We Stopped Buying Apartments Because of Deals Like THIS
In this episode, I’m taking you inside our latest deal—a 100,000-square-foot flex space property at Friars Crossing in Chattanooga, TN—and sharing why we’ve stopped chasing multifamily altogether.
I’m joined by Dave Codre from Greenleaf out of Atlanta as we break down why flex industrial has become our top target for 2025. From smaller tenant suites that keep vacancy low, to flexible layouts that let us reposition space fast, we’re seeing real advantages over apartments.
We dive deep into the numbers, walking you through how we underwrite, structure, and plan the exit on deals like this. I’ll show you exactly how our value-add strategy is designed to lease up and stabilize the asset—and why the management headaches are fewer than in multifamily.
Plus, we crack open the offering memorandum, tour the property, and lay out our investment structure and projections for both LPs and GPs.
If you’re looking to pivot out of multifamily and into something with more versatility, cash flow, and lower risk, this episode is a must-listen.
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Central: www.crecentral.com
Key Takeaways:
Flex Space Advantages:
More versatile than multi-family real estate
Allows for diverse tenant mix
Easier to lease smaller suites quickly
More logical and less emotional tenant interactions
Investment Strategy:
Buy properties that can be easily modified
Focus on value-add opportunities
Aim for full occupancy and market-rate rents
Target properties with flexible layout options
Financial Approach:
Invest in properties with potential for double-digit returns
Prefer 7% preferred return for investors
70/30 profit split between investors and general partners
Carefully manage capital improvements and operating expenses
Maintenance and Leasing:
Prioritize clean, functional spaces over aesthetic upgrades
Work collaboratively with tenants on maintenance
Seek longer-term leases to increase property value
Focus on efficient space utilization
Deal Specifics (Friars Crossing):
100,000 square foot flex space in Chattanooga
Purchased for just over $10 million
Currently 91% occupied
Goal to fully occupy within 12 months and achieve market rents
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:
Tyler Cauble 0:00
All right, in our last video, we told you that buying multi family is a waste of time, and we're putting our money where our mouth is. So I'm here with Dave codre of Greenleaf out of Atlanta. We're under contract on this 100,000 square foot flex space at friars crossing in Chattanooga, Tennessee, and today we're gonna walk you through the property and show you exactly why we're buying this type of property today instead of touching anything multi family.
Tyler Cauble 0:33
So flag space has been pretty popular for probably 1015 years now, but it wasn't really, I guess, popularized in the mainstream until the last, I would say, four or five years. But you guys actually started looking into this asset class in 2018 give or take, right,
Speaker 1 0:48
correct? Yeah. We've been looking at these types of buildings for a while, but it always started with what's, what's a deal that we can operate we can convert this easily to, you know, different layouts. Add doors as needed. It just, it really fits that definition of flex, yeah, whereas the other stuff, if you got tilt up walls or you have metal buildings, they're not really flex,
Tyler Cauble 1:08
yeah. I mean, the nice thing about flex space is that it is actually the most versatile type of commercial real estate that you can really find. But, I mean, you can tell with the tenant mix that we've got here. I mean, we've got a Hearing Center, we've got State Farm, we've got tower, community, Financial Group, it's kind of a wide variety of office and professional services. When you do multi family, you do office, generally, you're restricted to one asset type. And I believe, and I know that this is yellow's investment philosophy as well. Diversification is the name of the game, and this asset class really allows for that, because you get a wide variety of tenants. You get a wide variety of uses
Speaker 1 1:44
and the smaller tenant suites, it really enables us to get to a yes quicker, right? Like a lot of times commercial space your your biggest risk is just long term vacancy. If you can fix that by how do you get to a yes with a tenant that wants to move in, wants to use a space? It makes the deal that much better.
Tyler Cauble 2:05
So Dave, I mean, you guys have been converting a lot of office space, one and two story in the Atlanta area into flex buildings like this. So when you see these types of buildings, this type of construction, what stands out to you immediately in terms of what could be done or what should be done.
Speaker 1 2:23
The biggest benefit is we have an easy way to divide up things into specific suites, right? So we don't have this one giant span all of the window columns here, if you kind of just envision looking at that window, you could convert that into a roll up door, and then it can roll up and it'll look really nice. So you can have an entrance right next to it with a roll up door going in. So you can really customize the space that you need that's best for your business.
