you showed them exactly what happened and why it went wrong, and then worked it out with them, I would say go for it, they're probably the best bank for you, because they know how you operate. And they probably really like that. If you handled it poorly, then yeah, I would say move on. Back in 2020, my property management company was managing short term rentals, we had a dozen short term rentals, four or five of which we were at, we actually manage owned ourselves. But we didn't own them, we were doing what everybody thought was really cool, which was arbitrage. So we went and signed five long term leases on these houses to pay X amount per month, and then we would go on Airbnb them. And we signed the lease all of the leases like 30 days before COVID. I mean, it was just talk about the worst timing possible. So of course, we were on the hook for all of this money, and monthly payments, and we just had nothing. But we didn't have any money to be paying that. I mean, we did, but it wasn't gonna work for us long term. So we had a couple of options. We could have just stopped paying and told the owner to sue us, which I thought was a pretty bad option. We could have filed bankruptcy under the entity which we signed it in, which I also didn't like but it was a legitimate option. The third option, which is what we did, I called the owner of the houses and I told him, Hey, here's where we are. We wouldn't be in this position if this pandemic hadn't happened. Can we buy out of these leases? You know, I know that they're a year long, but I we're just not going to have the money to do it. Can I can I give you three months of rent on every single one of these and we both walk away? And he said, Yeah, let's let's do that. You know, I get where you guys are. Appreciate you coming to me and and working with me instead of just ghosting me and not paying anything. Well worked out really well for him. Because he turned around and started doing midterm rentals to nurses who are traveling a lot during COVID. He crushed it and then worked out really well for me because he liked how I handled that situation so much he turned around and went and raised millions of dollars for me on my deals. Because he now had a story to go and tell his investors of hey, when things went wrong, here's how Tyler handled it, you should give him money. So it's ended up being an incredible relationship for us. And it's because we handled it in the right way. So that being said, Jeff, it depends on how you handled things with the bank. If if they were willing to work with you and you guys kind of worked through things despite it being a bad deal, then I would say absolutely. They're probably the best person for you to work with because they know how you operate. Let's see, gosh, we're about out of time. I've got a jump. That is the end of its sorry. I know there's so many questions. I didn't get to

drop them in the comment section. I will get to your questions. I promise. Thank you for joining me on another round of office hours. We will be live again next Tuesday 8:30am Central Standard Time. I will see you all then. Are you looking to take the next step toward investing in commercial real estate but don't know where to go? Series central offers a comprehensive education and coaching platform designed to help you get started. Our online courses cover a wide range of topics from the fundamentals to advanced strategies, ensuring you have the knowledge and skills needed to thrive in this competitive industry. As a member, you'll gain access to our exclusive online community and monthly group coaching calls Providing you with valuable networking opportunities and personalized guidance from experienced professionals. Whether you're a beginner or looking to take your career to the next level, cre Central has the resources you need. Visit www dot cre central.com To learn more