Let's Review a Couple Value-Add Commercial Deals (Office Hours) | Office Hours
Value-add commercial real estate is where true wealth is built — but only if you know how to underwrite it correctly.
In this episode, I review real-world commercial deals sent in by investors and break down how to evaluate them, uncover hidden upside, and avoid expensive mistakes. From outdated retail centers to underperforming office buildings, we’ll walk through how to identify opportunities, analyze risk, and structure deals that actually cash flow.
You’ll learn:
What makes a value-add deal worth the risk
How to raise below-market rents the right way
When to convert gross leases to triple net (NNN)
How to estimate renovation costs like roof and HVAC replacements
What to look for in tenant mixes, lease terms, and expense ratios
Plus, I’ll share insider tactics for working with brokers, filling vacancies faster, and marketing your listings like a pro — including the free floor plan tool I use for every property.
If you’re serious about scaling your commercial real estate portfolio, this is your playbook for turning old buildings into cash-flowing assets.
Join our underwriting challenge to get all the tools, resources, and coaching on underwriting your deals: 30 Deals, 30 Days starting on October 22nd, 2025 - https://crecentral.com/30deals30days
Key Takeaways:
Value-Add Commercial Real Estate Strategy
Look for properties with potential for improvement
Opportunities exist in buildings needing work, like roof or HVAC upgrades
Potential to increase value by raising rents and converting to triple net leases
30-Day Challenge Launch
Free challenge for learning commercial real estate deal underwriting
Starts October 22nd
Provides access to deal analysis toolkit and AI underwriting tools
Leasing Commercial Spaces
Importance of detailed marketing materials
Create comprehensive listings with floor plans, pictures, and property details
Consider finishing out spaces to make them more attractive to potential tenants
Cap Rate Considerations
Not a single metric for evaluating deals
Varies based on property type, location, and potential
Look at multiple factors beyond just cap rate
Broker Relationships
Brokers are motivated by commissions
Sometimes owners need to take initiative in leasing their own properties
Be prepared to market spaces independently if brokers are not effective
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
Tyler Cauble 0:00
This episode of the commercial real estate investor podcast is brought to you by my cre accelerator mastermind, where you'll get access to my step by step investment blueprint, essentially a library of resources on how to invest in commercial real estate. You'll get connected to a supportive community of other commercial real estate investors that are doing projects just like you. You'll get personalized coaching and feedback from me every step of the way. Go to www.crecentral.com to learn more. Welcome back to the commercial real estate investor podcast. I am excited to be back with you guys for the first time, two weeks in a row since we started all of this back up last week. It's been good thinking about this, getting back into it, and honestly, just coming back and talking to you guys, so glad to be back here for another round of office hours. This is where we are diving into your questions. Whatever questions you have around commercial real estate, you are more than welcome to jump in the live chat ask me questions there. I actually do have somebody last week, because I told you guys, if you email me something at office, at the cobble group Comm, we will pull it up, and I will dive into it here, so I will have to pull up that email. But we've got it. I've actually got it on my phone. We'll get it from there. One of you all reached out, sent me a deal that you're working on, and we're going to be diving into that, so that'll be great. We've also got a thread on Reddit that we're going to dive into. Somebody that is buying an old building that needs a lot of work. A lot of you all are interested for very good reasons. This is why I do it too, in value add Commercial Real Estate Investments, right? Finding these old buildings, they're falling apart. They need a lot of work, but that's where the upside is. That is where the value can be created for you as an investor, right? Why buy something that's already fixed up, where somebody else has already squeezed all the value out of it? When you could buy something that's totally vacant, make it your canvas and make a lot more money doing it. So we'll dive into one of those deals today as well. Catching you, catching you guys up on what I've been up to this week has been all hands on deck at Salt ranch. If you tuned in last week, you're probably aware that we are having our CRE accelerator mastermind and the brokers mastermind. We usually combine the two for in person events here in Nashville, and I'm hosting everybody at my boutique hotel, salt ranch. Really, really excited to be having everybody over there. It will be the first round of guests that we have had. The hotel is not fully open yet, but you know, when you've got a bunch of commercial real estate investors that have been hearing about this deal for a few years, and they finally get to see it, it's going to be a lot of fun. They're going to get to experience the hotel for the first time and hear from me and my team about pulling it together. It's been a very interesting, very interesting deal, lots of challenges, many of which I have shared with you all. If you go and search salt ranch on YouTube, you'll be able to watch several videos from over the years where I have talked about a lot of the problems that we have faced. Because I will be one of the first people to always say commercial real estate isn't easy. It's pretty simple. It's not easy, like there's a lot of problems that we have to deal with. And it really all comes down to, how are you tackling those problems? Right? So let's see. Vicin is saying good morning. Tyler chat room, vicin, good morning. Great to see you here. New online you is saying good morning. I'm excited to run through your challenge this month. Guys, if you haven't heard about the challenge yet, you've got to go join cre Central, comm slash, 30 days, 30 deals. 