Rezoning Land, Creative Financing, AI in CRE (Office Hours)
Tyler discusses the challenges of finding good deals in commercial real estate, emphasizing the importance of networking, creative deal-making strategies, and utilizing AI. Cauble shares his expertise on various aspects of commercial real estate investing, including cash flow, market analysis, value-add deals, feasibility evaluation, rezoning properties, and tenant mix. He also highlights the need to understand the market and identify the right opportunities to successfully complete a rezoning, and analyzing tenant mix to create a complementary mix of tenants.
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Key Takeaways:
Tyler provides a process for determining if a value-add commercial real estate deal is good using price per square foot and cap rate calculations.
Creative financing strategies like vendor financing may be possible but require careful consideration of costs and risks.
When replacing roofs for triple net tenants, it's best to have reserves rather than expecting rent increases to directly offset costs.
Choosing the first tenants for a new retail property requires understanding the existing and desired tenant mix for the location and demographic.
Community engagement is important for successful rezoning approvals through understanding neighborhood needs and crafting an aligned project.
AI can help with small contract changes if its implications are understood, but an attorney is still typically needed for major legal documents.
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.
Can you guys hear me at all? There we go. All right. Let me know if you can hear me now. I don't know why that wasn't working. Well, alright, let's kick it off. Again. Welcome back to the commercial real estate investor podcast live from the cobble group Studios here in Nashville, Tennessee. It's been a Okay, good. I'm glad everybody can hear me now. I didn't change anything. I just got up and looked at it. So I don't know why. Anyway, technology man, I'm a one man studio here running all of this and we're live. So we're always going to have some fun. Appreciate you guys jumping in the live chat. Let me know that you couldn't hear me. So over the weekend went under contract on an industrial facility out in Austin, Texas. So that'll be the first project that we've actually, if we closed on, it'd be the first one we bought in over a year. 2023 As you all know if you've been following the channel for a little bit. Yeah, Jeff is saying it's the gremlins. Yesterday is 2023 was not a year for buying commercial real estate in my opinion. If you jumped in to our conversation yesterday with Meg Epstein. She said the same thing. You know, a lot of a lot of developers a lot of institutional investors have been pencils down for the past, you know 18 months it's been tough to really put anything together. It's gonna be a great deal. I'm really excited for it a buddy of mine Jeff who's actually in the live chat right now brought it to me brought it to my attention. It is a sale leaseback so, you know, we're getting to negotiate with the current owners who are going to be the tenants to put together a great deal for ourselves. So really excited to be working on that one. If you have any questions, this is obviously our office hours jump in the live chat. Let me know what your questions are on commercial real estate what they are. If you have a project that you're working on, you want my opinion on it. Let's talk about OSU we can do, I'm working on a live event here in Nashville later this year, I'm going to put together probably a two day event. The first day is probably going to be exclusively for my Siri accelerator students. The second day, we'll have a bunch of speakers. We'll do some workshops all around cash flow and commercial real estate how to find and invest in cash flowing commercial real estate, despite what kind of market that we're in. So excited for that because I haven't seen a lot of you know, there are only a couple of other commercial real estate, vibe events every year. conferences, workshops, whatever you want to call them. And most of them are heavily geared towards multifamily or self storage, you don't have ones that are a little more, I guess just well rounded in the commercial real estate field. So really looking forward to that one. I've got a bunch of buddies that I'm gonna bring in, that'll give some great talks. It's going to be a fun event. And then of course, aiming to be finished with my second book by the end of June. You all have heard me give a few updates on that. I've been writing it for gosh, four and a half years now, basically, I mean, pretty much since the pandemic, I decided what I was going to do after writing my first book, which I just sat down, and we wrote with my publisher for the first year, it's all we did was right all year. The second one, I decided, You know what, I'm not gonna take that approach, I'm going to write it blog post, by blog post, because that will, it's a little bit easier to do. So we ended up getting close to like 70 or 80,000 words, which to put in context, I think my first book was 25,000 words. So we get to, you know, now go through and cut down and edit. And I'm hoping that by the end of June, we'll we'll be done, it's going to be a very interesting book, it's very different than any other commercial real estate book out there. If you guys know me, right, if I'm going to do something, it's got to be completely different from how it's typically been done. And I think it's going to be a better way to learn commercial real estate topics, and how to invest in commercial