Tyler Cauble 2:45
So Dave, your strategy has always been buy something that you can add value to. What's the value at play here? The
Speaker 1 2:53
really the value add comes from like, how can you position the asset for when there is turnover, they want to stay, they want to be there. They're willing to pay higher or even up to market rents. Let's lease all of the space right? Find a way that we can do that, and that's really where we see something like this that is well occupied, but we have a few tenants that are lower on their rents, and we have some vacancy. It's like, let's go in and lease all that space on the commercial side, it's a little bit more of a partnership with these tenants. We want to make sure we can control our operating expenses, control our tax costs, insurance costs. We want to do the best we can, because a lot of those costs do pass through to the tenant on our common area maintenance. So we've really got to work with them to figure out what's the most efficient way we can operate this. Yeah, most of these companies that are operating here, it's like rent is not 30 to 40% of their cost, like it is in the residential segment, but they would also like for it to be as affordable as they can. It's more of a line item expense, so we want it to be as effectively priced as
Tyler Cauble 3:46
possible. Yeah, you know what? One of the biggest transitions going from multifamily to commercial is the tenant base. So I mean, how has that experience been, moving from dealing mostly with residential tenants to mostly commercial?
Speaker 1 3:59
Now it's really a personality difference and a conversation difference, right? Like the residential side is a lot of there's a lot of emotion tied to, where are you going to live and what is your what is your living experience going to be like? And while that on the commercial side, it's much more of like a logical conversation, right? As to what do the rates look like here? What services, what amenities do we have? What's the power supply that's coming in? You kind of have this checklist of requirements that has to happen on the commercial side, and if you fulfill that, it's a good price. Now you have a tenant.
Tyler Cauble 4:30
How do you go about choosing the right leasing team when you're getting into a project like this? A
Speaker 1 4:35
lot of the times, tenants also have a broker on their side that's helping them identify that right space. And then on our side, you know, we have our team in house that's making sure that we can do all the tours. We can get everyone in. We can make it easy for them. We can get them all of the information quickly so they can make a decision, because they're making a three to five year commitment,
Tyler Cauble 4:53
and so are we as a landlord, right? I mean, we're also making that three to five year commitment, and so it's very important that you look at. How many locations do they have? Do they have any references, two to three years of tax returns?
Speaker 1 5:09
So the main thing we're gonna do, looking down this quarter is we're gonna put on the vertical access doors on the front right, so they'll look the same. They'll be glass paneled, they'll have the same kind of trim in them. But this gives the tenants an opportunity to go in a main door, like an office, and right next to that have a large garage door that also goes up so they can get all their equipment in
Tyler Cauble 5:27
and out. Outside of that, there's not a lot of physical upgrades you have to do. How much do you guys budget for that?
Speaker 1 5:32
Typically? It typically costs us about $6 to $7 a square foot to get stuff out of a space. So that's how do we get it down to, like standard walls, concrete floor. Take, you know, you gotta replace the carpet, just like in multifamily. And then from there, we're gonna be about 15 to 20 bucks a square foot to go build back. What needs to be in there is
Tyler Cauble 5:48
that something that you guys look at whenever you're coming into a building like this, like, Should we make the entrances a little more uniform?
Speaker 1 5:55
Most that stuff was done like, esthetically when they designed these things. So it's not really a big selling point for a tenant that's coming into a space.
Tyler Cauble 6:04
Yeah, a lot of landlords get that wrong. I mean, they think, especially first time commercial real estate investors like, oh, I want to make the place super pretty. And they overspend, and tenants aren't willing to pay you extra money just because you're doing a nice chandelier in the front.
Speaker 1 6:17
As long as everything's clean, well lit and I can get around the property, they're normally pretty
Tyler Cauble 6:22
happy. So this is the one vacancy that we've got right now. What about 2000 square feet? This will be the first one that will get upgraded. So let's see. We'll do this one first. So this
Speaker 1 6:31
is what a vacant suite looks like. It doesn't look that bad. However, we've got layers of floor here, just like you'd have in multifamily. You have layers of carpet. We'll clean all that stuff up, and then you've got pretty old drop ceilings that, if you take one of these spaces and get rid of this kind of eight and a half nine foot drop ceiling, and you raise it up to the 14 feet that's here, it looks, it looks a lot nicer. And this one, you know, we've got some rooms on the other side here where you're going into your offices and conference room stuff. And then this a lot of times, you know, when we're looking at coming in space, you need to be coming in, and there needs to be one two offices in a conference room. They need to be efficiently laid out so you have as much open storage space as possible. That's right. And a lot of these, you know, they're all, they all have concrete floors. So one part that is tricky is, if you're trying to move plumbing and you got to cut through the concrete, it can get expensive, right, right? So you're really looking at, when you're buying a building like this suite right here. It has two bathrooms already laid out. It already has the water for a small kitchen area. It just kind of like all dingy and contained, but we least don't have to trench anything and cut through the concrete. It's so right here. It's all staying right here we leave the concrete floor that's there, and it's a mix easy
Tyler Cauble 7:36
to maintain, tenant after tenant. Yes, you had mentioned the power,
Speaker 1 7:40
the more the better. Yeah, no tenant ever says like, Man, I wish there was less power in here.