30 days, I get it backwards, 30 deals. 30 days. Three Zero deals. Three zero days. We are doing a free challenge for anybody that is interested in underwriting. So new online. I'm excited to have you in the challenge. It's excellent. We've got a whole bunch of people that have signed up for it already. But look, if you want to learn how to analyze commercial real estate deals, I'm going to teach you how to do it for free over the next 30 days, we are starting tomorrow night, if you're listening on the podcast, the challenge has already started. It's Wednesday, October 22 is when it will kick off. So I'm going to give you my deal analysis toolkit. You get access to my course, the same course that my mastermind members get for free. For the 30 days, you'll get access to the AI underwriting and deal analysis tools that we've created that all of our mastermind members use. And when you join the challenge, you'll download our app. It's all hosted within my app, which is really, really cool. So everything is all in one place. When you join we have a live chat going. If you want me to look at a deal in your city, if you want me to go and underwrite a self storage facility, or, you know, an office building conversion or something like that, bring it up. So that's that's the benefit of joining the challenge is that you get to lob those ideas out. I will be going live and finding a random deal and underwriting it, so you guys will see in real time the process that I go through when I'm trying to get to know a market, I'm trying to get to know a deal, I'm trying to run comps, both on the rent and expense side of things. So it's going to be a lot of fun. Kevin is saying, congrats, Tyler. Kevin here from LinkedIn. Kevin, great to see you, man. Thanks for jumping in. He's saying, Good morning. I've gotten more active on LinkedIn. Guys. I'm not going to say that. I'm a LinkedIn pro by any means. I'm absolutely horrific at LinkedIn. I've just gone from posting zero times a week to three times a week. So, you know, hey, we'll keep it going. If you guys are watching on the YouTube channel, it's a lot of the same content that we get here. You know, we are really what I'm posting on LinkedIn is some of my deeper takeaways from the videos that we're producing. So if you're interested in that kind of stuff, go follow me on LinkedIn. It's just under my name, all right, whatever questions you guys have, feel free to drop those in the live chat. I'm going to bring up this thread on commercial real estate, value add deals first. Let's see what we got here. All right, so this is saying advice on a commercial property urgently, please. I saw this pop up this morning when I was on my phone, it was posted 10 hours ago. I was like, man, we should probably dive in see if we can help this person. So what they're saying is, I'm closing in on a commercial property, and would like advice, if anyone can help. It's an old building. Needs a lot of work. It was last sold for 650,000 now they're asking 780,000 it has six tenants. The roof needs replacing, and the building was not managed right. The rents are low, but I am planning to increase them as I'm reading this. This is like every single deal that you guys ever bring me, by the way, this is a very common archetype when it comes to value add, commercial real estate, so this is gonna be a great deal to be diving into. Are there any hidden costs that I should think of? I got an inspection. They told me, I have to replace the roof. The HVAC is working, but super old. They only have one meter. So I was wondering how much it would cost to separate so I don't have to pay the utilities. How expensive is it to maintain? How expensive is maintenance in terms of keeping up with the building. For example, when it snows, this is a breakdown from the current year. Let's see. They don't really have, I mean, it's not a good breakdown here. Says it's grossing about $75,900 a year. Expenses, taxes are 18,000 trash removal, 1500 utilities are 6000 insurance, 4500 so it's gross, 29,008 38 so let's, let's run the math on that real quick. All right, so they said it is grossing, 75,900 minus, 29,008 38 in expenses gives us a net operating income of 46,062 and they are asking $780,000 I don't think that it takes a math whiz to realize that this is A terrible offer, at least from a cap rate perspective. I mean, that's terrible. It's a 5.9% cap rate. You know, not the worst I've seen, not the best by any means. Now, what I will say right off the bat is, don't let a 6% incoming cap rate scare you. There's a lot of information that we don't have. Maybe they'll give it to us in this thread that would help change my mind around them. For example, we did a video. Oh gosh, it was, it was a while back. Let me see if I can find it with with my buddy Brandon Thornberry, and it was a $1.75
Speaker 1 9:02
million This is a video about the most important, yet most sorry about that.