real estate. So really looking forward to that there was a topic that came up in my group coaching call last night that I wanted to talk to you guys about real quick, and that's determining whether or not a value add deal that you're looking at is a good deal. And it doesn't matter which market you're in this, you know, basically 32nd process that I'm about to teach you. So take notes, this 32nd process that I'm about to teach you will make it very easy for you to determine whether or not a project is a good deal, or if you should just walk away. So one of my students is looking at investing in a retail center. And she she wanted to know it does this make sense. So it was a it was a what's called a 20,000 square foot retail center. And it was only partially occupied, the occupancy to me doesn't really matter. It's based on what you think market rate rents are. So let's say it's 20,000 feet, and it's $20 foot triple net is what the market rate rents are, that gives us $400,000 a year. Actually, let's let's go back, I'm gonna start off with the price per square foot. So it's 20,000 feet, let's say that they're paying $100 for it, per square foot, which gives us a purchase price of 2 million. And you're probably going to put another $20 A foot into it. For renovations, so total all in cost is 2.4 million. We take that total all in cost, that's your purchase price and your renovation divided by the 20,000 square feet. So we know what the price per square foot is, that gives us $120 A foot all in, what I like to do is just multiply that by a 12% cap rate, because that's going to tell me exactly what I need to be able to rent this for on a price per square foot basis in order for it to make sense. So I just take 120 and I multiply by 1.12. And that gives us $14.40, a square foot triple net. If we're able to rent this building for $14.40, a square foot triple net, that it makes sense if Market Rents are $20, a square foot triple net, this is a great deal, you've got basically five and a half dollars a foot and buffer before you even get to market rates, and you're already at a 12% cap rate. So that's how I determine whether a deal is worth digging into write everything else aside, you know, lease up time periods, whether tenants actually want to take that space, how much you know what, like what you actually need to renovate on the property doesn't matter. If you've got your overall budget, and you've got your purchase price, and you know what the market rate rents are, that will help you determine it. Now, if market rate rents were $20 a foot and I calculated my 12% cap rate to be $24 a foot. That doesn't necessarily mean it's not a deal. It's not worth looking at. But in my opinion, I would probably pass on that. You know, I get torn apart on Tiktok every now and then my people saying oh you can you can't find 12% cap rate deals? Well, yeah, I mean, you're probably not going to go buy a deal that is cash flowing at a 12% cap rate, it's probably going to be a really bad deal. But if I'm going to do a value add project, I'm going for a 12% cap rate I am I able to physically make that happen on deals that I buy add value to and put new tenants in. So I hope that little tip helps you. It has totally changed the way that we look at deals and it allows us I mean, you saw that we analyze the deal in 30 seconds. Very easy to go through that process. The launch, Szabo is saying Can I ask questions here? Absolutely. That is what this entire broadcast is for. This is office hours so jump in the live chat ask your questions. We'd love to hear from you. You see Alison saying good morning. Good morning, Alison. Thank you for joining us. Jorge is saying, Hey, Tyler, great news of the firm. The firm I work with, has just advised me that they are adding my bio to their nest ppm. Lots of things to you, my friend for your excellent encouragement. Jorge, Congrats, man, that's really exciting to see. I mean, that's a big deal. Good for you. I'm glad. I'm not sure how much I was able to actually help with that. But that's really the work that you've been putting out. I know you've been jumping in here quite a bit. Viken yesterday was fun content. Thank you. Yeah. Meg. Meg is a she's doing some amazing developments. Amazing thing. So it was fun to get her in the studio. She's headed off to Europe, here for a good portion of the summer. So I'm glad we were able to get her in before. McKinsey, Jules is saying so in this economic environment, we find ourselves in is there a possibility for creative buying strategies like vendor financing? Or an agreement for sale? That is a good question. Can you clarify what you mean by agreement for sale? I'm not sure exactly what that is. And as far as vendor financing, are you saying like getting a contractor to finance the construction for you? Typically, people do not do that, unless they're going to charge you a crazy high interest rate. Just because it's it's a lot of risk. And it doesn't necessarily make sense for them to to front all of this money on these projects. Now, that being said, some contractors may be willing to do that. It just depends on the cost and the interest rate. And if it makes sense, right? I mean, I love getting creative. So if you can show a plumber or an electrician or a roofer, why it makes sense for them to finance the project for you. how they'll make more money, and you know, whatever, then yeah, I say go for I love getting creative on these deals. At the end of the day, if you're able to get creative, and the next guy isn't, you're probably gonna get the deal. Right? It's just it's that type of market to where anything is worth exploring.
