The NNN Alternative, Value-Add Flex, and More (Office Hours)

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!

Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Central: www.crecentral.com

Key Takeaways:

• Tyler is starting site work this week on his Salt Ranch boutique hotel project in Nashville. He has also filmed enough YouTube content to last through February.

• Tyler hosted a CRE Accelerator mastermind call where students presented various commercial real estate deals, including a ground-up development, an owner-occupied deal, and a seller-financed deal. The group is planning an in-person event in Birmingham focused on flex space and ground-up development.

• Tyler had to let an employee go and hire a new attorney to handle the employment law issues. He is currently hiring for an office manager position.

• Tyler shared his experience and perspective on the multifamily market, noting that he prefers commercial real estate investments over multifamily due to concerns about overvaluation and lack of good deals.

• Tyler discussed his thoughts on the office market, stating that it depends on the specific location and property, and that he is selective in his office investments, preferring properties in areas with less competition.

• Tyler provided advice on tenant improvement allowances (TI) for retail spaces, emphasizing the importance of understanding the market and structuring leases that add value to the property.

• Tyler encouraged a recent finance graduate to consider starting in commercial real estate brokerage, rather than property management, if they are willing to work hard and go without a salary for the first 6-12 months.

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:

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 Cauble group Studios here in Nashville, Tennessee. Been a bit good week. Looking forward to the holidays. Kind of weird. Honestly saying Christmas decorations up. It's not even Halloween yet, but I guess Christmas comes earlier every year, which, you know, look, I'm not going to complain about that. I'm all for it. Let's, let's dive into today. This is an office hours episode. So any questions you've got on commercial real estate, whether that's brokerage, investment development dome in the live chat, let's talk about it. Happy to answer and have a discussion with you about whatever you're thinking, probably commercial real estate, maybe not whatever you're thinking. But hey, who knows? Maybe we can talk about the predators losing last night, which, to be fair, they have been doing a lot better recently, but it was, it was a good game. They came back, still lost in overtime. It was a tough one. Anyways, let me catch you guys up on what has been going on over the last week, and then we'll dive into your questions. Looks like we've already got a few jumping in already. We filmed an update on salt Ranch, my boutique hotel here in Nashville, so I will be sharing that with you all here hopefully pretty soon. I was actually looking at our content calendar, and we've got enough YouTube videos filmed to last us every week through, like, February. So that's a good feeling. That's something that I have been wanting to have for the longest time, because it's, it's almost always a rush of like, Hey, we gotta finish this. We gotta get it edited and approved on, you know, or edited and sent to me on Monday. Then I'll make all of my comments, then the editing team will turn it around and we'll have it live for, you know, Thursday evening or whenever we decide to post it. And it's it's a lot of work to be doing all of that in one week, especially with everything else that I've got going on. I mean, keep in mind, YouTube is not my full time job. I'm a commercial real estate investor and developer myself. I've got other things to be doing, so it feels good to start getting that far ahead on content. So we'll share with you guys the update on Sal ranch. We're actually about to start site work this week, which is pretty exciting. Filmed a video, as some of you all may know a story of the deal with Ken McElroy on his orchard Canyon project out in Sedona. Absolutely beautiful. I don't know how anybody else will be able to top this project. It's so cool. Shout out to Ken and Daniel for having us out to the property. Absolutely gorgeous, beautiful, beautiful area. I mean, it's an apple orchard, basically, with with, you know, I think 17 cabins for the hotel in the shadow of these red rock mountains. Absolutely gorgeous. So it's going to be a really cool story. The deal that will release early Thursday morning, because Thursday morning, Ken and I did a podcast that will be going on on his channel, talking even more about it. So I will share everything with you all on Instagram. If you'd like to dive into watching the story of the deal, if you want to go listen to the podcast that I did with Ken, where we talked more about the behind the scenes of making it. It's gonna be a really, really cool, cool video. Let's see, last night I got a couple of texts after our coaching call, which is, which is always fun, right? We had a Siri accelerator mastermind call last night, and it's always nice getting call. You're getting texts afterwards saying, Hey, that was an awesome, awesome call. Because to be honest with you, I don't really get to control the calls. It's 100% on the students. I don't really make anything up that I want to talk to anybody about, right? I know this. This is for them. And so we had three students bring