Tyler Cauble 9:07
It was a video. It was a $1.75 million commercial real estate deal breakdown. And there it is, right there. So if you're listening on the podcast and you want to go find this video, it's literally titled dollar sign, 1.7 5m commercial real estate deal breakdown. It's from nine months ago. It's about 18 minutes long. And I dove in to this, this deal with my buddy Brandon, that he actually bought. It was like an incoming one or 2% cap rate deal. Absolutely horrific, right? A lot of people would be scared by that. However, every single one of the leases on that property was under market, and they were on month to month leases, and within, like, I kid you not, probably the last nine months since he's bought it, it's probably sitting at an eight or 9% cap right now, right? Because all he did. Was raise the rents to market rate. And most of the tenants were more than willing to do that, because he brought a CapEx budget, fixed the place up, made it really nice. They all knew that they were underpaying. All he had to do is say, hey, look, I'm going to be a good landlord. I'm going to take care of this place. He like redid, the parking lot, you know, redid, some of the facade made it look a lot nicer. And, you know, kind of a no brainer for those tenants to just stay there, even if you offered it to them at below market or slightly below market rates, it's going to be easier for them to just stay there sign the lease. It's better for their business, instead of having to pay for the expenses of moving and dealing with all the tenant issues and all that kind of stuff. So there's that first thing they or second thing, rather, the roof needs to be replaced. That's going to be expensive. Typically, what I see is anywhere from 10 to $12 a square foot for the roof. That is from a survey of all of our accelerator mastermind members. We keep track of construction costs like that from all over the country. So we have had members replace roofs for somewhere between, I mean, I would say the range is probably nine and like $15 a foot, but tightly closer to $12 a square foot. So you know that is to say, if you've got a 10,000 square foot building, it's probably going to be $120,000 to replace that roof, right? So they don't really say, I don't think they say anywhere. What the size, size of this building is. They don't say anywhere. Whether the leases are month to month, apparently, they are under market rates, which is always good. The first thing that I would do is it looks like, I mean, based on the way that they're talking about this building, again, we don't know the asset class either, so I'm gonna have to make some assumptions here, but based on the way that they're talking about it, especially with the fact that, you know, it's only six tenants, I can't imagine it being an office building. It seems to me like it's probably a retail building, maybe like a Class C strip center. Let's make that assumption, it's not uncommon for you to find landlords that, in the past, have just done gross leases because it was much easier for them, it was much easier for the tenants, much easier for the landlord. They were fine with it. If that is the case here and you are in retail, then it's very common to switch those over to triple net, which means that you can take the taxes, the trash removal, the utilities, the insurance, the, I mean, any expenses of the property, and pass those back on to the tenant. So if all they did, if they didn't raise the rents, if they I mean, obviously you'd have to replace the roof and the HVAC. We'll talk about that later, but let's just assume they took this from a full service gross lease, as it is structured right now, to a triple net lease, your noi suddenly jumps up to 75,900 right because 100% of those expenses are getting passed off to the tenant. So at that point, then, based on your purchase price, you're sitting at a 9.7% cap rate, right? You can see how quickly these deals can actually become very, very attractive. Now, again, the caveat is, I don't know if these leases are 30 years long, or if they're month to month. If they're very, very long, then I would say run for the hills, because you're going to be trapped in these low, you know, below market rate rents, right? It's not worth it. Let's see what some of the comments are in this threat. How much is it going to cost to replace the roof the HVAC? If the HVAC is old, by the way, plan on replacing it. Commercial units, if they last 15 years, like good for you, typically they do not. You need to factor in a vacancy loss of around five to 10% but that's a variable, because you have one tenant that pays around 35% of the gross rent. By the way, 30 to 35% of gross rent from one tenant is acceptable. It is not ideal, right? At that point you start to lean a little too heavily on one tenant. I would like to see that below 20% right? If it's 50% it's absolutely a non starter, like, and I don't mean like, if you're in a two tenant scenario, and both tenants are paying, you know, 50% of the rent. I mean, like, if you've got six or eight tenants and one tenant is paying 50% of the rent, that's a problem. So 35% you know, not a non starter. It's acceptable, not ideal. Back to what they were saying. So if that one tenant leaves, you're basically breaking even with your current numbers, but I can almost guarantee that you're going to have more expenses than what you listed. There could be potential, but you have to do your homework. Have you got on loop, net, crexy, commercial Cafe, and checked what market rates are for similar properties in the area? Are you paying cash or financing the purchase? If you're financing, you'll be negative until you can raise the rents. All right, let's, let's break out some of that so. Yeah. So in terms