So I feel Anthony is saying how goes Tyler saw the show with Meg Epstein. Very nice. I appreciate it. Anthony. Thanks for jumping in and hanging out with us. Petra said good morning. Have you ever had to rezone a property? Yes, I have. So we've we've rezone a lot of properties in our day. And the most recent one that I did, I mean, we're going through one right now. But the most recent one that I actually finalized was a 1.7 acre parcel that we bought that was zoned for I think, 11 units, like 11 residential units. So we got it rezone for 63 units, biggest piece of advice I can give you there is one, understand exactly what you're going for, and how the neighborhood is going to feel about them and find a way to craft your pitch in or just make the project something the neighborhood wants. Like, that's the biggest thing that I don't understand why a lot of real estate investors don't do this. They go out, they put a property under contract, they say, this is what I'm going to do no matter what the neighborhood is wrong for coming out against me. Well, you're buying in somebody's neighborhood, and you're not talking to them about what they would like to see. That doesn't necessarily mean that every single opinion that you get, you should listen to, right. I mean, I told an anecdote a couple of weeks ago on one of these where, you know, I did that, and somebody in the neighborhood wanted laser tag, and in the building, and it was a tiny little 6000 square foot. Like, that doesn't make sense. We're not going to do laser tag in this building. But I went out and I knew and I talked to the neighborhood, I talked to the councilmember, I knew that this area wanted affordable housing. And so I said, Look, we're going to, you know, in order for us to do affordable housing, on this property on this parcel, I have to have higher density, because it's the only way to make it affordable. So that we went through that process, I explained to them exactly what we were doing. I live in the neighborhood, it was very easy for me to say, look, I live here, this is what I'm trying to do. Here's our mission. Here's some of our other projects that we have done. And I'll tell you when I went before the town meeting, I was really nervous, because the guy in front of me was he was trying to get his parcels zoned from one unit to two units. And the community tore him apart. I mean, I don't think he got his approvals because the community was like basically throwing things at this guy. So of course, like, Man, this guy's going from one to two units. I'm going from 11 to 63. How are they going to react to me? The problem was that guy before was unbelievably arrogant. He walked in saying, you're going to approve this because, you know, I'm great. And this is why and I mean, he was just very egotistical and his approach. Whereas my approach was, you know, hey, you know, we've talked to the community. I've had conversations with councilmember. You know, here's a couple of the projects that we've done within this neighborhood. I live here, I really care about what's going on. And this is the project that we've designed. It's, you know, 63 units of affordable or attainable housing. We want these to be for sale units so that the community can start to buy and build equity within their own community. And I think I got like one question, or maybe two questions, and nobody was mad or upset. It was just they were just clarifying questions. And so I think it really all comes down to how you actually approach the rezoning so many people just get it wrong. I don't understand it. I don't understand it at all. Let's see Jordan McCoy's saying agreement for sale is seller financing same as land contract exec executory contract Yeah, I mean if you're I mean agreement for sale if you're going for seller financing. Absolutely. I love seller financing. I just sold a deal a couple of weeks ago or a month ago, gosh over a month ago, time flies time in a post pandemic world doesn't make sense to me anymore. Anyways, a month and a half ago I sold a piece of property that we sell are financed I love seller financing. I love getting seller financing when I'm buying a property I love seller financing when I'm selling a property. To me it just it makes all the sense in the world. So yeah, absolutely. If you can negotiate seller financing deals, go for it. Let's say kid is saying Hey, Tyler and good morning, everyone here Oklahoma City checking in. Hope you're reaching your goals can get to see you man. thanks for popping in. Cheers out to OKC they