different deals to the table last night that they were all looking at. They were all really, really cool. We had, you know, one that was going to be a ground up development on 15 acres down in Florida. So we were walking through everything that that student needs to work on with, with doing the ground up development. There. We looked at an owner occupied deal out in California that the students doing a 1031 exchange for. We looked at a third deal out in out west as. Well, that was going to be 100% seller financed, and it was just, it's really cool to be able to look at all these different types of deals that everybody's able to go out and find. I just love that stuff. And then we finally decided yesterday on our q1 Siri accelerator mastermind event in person, we're going to be going to be going down to Birmingham, and the theme for that day is going to be flex space and ground up development. Or for that weekend, flex space and ground up development, because one of my students down there, Marcus, you've probably seen us do a video with him on luxury flex space and things like that. Marcus is crushing it down there. He owns a bunch of car washes. He's got a ground up flex space, he did. He's got a little retail center, semi retail, semi office building that he's converting into flex space. So we're gonna go down there. We're gonna tour those assets, and we'll hear from the brokers on the deal. We'll hear from the lenders on the deal. That way everybody gets a full picture of how Marcus pulled this together, so the other students can go and do it. So if you want to attend events like that, you have to join the mastermind. Obviously, these are not open to the public, but yeah, reach out to me. Let's talk about it. Happy to happy to have those conversations. All right, let's dive into y'all questions. See what we got going on this morning. By the way, question of the day, I forgot to do this at the top of the hour. That's fine. What was your biggest aha moment when transitioning from residential to commercial real estate? I want to know what was the biggest like just epiphany that you had when you decided to leave single family homes behind, leave multifamily behind and start pursuing Commercial Real Estate Investments. Instead, Charles is saying, when business owners and commercial real estate investors actually cared about the analyzes I would perform before going into a real estate deal. Yeah, that's a that's a pretty good one. They they actually care. That's funny, team, Paul, do the numbers still work if your luxury flex market is not accustomed to triple net, plus 3% yearly rental increases? Yeah, Paul, I mean, absolutely, it's, it's, it's kind of a tough question to answer, but I don't see why not. I mean, if your market's not accustomed to triple net, you could always do the next best thing, which is pretty much the exact same thing as a triple net, but it's easier for tenants to understand it's a full service gross lease. So it's like, Hey, your rent is $3,000 that covers everything, but it's got a basic spent stop. You could also do a modified gross lease where it's like, hey, they pay for their utilities, because that's probably easier to just pass on to them. So what you would do is a modified gross lease with a base expense stop. That means, you know, if, if your base year, they sign a lease in 2024 and your expenses are $5 a foot, that's their base expense stop. So if the next year, expenses for the property go up to $5.50 a foot, they pay the difference. They pay the 50 cents, a foot above and beyond their expenses. So that's, that's, that's how I would do it. In a market like that, it's easier for tenants to understand, definitely not as confusing, which is always nice. Let's see. Charles is saying, as a commercial real estate agent, starting a brand new direct mail campaign to prospect for new business. Is there a set of topics to address in each month's letter to that same prospect? That's a good question. Charles. I mean, I don't know that it necessarily matters. I would, I would think through what matters locally in your area that an investor might find interesting, right? Is there a new property down the street in that neighborhood that is breaking ground soon, or that permits have, you know, been pulled on things like that that people may not necessarily know, but they would find interesting, because you're opening up with value every time, which means, like, look, if I got a letter from somebody that said, Hey, by the way, you Know, right down the street from you, a new 250 unit apartment complex just pulled permits to begin construction. You're probably going to start seeing something coming out of the ground here soon. You know, call me. Let's talk about what it might look like for your property, how it might affect your property values, things like that. I mean, to me, I'm going to find that very valuable one. I'm probably going to call you two. I'm probably going to open up your next letter, right? So I always aim to lead with value. And, you know, I know there's a lot of of like on the residential side, like, hey, in January, you want to send people like, start the year off, right? And, you know, in July you want to send something patriotic with, I mean, I don't really care about all that stuff. To me, it's, it's more about, like, let's kind of get very specific with this campaign, and that may mean you got to spend 1015, 20 minutes longer on it each quarter, which is not that big of a deal. But think. Through like, what