of doing homework, go out and look at comparable deals in the area, right? You can, of course, do it on lube, net correction commercial cafe, as this person stated, but you can also just call commercial real estate brokers and ask them, you know, Hey, what is this type of commercial real estate running for in this area? What do you typically see the operating expenses at you could even call property managers, property management companies that you might hire to manage this property. What do you typically see the operating expense ratios on a property like this, and is it common for these tenants to be in a triple net lease situation, or do we have to stay in a full service growth situation if your market does not accept triple net leases, but, and by that, I mean if it's not common in your market, right? Like if you would be the only retail center for whatever reason in your market that is doing a triple net lease, it may be pretty hard to pass that on to tenants, because they may have no idea what they are actually looking at when you present that deal to them, that could be a problem, right? But go out and either talk to the professionals, do the market research yourself. You can talk to the professionals for free. Most brokers, as long as you are a legitimate buyer, a legitimate client, Most brokers, most property managers, are willing to anecdotally share that information with you, right? If they're paying cash, you're going to be fine. You're not going to get great returns, but you're not going to be negatively cash flowing. If you're financing this deal 100% you'll be underwater, right? At a 6% cap rate, right? Like, just do the math. Cap rate is 6% interest rates are seven to seven and a quarter, right? You're going to be underwater on that. It's just, you know, of course, it depends on how much you put down, but it's you're probably going to be underwater. Next commenter is saying, don't buy this deal. You don't know what you're doing. To be honest, that's a little aggressive. The expenses you listed don't include your mortgage, vacancy, repair and maintenance, capex, landscaping, admin costs like filing taxes or software for management, marketing costs, like if you need to hire a realtor or pay for an ad online. My point is that a lot was left out. I don't disagree with that. I mean, a lot is left out. But to be fair, we don't know this. You know, original posters underwriting. Maybe they are sophisticated. I mean, I doubt it. There's, there is a lot that was left out. But also, to go that far into all of your expenses, most people don't necessarily include their mortgage when they're discussing deals like this, because everybody has different financing. So, you know, doesn't necessarily make sense. That's why we look at everything from a deal level. Rule of thumb is typically 50% of your income goes out the door to expenses. You mentioned this as an old building, so honestly, it's probably more than 50% however, I will use 50% for this example. Purchase price of 780 net income after 50% expenses is $38,000 so dividing net income by the purchase price, your cap rate is 4.86%
Tyler Cauble 18:08
I am assuming your interest rate on your loan is higher than 4.86% so the deal is negative leverage. You can't make money with negative leverage. You may be able to increase rents significantly to offset this, but I don't know the rents in the area, and I assume you don't know the rents either, or haven't done a market study, you didn't even say what the floor plans were. So my, my biggest takeaway here, this could be an incredible deal, like something like this. It passes the sniff test, right? It's it's got below market rents, it's got full service gross leases. There's a lot of things that we could just operationally change without having to make massive physical improvements. Now, of course, we've got to replace the roof. We're probably gonna have to replace the HVAC, but if you could just take a couple of steps here, if you are truly below market rent, right, get those rents raised. If you are full service gross, and you were able to switch them over to triple net leases, switch them over to triple net leases. That move alone will make this a very positively cash flowing deal. So that is my advice on that deal there. I think, I think it could be a deal. It's just, you know, it's, it's, it's tough to tough to know. And that's one of the biggest things that I have, I have realized in working with newer commercial real estate investors over the years is that you don't know what you don't know. There's a lot of information that people who have been doing this for a while will immediately look for, kind of like that poster with the commenter was saying, of like, well, hey, you left out landscaping. Well, I mean, yeah, you know, unfortunately, you do have to go to that level of detail when you're underwriting these deals. You know, you'd be amazed at how many expenses will start to add up. And you've got to dig into them when you're making these happen. All right, guys, I know we've got a bunch of comments. Let me get to those, and then I'm going to get to this deal. I'm. Com that was shot over to me at office at the cobble group comm. So again, if you guys have deals, maybe you want me to look at an offering memorandum. Maybe you want me to look at a site plan, you are more than welcome to send those over to Office at the cobble group comm. And we will, we will dive into it. It's from Nikki Matty, so Nikki, I hope you're here, man, we'll be. We'll be diving into your deal here in a second. All right, let's see. John Jordan is saying, Hey, Tyler, we have a nice office building in a nice area of town. It has a nice basement, but it's not renting. We are thinking of doing a rentable conference