Tyler Cauble 7:44
Yeah, we've got three phase on both of these. 400 amps, 250 amps on this one. I mean, that's you could open up a woodworking facility in here. You can run pretty much any piece of equipment that you'd want to,
Speaker 1 7:56
if you just look at it from here, this could be, I mean, this could be a big suite that would be highly usable, even for the most part. I mean, we raise the ceiling up, we're just putting in the hang down pendant lights. Yeah, really opens everything up. Yes, we've got a lot of these where we have generators that power an entire building that's in there. If anything goes out, it's theirs most likely, put in from a prior tenant. And we'll pick up the service agreements on these things and maintain them. And then you've got backup power, which is a nice benefit for anyone that does occupy the space. But you can see here, this one. You know this this building. It has a ton of roll up doors already put in, but they're all the metal ones. They don't look as nice as putting in some glass stuff, but it's the back of the building. Mostly. All of our success in leasing comes from from if we do have big tenants, they are great and they do work. But if they do vacate, we're really looking to downsize those, divide up the suites into smaller footprints, and then lease those. We can lease those a lot faster. Yeah, but this is one of the fun parts of doing this stuff. You get to come up and see actually what's happening, and figure out what you can do on an asset. But typically, when I'm coming up here, I'm like, Do I see any standing water? We got a little bit of standing water that's maybe just has to be sloped, right, or something with the with the roofing here, but we're looking at HVAC systems, and that comes into the lease of whose responsibility is the HVAC system? Is it the tenants, or is the landlord's responsibility? A lot of times, with these bigger tenants, it's their responsibility. Well,
Tyler Cauble 9:16
while we're up here, I think it's an appropriate time to talk about maintenance. There's a, there's a pretty common misconception in commercial real estate that tenants maintain everything. Tenants do everything right? And that's why, hey, that's why we get into commercial real estate, because we as landlords don't have to do anything at all. It makes it very easy.
Speaker 1 9:33
That has not been the case in my experience. The Yeah, it would be. But we're looking at this stuff of like, how can we use a team that can manage multiple assets? So there's got to be some similarities in how we get stuff done. But the commercial side, you know, that's why we want to be buying one story buildings that we can actually work on with our existing team. The tenants are never just like, hey, we do everything. Or even
Tyler Cauble 9:57
if the tenant is technically 100 Responsible for everything. They're probably still paying the landlord, who's then paying the property taxes. When you look at an asset like this, I mean, what? What are your thoughts when it comes to maintenance?
Speaker 1 10:11
When I'm thinking about maintenance, I'm thinking about accessibility and skill sets. We want to be able to do stuff quickly, keep our tenants happy and get stuff fixed. So we're looking for assets that we can actually maintain a lot of these systems. If we look at this, they're not overly complex. And it's not only just a landlord decision, right? Like a lot of times this right here, there could be shared expense ratios. There could be offset costs with tenants, and once they hit certain thresholds of costs, we really got to review the lease and then talk to the tenant, be like, hey, what's the best decision here for both of us to make sure we do this as most efficiently as possible.
Tyler Cauble 10:48
All right, we are back here in the office, and we're going to be diving into the offering memorandum for the friars flex deal in Chattanooga. So I'm going to hand it over to Dave, since he and his team put this beautiful document together for
Speaker 1 10:58
us. Thanks. Tyler. Excited to talk about this one here. You know, we put together our presentation to try and keep them consistent, so it's easy to find out where is the information and what's critical when you're looking at a deal, anytime we go through a project where we always want to outline like, what has to go well for this deal to work, where are the risks and then ultimately, how are the LPs and how are the GPS and the deal getting paid to make sure that that incentive package is really aligned to have the best outcome in any real estate project. That's exactly
Tyler Cauble 11:30
right. The offering memorandum is basically the business plan for what you are going to be doing on the project.
Speaker 1 11:35
So one of the slides to us that's most important, we look at this sales comparables. You know, there's two things we look at. A lot of times people are just looking at what is an exit price you could get for the deal. But it's also when have things like this transacted. Some of our sales comps that we have in here, you can see it's been over multiple years for like 2223 24 and the reason is, there are just not a lot of buildings like this that transact. They're hard to find. They're fairly rare in what's coming up and available in the marketplace, and a lot of times these deals also trade when it's an owner occupant. There's a whole different financing package that are available if you buy an occupied building on your own. So the sizes vary. When we look at friars, it's really three buildings of various square footage. A lot of our comps that have traded over the past few years are in that 131, 40, $150, a square foot range which we're buying our deal just over $100 a square foot. So we really like the basis of where we're at going in. And this shows us, when we look at it, there's a lot of upside just in the pricing that's in the market, but there's also just not a whole lot of transaction volume, because a lot of these deals don't come to market that often. So when we're looking at sales comps, we're seeing, okay, we want to know how many have transacted. We also want to know what that price is. And here it shows we've got a lot of good upside potential as we get this deal stable.