are, what are some interesting things that have happened in your neighborhood? Are there any events coming up, you know, etc, that these investors might find interesting? Charles is saying, You're the man, Tyler. I appreciate it, Charles, you're the man. Thanks for being here. Let's see. Ricardo is saying, Hello, Tyler, I will attend cre tech 2/13, through the 14th, November 2024 See you on the other side of the world. I am actually not planning on attending Siri tech. I don't even think I know anything about it. Let me look it up. Siri tech 2024 it's up in New York. Oh yeah. Nathan Nate, now we're just talking about this a couple weeks ago. I might need to look it up, see if it's worth going up to to New York to dive into that. Urbanized is saying rock on rock on urbanized. Thanks for being here, Joe. Can you do a breakdown on value adding? Flex warehouse? What types of value adds are worth doing? Well, I mean, I could do a breakdown, but it'll take us about five seconds. There's not a lot of value add that you can really do to a flex space. So there's only a handful of things really. I mean, one changing over to LED lighting, right? That'll save you money. It'll save them money. Increases the value of the property, right? You could also add loading docks or bigger roll up doors. You know, those are always a good value. Add. I don't typically touch the the facade of an existing flex space unless it just really needs help. You know, I mean, more often than not, the tenants aren't going to pay you more just because the building looks a little bit nicer, unless you're going for like luxury flex tennis, that's a totally different thing, but that's a heavy value add compared to most flex space properties, insulating and conditioning the warehouse. It's always a good value add approach. But again, it really comes down to your market. It comes down to the property. It's a it's a general question that you've asked, but it's a very specific answer, to be honest with you, because I would have to look at the property, I would have to study the market, I'd have to figure out what types of tenants we're going for, and then I would be able to better tailor that response in that respect. So I know that's probably a terrible answer, and I apologize, Joe, but the answer is, it kind of depends. He's saying also do conversions on a single tenant flex to multi unit makes sense, or too much work and cost. No, actually, they make a lot of sense. Typically, they're not that expensive. Now, again, it depends on what the space looks like and what you're doing, but more often than not, all you have to do is throw up a wall to demise these spaces. Now that does mean you're probably going to have to add another row up door and another office, another door, whatever, right, like for people to walk in. So you will have some expenses there. Sometimes these warehouses are already kind of divided up that way, right? And so you could take, you know, if the office is in the middle of the building, you can basically just split the office in the middle and then split the warehouse down the middle. Right? Now you go from one to two tenants. We had a building that we sold that was just like that, right? It had basically two roll up doors on either side of the office so that you could drive in and actually pull all the way through and drive back out the front, if you were in a vehicle. And because of that, it was actually very well laid out to be split into a two tenant building. And I'm not sure if that's what the the buyer ended up doing or not, but it was, it was very, very well laid out for that. It was, it was easy to do. So hope that helps. Man. Oh, let's see what else we got going on. I mean, it's, I guess we're a little light on the questions today. If you guys don't have anything to talk about, I'll just keep rambling. Been, been an interesting week here at in my offices, had to let an employee go, but just never fought. I mean, that's not something that anybody ever really wants to deal with. It was definitely for cause, which is unfortunate, but we ended up having to send a seasoned assist letter to them yesterday, because it has gotten so out of hand. I have I couldn't imagine getting fired for very multiple, multiple, very valid reasons, and then arguing for my job back and texting my former boss incessantly for a week. So that's been fun to deal with. You know, I had to, had to hire a new attorney to do that one, because I've never had to deal with really employment law stuff, but fortunately, you know, because I'm a member of the Entrepreneurs Organization, I just leaned on them and got some great referrals that that is the power of surrounding yourself with the right people that are doing what you