room, offices, cubicles, etc. Thoughts. So John, let me ask you, is it just the basement that's not renting, or is it the entire office building? I would need to know how big the office building is, how many stories it is. If the basement is the only piece that's not renting, then what I would do is I would try and turn it into some sort of amenity for the current tenant. Maybe it's just storage, right? I mean, sometimes, like, basement spaces can be absolutely miserable to lease. However, there are some interesting uses out there that don't need retail visibility. They don't need Windows, right? I mean, we've leased out plenty of basement spaces before. I've got in my building here, we've got one suite that has no access to Windows or anything at all, right? So for the right tenant, that's actually pretty great, because it's more secure. So we have a pharmacy tenant that's in there, right? They don't want, you know, it's, it's very difficult to break into that space, because you can't just break a window and get in. We have put virtual reality, like arcades inside basements before. Sometimes it's just storage, you know, that's so I would start thinking through, like, if it's just the basement space that you're trying to get leased, okay, he's saying both mainly the basement, if it's if it's just the basement, then I would start thinking through, okay, well, what are the uses that are really ideal for a basement space with no windows, or maybe you have some windows, right? But ideal for a basement space that we could retool our marketing to fit that tenants language, right? So for the pharmacy downstairs, if I had said, you know, no no exterior access, a heavily secured space for the right tenant. That's that's what they're looking for, right they just want to make sure that their business is going to be protected. Kevin is saying, hey, teller, can you tell me right off the bat, how these factors directly affect the cap rate? I kind of engineered my mind to think the cap rate was determined by winning institutions based on comps? Great question. So Kevin, the cap rates are a bit of an art and a science. They're kind of made up, and they're kind of not. It's honestly one of the most confusing aspects of commercial real estate to understand. So if you're listening to this and you're also sitting there thinking, Okay, I don't really understand. You know, I thought cap rates were just set by the market. I mean, they are, but the market is also just what somebody is willing to pay, right? And so, you know, I mean, every Starbucks across the country is going to sell at a different cap rate. I mean, they're all kind of different, you know, now there may be like a 50 or 100 basis point swing, right? It may, we may say, okay, the average Starbucks is a 6.25% cap rate. It's probably lower than that. It's probably closer to 5.75 let's say it's 575, well, that means that you might have some that go as low as 5.25% cap rates, and you may have some that go as high as 6.25% cap rates. It just completely depends on a lot of factors. And typically, the higher the cap rate, the higher the risk, which means, you know, the less attractive it's probably going to be for an investor. So you know, cap rates, in my opinion, are the perfect measure for comparing single tenant, Net Lease stabilized investment opportunities like that is where that is the best case scenario for a cap rate. That means, if I'm looking at a take five oil change at a 5.25% cap rate, and I'm looking at a Starbucks at a 5.25% cap rate, okay, now I can compare those two deals and say, Okay, well, I'm getting the same return. Either way, they cost about the same. Starbucks is going to be a little bit more expensive, typically, than a take five oil. But I know that Starbucks has, like, 40,000 locations, and I don't think that take five oil is quite there my Starbucks. Is it corporately guaranteed, or is it a licensee? Take five oil probably going to be a franchisee, right? So you could start to break down the different factors that mean more to you, right? You may say I would rather take a Starbucks with a corporate guarantee at 5.25% than a take five oil franchisee at 5.25% but there's other factors. That kind of go into all of this. And so it's not necessarily always an apples to apples comparison. So, you know, I would say, look at Cap rates as like, one measure of the entire deal, right? It's like temperature 60 degrees can be freezing, or it can be kind of hot, just depending on what time of the year you're coming out of, right? But it also doesn't tell you, should you be wearing a raincoat today? Right? So just look at it from that perspective, it's one tool. It's not the end all be all. Vacation land is saying main vacant flex, industrial. 6000 square feet. 1500 is office space. 3500 is 100 is warehouse, industrial with one large overhead door, no docks. Three phase power, 1000 square foot, finished garage, no bathroom. One overhead door. Needs roof. I'll work on sending over detailed info. 2500 is high bay warehouse at 1000 is eight foot ceiling space. Roof is bad and overdue, but not coming in, just curling shingles, fully insulated with infrared heat. Also has a 60 by 50 pad already poured outside. Yeah, vacation sounds like a pretty interesting deal. I mean, if you want to shoot over some information on it, happy to take a look at it. I'm not sure what you're feel free to drop your question into the chat there too. Dylan is saying, how do we join the 30 day challenge? It is totally free. Anybody is welcome to sign up. Go to cre Central, comm slash 30 deals, 30 days. That will be I'll put that link in the description below, and I'm gonna also just drop this in the live chat, but it's the numbers three zero,
Speaker 2 26:46
so let me put this in here real quick.