can Assange towers investigating and private boarding investing and a private boarding school a good idea in the long run. Oh, gosh, Vicki, I have no idea because that now you're getting into running a business. And I'm not familiar with that type of business. So it could be a great idea. Could be a terrible idea. I really don't know. Although I could say buying the property and renting it to the school long term. Yeah, I would say that's probably a pretty good idea in the long run. Especially if they have room for expansion. Petru saying have you had to hire an attorney? Yeah, absolutely. I mean, I've hired lots of attorneys. Unfortunately, we've had too many attorney. attorneys make a lot of money in this business. We've had a lot of attorneys involved in. In our deals. If you're going through and your your question earlier was about the rezoning. You depending on on the type of rezoning, you may or may not need an attorney, a land use attorney does come in handy if you're going for a big rezoning or something where you're going to need a variance of sorts. So highly recommend them in that case. Typically what we do when I'm going through a rezoning, I just retain an architect and an engineer that have a very good relationship with the city, the council, the engineers are honestly the biggest piece of that. In my experience, we typically retain an engineer that will go through put together a preliminary design, and they handle a lot of the conversations to go through the rezoning and they'll have you know, some examples of of other types of projects that are similar to this, you know, they'll have all sorts of beautiful, you know, boards and presentations and things to show everybody so makes your life a lot easier. Jorge says speaking of neighborhoods, please try to interview Is it is it Ilana or Ilana Prius from recast city I have not heard of them. Feel free to drop in the live chat who they are and and maybe we can get them get them on the show. But yeah, I mean, you know, rezonings are always interesting. I don't typically recommend going for that on your first deal, or even your first five or 10 deals. rezonings are tough, you can spend a lot of money and not get anywhere with them. Just because the nimbyism and and it also could be that you're just you just didn't put together the right project for that neighborhood. It really takes a lot of relationship building and understanding and listening. If you want to do it right sometimes you I mean, a lot of developers just try and push their deals through and sometimes they can. But I don't subscribe to that philosophy. I think it's a terrible way of doing business. So, you know, take that for what it's worth. Petra saying thank you for the advice very valuable information for me. Absolutely. Petru happy to help ma'am. BPM I bought my first strip mall great location without advertising. I have two to three people that each want space. With that kind of demand. Would you even go on the open market with rental advertising? bpm? Good question. It depends on how many spaces that you have available for lease. If you only have one space and you've got two or three people that want to take it. I mean, here here's my philosophy when it comes to leasing space or doing deals in general It is not over until it is fully inked, and somebody has given you a check. So just because two or three people are saying, Hey, this is great, I really want to move forward, I like this, to me, that doesn't necessarily mean that it's done. That just means you've got some initial interest, I would still continue to move forward in parallel with your negotiations with them with getting my marketing live on the property, so that I could start bringing in even more eyeballs. If nothing else, it'll light a fire under those two to three individuals that first came to you about wanting the space to for them to commit and get it done. I've seen way too many brokers and investors take somebody's word that they want it. And then they get four weeks down the line and nothing's happened. Nothing's signed, and you've just wasted four weeks. And that tenant says, Oh, hey, I found another space. I'm gonna go with them. So I think it's great. Obviously, that means you've probably made the right decision in buying this strip center that you've got two to three people already interested. But until a deal is inked, I would do everything that you can to continue marketing it and get it out there to the world. Rich, what's going on man? He says, Hey, Tyler, hope you're good man.