want to do. Because I made one text, got two referrals. Rolls to two great attorneys and ended up being able to get that taken care of very quickly. Joe is saying, so you're so you're saying you're hiring, yeah, I actually am. We have an office. We have a posting right now for an office manager, 55 to 60,000 a year. It's on indeed. I mean, you could probably just go type in the Cauble group office manager, and I would imagine it'll pop up in Google. So yes, I am hiring. The job description is very thorough. We have everybody take a culture index. So yeah. I mean, look, if you think you're a fit, you want to come work with me for a little while? Come on. Shoot, shoot, shoot me a resume. Let's see. Jay is saying, Have you had experience with multi family? Yeah. I mean, I've had experience with multi family. I mean, we built a 101 144 unit apartment complex at the last development firm that I worked with, and then my first project was 42 townhomes, and I don't think I've ever shared this with you all. Initially, we were planning on, we were planning on just renting those out and actually selling the 42 townhomes as like a miniature apartment complex. And we ended up not doing that, because we could get so much more on retail pricing if we sold them. So yeah, I've got some experience on the multi family side. We manage some multi family on my property management company, unfortunately, not a big fan of multi family. After that property sells, we're gone. I'm not doing it anymore. Either you got to be all in or all out of multi family. In my opinion, you can't just dabble in it. And it's a it's a different world. A lot of the guys that I know that made a bunch of money in multifamily over the last 10 years are not buying any multifamily at all anymore. In fact, several of them have gotten out of it all together because the money's not there and they're all doing commercial now. I'd like to think that I had a part of that, but I mean, these are big groups, right? I mean, we're talking 1000s of units of apartments, and now they're no longer even interested in doing any of that, right? Once they're once the rest of their portfolio sells off, they will be gone. Multi family is interesting. I mean, I like it generally as an asset class. The problem is, you've had so much money in the past 10 years going into that sector of the market that the value is just not there anymore. There are people that are willing to pay more money for multifamily than what makes it a good deal, right? I mean, think about it. You know, we're investors, which means we're going after these deals, we need to make a cash on cash return for investing in these however, you've got very wealthy individuals that don't care, because they're in a totally different tax bracket. What they need is a write off in the depreciation and to save their active income, which means they're going to go out and they'll take a loss every year. They don't care, because it's building up equity, but they get to depreciate it, run it off, and save hundreds of 1000s of dollars, if not millions, on their active income. So it's, it's just tough to compete with that, right? And so a lot of that's, that's what a lot of the investors in multifamily are doing, crash test dummy is saying, Good morning. Do you walk through deals live? I have before, yeah, we've got a couple of videos on this channel where I have walked through deals live. I haven't done it in a while. I mean, if you guys want it, drop me a comment in this video after it's done and let me know that that's what you want more of. I mean, if we get enough comments of people saying, hey, we want you to walk through more deals live, then, then I would, I'll gladly do it. I mean, that's, that's pretty much what we end up doing on our mastermind calls, is I'll just go through these deals and show everybody how I'd kind of look at it. I mean, I enjoy that stuff. It's fun. Clayton saying, Good morning, Tyler. I'm coming out of college with a finance degree, and was wondering if I should become a commercial real estate broker or try to be a property manager, what would give me the best experience? Clayton, good question, man, I'm gonna ask you a follow up. Hopefully you can jump in the live chat fast enough to give me a response on it. But can you go six to 12 months without making any money. Like, what does your overhead look like? And what are your long term goals? I want to know. Like, where do you want to be in five or 10 years? Because there's two. I mean, those are two similar but different paths, and they can get you, they can get you to the same end result. It just depends on how quickly or what route you want to take to get there. I took the commercial real estate brokerage route.