Tyler Cauble 26:51
Yeah, everybody should join. It's going to be a lot of fun. My I mean, my goal is that after that 30 days, you guys are walking away feeling pretty good about underwriting deals. Because, I mean, think about it, you're gonna see me do 30 reps, and all it takes is reps. You know, if you want to get really good at underwriting, just go underwrite a deal a day for 30 days. I promise you, that's really all it takes. It's, it's not, not all that complicated. Let's see. RJ is saying, been enjoying the content. Glad you're enjoying it. RJ found you when I was first trying to figure to figure out how to write a triple net lease, it was incredibly eye opening coming from the residential side. It's very different, isn't it? Right? Like looking at a triple net lease in commercial real estate and comparing it to the leases that you find in residential night and day. I mean, absolutely night and day. I don't even think that it's ethical, or maybe even legal, to make a tenant responsible, like a residential tenant responsible for the roof or have to pay your property taxes. I don't. I mean, there's a reason people don't do that. I guess you can tell I don't know a lot about residential I try and stay as far away from dealing with single family as I possibly can. RJ Singh just bought my first deal from the owner. I was helping rent out cash flowing 10k a month, looking forward to stacking. That is awesome. I mean, your first deal, 10k a month, that is the absolute dream deal. Congrats on that. RJ, that's really exciting. That's really, really cool. Vicin is saying I want to get in a self storage facility. What cap rates are good? Oh, man. Vicki, it's all over the place. Man. It's like saying, hey, I want to buy a car. What should I pay? You know, if you want a brand new car, it's probably gonna be a little bit more expensive than an older car. If you want a car that's gonna make you a lot of money, it's probably gonna cost you a lot more than a car that's not gonna make you any money. Self Storage is really interesting, because, you know, 1015, years ago, when I was first getting started in the business, nobody wanted self storage. You could buy those things at 18% cap rates. I mean, it was just absolutely nuts. I remember looking at a deal, it was a 15% cap rate, and thinking to myself, like, Yeah, I'm probably gonna pass on this. I mean, how nuts is that now, like thinking back on that, like, Yeah, this is not even worth getting into, but it was a different market. I mean, people didn't think about self storage the way that they do now. And you have to think, like, back then. I mean, why has Self Storage gotten so popular? Well, apartments are getting smaller and smaller, and people don't have room to put their stuff anywhere, right? So there's, there's this direct correlation that as living spaces get smaller, self storage gets more popular, because, for whatever reason, people don't want to sell their junk. And I'm all for it. I'll take 100 bucks a month to store your junk. So I would say, I mean, you know, and that's a tough question anyway, like, what cap rate is good? A 10% cap rate could be good, it could be terrible, right? Because think about it this way, like if a seller could get a lower cap rate on that deal, therefore a higher sales price, I promise you, they'd be going for that. I promise they would. They would do it every time. But there's a reason that they can't, right, and it's probably. Because there's a lot of deferred maintenance, or the they can't lease up the units, or they haven't been able to find a good manager. And the thing is, everything's just poorly managed. And, you know, none of the, none of the documents make any sense, all of that kind of stuff, right? I mean, it's just kind of, it could be a mess. It could also be a total steal, right? That's the That's the tough thing about cap rates. It's like looking at your cash on cash return. I mean, honestly, you know, when we look at our Commercial Real Estate Investments, we don't take into account one single return metric. Your cash on cash return is great for year one. That's it after that. After that first year, you've probably built up equity, you've probably increased the value of the property. And if you're still getting the same cash, the same net operating income, even though the value has gone up, technically, you have trapped equity in there, which means that you're getting a lower cash on cash return compared to your equity. Right? Your return on equity is lower. So it's important to just be always looking into those metrics, right, and looking from different perspectives. So don't just look at it from a cap rate perspective. Look at the price per square foot. Don't just look at the price per square foot. Look at the overall price, look at the comps, look at what