Tyler Cauble 13:02
That's exactly right. I mean, the nice thing about having a building of this size, or a property this size, rather, with three buildings, is that it gives you multiple exit options as well. Right? We could sell it as one building, if we have to. We could also break it up into three smaller buildings and get a premium on the price per square foot on that sale as well.
Speaker 1 13:19
Yeah, we're and we're doing another deal in Chattanooga that we've owned for a while that we have, again, same thing, sold individual parcels of a larger asset a lot of times. That is the exit strategy that's associated with a multi building deal. On top of this, when we go into starting to look at like, what is the LP and the GP splits look like? So you want to understand underwriting any of these deals, how is, how does the money flow? How does everyone get paid on a transactions like this? And ultimately, from the investor standpoint, you want to know, what are my risks? What am I looking for financially? So let's, let's jump ahead to the investment one. And here we've got a couple different points on this, right? We want to know, what are we paying for a deal, what's going into on the capital improvement side, and then ultimately, what does the incentive and compensation package look like? So friars were paying just over $10 million for this deal. We have over a million dollars of CapEx. A lot of that work, I mean, we are 91% occupied, so it's it's very full, but a lot of that work is going to go into preparing and occupying the remaining space in capex on our side, includes everything from physical improvements of future space to we have a few upgrades we got to do, just on current HVAC units and things we want to fix so that the property operates easily. So we have to get that stuff fixed. And it also includes the leasing components on our end as well. Then we see we have reserves and closing costs that come into it. Closing costs, we look at, you know, what are acquisition fees? On Greenleaf side, we charge a 2% acquisition fee. We try to put that out here and be very transparent about the fees that we're getting paid. And then also, on top of. We are going to pay a bank closing fee. Banks are typically charging percentage point on a deal to do the financing for that deal, and then we have brokerage fees as well in the transaction. So all that stuff is clearly outlined here, and then it shows what our total debt and our total equity on this deal looks like. To be just over $12 million when we look at our investment splits and like, Okay, we put some money in. How does this deal work? We operate on a what we like to think is a pretty simple format where we have a set preferred return. So that preferred return is essentially accruing, where 7% hurdle every year has to be hit before the general partner earns any money. And that split between the investor profit share is 70% on the general partner side, it's 30% so that's where we're trying to be transparent on what does the total capitalization of the deal look like? What are the splits look like? And then we look at where are we now? Where do we have to get to? So year one, you can see what our financials look like right there. And you can see we're just below the necessary cash on cash returns needed to pay that preferred return. Our business case is that we fully occupy the space. We achieve just market rents. We're not trying to surpass market rents. We're not trying to add in anything crazy. We just want to be at market. And that will bring our projected NoI just over 1.1 million. It gets us up over our preferred return cash on cash holder rate, and then ultimately double digits for the annual total investment returns. For us to achieve that by year three, we're really looking at getting there in the first 12 months. So we want to fully occupy the building, get all the leases in place so that we have a runway of years of strong performance, these deals really work the best or perform the best when we have longer term leases with set terms. So we can really forecast how is it going to work? It also creates the most value. We think about that. We cycle back to that sales comp. We want to know things are going to trade at the best value and have good leases with longer terms, and that's where we'll see a stronger exit price that is based on these leases. So that's really what we're focused on. On the business plan here is get in, do our necessary repairs, get our leases signed so it is full with the longest wall or weighted average lease term that we can get, that's where we really unlock the true potential of this deal. So we're excited about it. And you know, we'll be able to get to double digit investment returns pretty quickly in the grand scheme of things, on on a real estate deal. And yeah, we're excited to get started on this one. So there
Tyler Cauble 17:30
you have it for why we're buying flex space instead of apartments these days. If you're interested in investing in this deal with us, click the link in the description below. Give us a call. Let's have a conversation about it. You want to learn more about flex space and why investing in this product just makes sense today. Check out this video next you.
In this episode, I’m taking you inside our latest deal—a 100,000-square-foot flex space property at Friars Crossing in Chattanooga, TN—and sharing why we’ve stopped chasing multifamily altogether.
I’m joined by Dave Codre from Greenleaf out of Atlanta as we break down why flex industrial has become our top target for 2025. From smaller tenant suites that keep vacancy low, to flexible layouts that let us reposition space fast, we’re seeing real advantages over apartments.