I love that, but I was also willing to bet on myself, and I was willing to work on weekends to pay my bills. So it took me six months before I got my first commission, which meant that I went six months without making any money. Which meant that I was working as a waiter, and I was working in my grandfather's construction company on weekends, doing anything I could to make ends meet. And, you know, I mean, look, some people have, you know, their parents to lean on, you know, maybe you can live with your mom and dad for a while, or maybe your parents are just willing to pay for your expenses. If so, I think that's great, right? Like, you know, congratulations to you. Take advantage of that and use that as a leg up to get started in commercial real estate brokerage, if you don't have that, or if just the prospect of having to wait and see if you know, you can start making commissions in commercial real estate scares you, then I would go the property management round, right? You're going to learn a lot of very similar stuff, but your income potential will be capped as a property manager, because you're going to be on salary as opposed to commissions. So I've always taken the approach of, I'm willing to bet on myself, because I'm the best damn horse in this race. So I want to go 100% commission, right? But there are plenty of people that say, Hey, you know what? I actually don't want to do that. I want to be able to just clock out at five o'clock, do a great job from nine to five, then I'm done for the day, and property management is an excellent way to do that. Now, property management's not nine to five. You will get calls after hours and on weekends. But that, that is what it is. Clayton saying, Yes, I could do six months with with little to no pay, but ultimately, my go to goal is to become my own commercial real estate investor and manage a team. Clayton, honestly, man, what I would do if I were you, then, if you can, if you can stomach the six months, is go be a commercial real estate broker. Go all in, bust your ass. Do everything you can to start getting those commissions in. I'll tell you, once you get that first commission check, it's very addicting, you'll want to go close infinitely more deals. So hope that helps. Man. WW, dog is saying, what are your general thoughts on office right now? Southeast specifically depends on where it is. I'm not scared by it. So to me, it's more on a case by case basis. It's tough to just generally blanket the office market and say, Oh, I don't feel good about X, Y and Z. Like, I wouldn't buy an office tower in downtown Nashville right now, but I would go buy another one of these buildings that I'm sitting in, which is a 30,000 square foot, three story office building, and I bought it in 2019, 40% occupancy, and it's 100% occupied now, and it's crushing it, right? It's been a great investment. I like these urban core adjacent office buildings in neighborhoods that don't have a lot of office so East Nashville doesn't historically have a lot of office space, and so I own one of the biggest office buildings in East Nashville, simply, I mean, it's only 30,000 feet. It's not like, it's not like I own 300,000 feet. It's just a neighborhood that doesn't historically have a lot of office so that definitely helps. So yeah, I mean, I'm all for office. I think it's really interesting right now, it's on sale, but let's be honest, it's on sale. I love a good discount. Juan is saying, what kind of commercial real estate Do you buy? Man, office, retail, industrial, hospitality. I mean, right now I've got a hotel under construction right down the street, 48 keys that were renovating. It was a roadside motel that we're turning into a boutique hotel. I've got a self storage facility under contract here in Nashville, I'm working on a second self storage facility out in Chattanooga. We're looking at doing an industrial outdoor storage facility in Chattanooga as well. And I'm looking at buying a smaller office building in my neighborhood. So I do a little bit of everything, man, I do. The majority of my portfolio is industrial, followed by retail and then office. So, I mean, I kind of like everything. I just pick neighborhoods. I like to get to know an area very well and then figure out what's going to do well in that area. Full Life Adventures is saying, with regards to multi family, what size buildings do those companies people usually acquire for tax purposes. It depends on the individual right, like, if you're just talking about a doctor, right, like an individual doctor, you're probably looking at 30 to 75 unit buildings, right? Because they'll be able to buy that by themselves. You know, if you're looking at, you know, I mean, anytime you get over 100 units, 125 units, 125 units, now you're starting to get into more institutional or syndication capital, and it's they've got a lot