What's your opinion on using AI for smaller changes in contracts? As opposed to using an attorney? Do you use AI for any other Siri related matters? Cheers. Oh, man, that is a loaded question. First off, I am not your attorney, I am not an attorney, I don't play one on TV. And I can't give you legal advice. However, for me, if I'm making little changes, I mean, I understand contracts enough to where I feel comfortable just writing some of the language. But I have dropped, you know, paragraphs or pages or, you know, entire leases into Chechi Beatty or whatever. And, you know, made some changes that way. I think as long as you understand what the changes it is making, or suggesting are, that's the biggest thing as long as you understand what it's actually implying, to have this additional legal language added into your contracts or removed, then I think you're fine. However, most people don't understand that. And so I would typically say, you know, look for smaller changes, probably just go to an attorney, at least until you have a good enough grasp of what the clauses are, and why they are important. Because, you know, I've said this before, one word in one paragraph on one page of a 30 page lease document can completely change how that lease is governed. So it's very important to make sure that you you use it, right. That being said, yes, absolutely, you can train an AI on how you prefer to negotiate or structure your leases. And it can pretty much take care of that for you. So will it replace an attorney? Absolutely not will help with the little things? I think it could, I think it could and yes, I use AI for other things, I use it a lot for writing, right? I'll just data dump a bunch of information in to chat UBT and say, Hey, summarize this, or, you know, we're using it a lot for I use it for one on one coaching calls, and group coaching calls because I can then you know, my AI will take notes for me. And then it'll say, Hey, here's the questions asked, and here's, you know, here's a transcription of the conversation. And I can take that, and then I can I can write blog posts off of it. Or I can put together a frequently asked questions, you know, PDF. I mean, it's, it's really interesting the level of data that we're able to get now. Because I used to be able to say like, Hey, you know, I think I think these are the 10 most frequently asked questions for new commercial real estate investors. But now that I'm doing so many coaching calls, I have the data that's all recorded there. So I can say, look, in order, here's how many times this type of question is asked, here's how important it is for you to know that. So I mean, just little things like that start to really add up I think, I think if you're not using AI, you are behind the behind the APR. Jeff is saying what are some best practices if you put a new roof on a triple net building for an existing tenant to offset costs with a rent bump? I didn't initially talk about increasing rent when I had leverage. So it sounds to me existing tenant to offset costs with a ramp up. So Jeff, it sounds to me and make sure that feel free to jump in the live chat. Make sure I'm understanding this properly. But you're saying that you put a new roof on a triple net building and you you're hoping to recapture the cost of that Through rent bumps. I, you know, it's tough when it's a triple net lease because the landlord is respond. And it depends on how your lease is structured. Right. I mean, it could technically be a triple net lease, but for whatever reason, the landlord's not responsible for the roof, the tenant is, right. I mean, there, there are some nuances. leases are not always black and white, they're very gray. If you're responsible for replacing the roof, you're responsible for replacing the roof as the landlord. However, you can always make it up make up for it on the back end, raising rents later down the road, I usually try and stay ahead of that by having reserves that we take out every month from our you know, rent, income. The problem is tenants don't necessarily pay you for having a new roof, they don't really care whether the roofs 10 years old, or one year old tenure, you know, tenants not going to look at that and say, Oh, we've got a brand new roof, I'm willing to pay 10% More in rent, they don't care, like they expect that to happen as part of what you're delivering as the landlord. So I think you know, in the long run, it's just one of those things. You got a budget for every year. And, you know, hopefully you've just got reserves, you don't have to come out of pocket for it. Hope that helps man. Let's say let's see Jorge saying it is a one she is founder of recast city focus on how to use small scale manufacturing and Makerspace to revitalize