of money to play with. Typically, Chris is saying, will you do a 1031 on a warehouse? I mean, I'm sure I will at some point. Are you asking me if I have or if I would? Yeah. I mean, I don't see anything wrong with doing a 1031 into a warehouse. I'm about to sell a residential piece of land at 1031 into a warehouse, actually, that I'll then go and fix up. So yeah, I mean, I'm all for it. Mike is saying, Good morning. Good morning. Mike, thanks for joining us, man, you cover so many great points and come. Commercial Real Estate. How do you feel about Tia for smaller retail spaces in multi tenant strip malls? And what's your formula? Women, I appreciate it. Mike, thanks for the kind words. Man, so I'm a big fan of TI. I don't like just giving it to anybody, and I do what I do. There's not really a formula I hate. I mean, you guys listening to this, you probably hear me say all the time, it depends, and I've probably said that 10 times in this episode, but it really does depend. It's tough for me to give you a blanket formula, because, you know, are we talking Class A new construction downtown? Are we talking Class C, 30 years old in the suburbs, or are we talking Class A new construction in the suburbs? Right? Like every single asset class is different. It really comes down to your market and what's going to make you competitive as a landlord in order to attract the right types of tenants, that's really what matters, at the end of the day, more than a formula. However, typically, what I aim for is for that tenant improvement allowance amount on a price per square foot basis to be lower than, equal to or lesser than my first year's rent on a price per square foot basis. However, what I will do is I'll often have like, a certain amount that we're just saying, hey, you know, rents 20 bucks a foot, we'll give you $10 a foot in TI. Like that's just a given. Anything above and beyond that is negotiable, but we're then going to bake it into your rent, right? So let's say they want $20 a foot in ti instead of 10. I'll take that $10 a foot difference and I'll actually amortize it over the term of their lease. So let's say it's five years. So I basically break it up over five years at 8% interest, and it's basically a loan that I'm giving them, except it's in their rent, which means that it's going to value the building higher, right? So we do that kind of stuff all the time, and that's that's typically what I'll do, because if I'm going to be investing more money into your space. I mean, one, I need to make sure that your credit is really strong. You're going to be here for a long time. Things are, things are above board there, but I also want it to value the building higher, right? So that's what I that's what I go for. Clayton, saying, Thanks for the advice. Can't wait to get started. Absolutely. Clayton, good luck buddy. Let me know what you need from me as you're jumping into the brokerage world. It's, a lot of fun. I promise you that upstate South Carolina, I am an office broker in the area, and I've seen a great deal of activity. Just wanted to get your thoughts. Love it. That was from WW. Dog, absolutely. Man, hope, uh, hope all is well in upstate South Carolina. I love that area. Charles is saying, in six months, we're going to have a touch point, and Clayton is going to be crushing it. Yeah, let's do it. Clayton, jump back in here in six months. Six months. I want to hear, I want to hear how your progress is going. Or sooner. Man, if you, if you want some advice on what it's like getting started in in brokerage, happy to help. That's what these office hours are for. Larissa is saying, Hi, Tyler, how do you choose an appropriate discount rate when underwriting and looking at net present value? That's a great question. I'm gonna be really honest with you, I am not a mathematician and I am not the most sophisticated underwriter in the world, which means that I don't typically do net present value. I actually don't think that I've ever done net present value on a single underwriting that I've ever done. I mean, honestly, the last time I probably did that was when I was when I was going through CC, I am 101. So that being said, I have had very many successful projects without doing net present value, although I see a lot of people saying seven or 8% I mean, I think it just depends on on where you are, guys, I gotta jump. I've got a call at nine o'clock. Appreciate you all joining me for this episode of office hours. If you want me to be diving into live underwriting, I'm happy to do it. Leave me a comment on this video saying that that's what you want. We'll make it happen, and I'll see you guys in the next one. Are you looking to take the next step toward investing in commercial real estate? But don't know where to go. Siri 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.crecentral.com to learn more you