neighborhoods. Yeah, I mean, that sounds really cool. I'll have to I'll have to check in on that. Sounds like she's doing some really interesting things. BPM is saying love it. You are awesome. Thank you, Tyler BPM, you are awesome. Thank you for jumping in and asking the question, Vicki, and when buying a strip mall, what's the first best business to lease the space? Ooh, good question. So there's not one business that I would say is like, Hey, you got to go lease to this person. It really depends on what the tenant mix already is. And what I do when I am buying a new retail center is I like to drive around and see what what other businesses are, are in the area. You know, if I'm driving a neighborhood, and I, and I noticed, like, hey, there's not a, I haven't seen a dental office, I'll get on Google. And I'll type in dental offices near me and see what pops up on Google Maps, if there's nothing for a few miles. All right, well, I'm gonna put dental offices down on my prospect list, if I will get a tenant mix, and it's very mom driven, right, like maybe there's a target or a grocery store there. Then I'm going to look at what are some of the ancillary things that moms might need, right, maybe there's a a kid shoe store or kid's clothing store, maybe there's a nail salon, maybe there's a hair salon, maybe there's a you know, cupcake shop, right, just things that you want to kind of look at who the target demographic of the spaces, and think of, you know, what that person might also need. You know, if it's, if it's guys, you know, maybe you've got a dry cleaners and a pop, you know, something like that, or an outdoor, you know, hunting and fishing store, there's so many different directions for you to take it. But what I would say is just kind of cast a wide net and sit there and think through all of the different potential uses, that could be in that shopping center, and go drive some other shopping centers that are within, you know, a five mile radius, and see what they have, if they have a similar tenant mix, what do they have that you don't necessarily have and figure out how you can kind of fill in the gaps, I would just stop into some of those stores and say, Hey, I've got a very similar strip center to this, you know, on the other side of town, would you guys like to come and rent it from me? And kind of take it that way. It's, you know, tenant mix is one of those things that there's it's kind of an art and a science. But once you realize kind of how to look at it. It's not all that complicated. Tenants like to be near other tenants that are drawing in the same customers that they are. So that's why if you go to Target anchored shopping centers, you'll notice that a lot of the CO tenants that are within that shopping center are the exact same almost every time they are almost always the same. All right, let's see. Chuckster RX What are your favorite investor meetups in Nashville met you a few months ago at a 730 coffee shop meet up looking to connect with more people locally. Yeah, Chuck, thanks for coming to my my commercial real estate investors breakfast. Man. There's there aren't any commercial real estate investor meetups in Nashville if you're looking just for for real estate in general, I would say the real estate investors in Nashville is great. I used to be a board member there. It's more residentially focused, but you will meet some great people. As far as commercial real estate goes, you know, stay tuned. I'm going to be hosting. I'm going to start doing live events here in Nashville, doing commercial real estate meetups. Of course I've got my breakfast, which we hosted retro grade coffee every other Thursday. Then I've got a monthly Happy Happy Hour, which I think we're doing is it this week? Maybe it's next week? We're doing our first. Yeah, it's next week, June the fifth. We're doing a happy hour at at the wash here in East Nashville. So feel free to come come into the I think it starts at five. But just follow my Instagram. I will be sharing more information on it. Sorry everyone that is all the time that we've got for today out of those couple of questions that came in. If I didn't get to your question, drop it as a permanent comment on the YouTube video that will be live after this and I will make sure to get a response to it. Thank
you all for joining me. We will see you all next week for another episode of office hours. 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
In this episode of the Investors Round Table, we delve into the pressing economic conditions shaping the commercial real estate landscape. Logan, Matt, and I will break down how interest rates, inflation, and broader economic trends are influencing investment strategies, capital deployment, and deal structuring.