you can rent it for right? Think about it from just a business perspective, you know, does the deal make any sense at all? Thank you guys for joining me on this week's office hours. We're going live every tuesday, 8:30am Central Standard Time. You know what? I forgot? To dive into Nikki's deal. Let's do that real quick. Nikki, I'm so sorry, man, I will close this out. I'll be late to my next meeting. I've run this over. All right. Nick is saying, would love any feedback you have on the listing. Our broker has out for our marketing for one of our commercial spaces for lease. This is a professional office building that is seven to eight units occupied, but the remaining space is a good chunk of the building at 1500 square feet. We filled unit seven on our own a month ago. This is the first building we have purchased with this broker, so he agreed to lease it for free. Ooh, ooh. Right off the bat, that's a problem, but not sure how motivated he is to work it out, to fill it with that in mind, they have brought us zero leads in six months. Oh my gosh, since purchasing this. So we are considering our options, whether it's to try to get out of our agreement and find another broker, or to try to take marketing more into our own hands. Appreciate any feedback. Thanks, brother. Nick, excited to dive into this one for you. I'm going to pull this up on my screen real quick, because I want to show you guys this. Oh, you guys can see what I am looking at as we are going through it. So right off the bat, there's this, like, unspoken rule, unspoken courtesy in commercial real estate to where, if you buy a building with a broker, you let them lease it. And there's nothing inherently wrong with that, if the broker is actually good at leasing and they want to handle it. Sometimes brokers are better at helping you buy a deal than they are at getting it leased. And here's the other thing, I don't ever want anybody taking on my deals for free. Obviously, I know it's going to save me money if I take it on for free. But the problem is, those broke like brokers, you got to look at brokers in a very specific way. This is a deal up in in Minnesota. Man, I bet it's starting to get cold there now, which is probably means that, like, we're headed into the worst time of the year for you to be really trying to get this lease. Now, brokers are, they're money hungry, man, that all they care about is getting those commissions done right. And so the problem with them being commission only is that if they had the opportunity to work on your deal for free, I know it's not technically for free, because they got a commission from representing the purchase of this and they were trying to help you out, but you got to think in the mind of a broker, if they had the opportunity to work for you for free, or to work on a deal where they could make a commission, they're going to pick the commission deal every time. I think that anybody would right, because they got to make money. They got to keep the lights on. They got to keep it going. And unfortunately, in the world of commercial real estate brokerage, you're only as good as your next deal, because once you close a deal, you better go find the next one. You know that money tends to go away pretty quickly, right? So I wouldn't even necessarily say that maybe this is the broker's fault. I think that it's tough when you have a misalignment of incentives. So. I would probably move brokers. I don't want to show their name, because I don't think that this has anything to do with them. Let me see if I could pull up the brochure.
Tyler Cauble 35:15
I mean, just looking at like, what's on crexie, it seems pretty straightforward. I don't see anything that is a traditional office 1500 square feet. Is it pure office? Like, that's the question that I would have. Yeah, it looks pretty pure office. Okay, there's not a lot here. This is literally just a crexy.
Unknown Speaker 35:41
This is just a crexy flyer.
Tyler Cauble 35:49
Okay, so, Nick, there's not a lot of marketing information here. There's no description of the space. It's not very obvious what it is. There's no floor plan. Let me show you guys on my website. So, like, one of our property listings, because we, like, we do all this on crexie as well, but we also have these listings up on our website too. And if you guys ever you're more than welcome to just go to my website, look at the listings and just copy the way that we do it. I mean, it's, it's pretty straightforward. I mean, let's just pick 25 or three gallons, and this has already been leased. You can see here, we've got a picture of the building. We go into a lot of detail here. I mean, look at how much is written about this, right? I mean, we're talking about the daily vehicle traffic. We're talking about the corridor, you know, the demographic that's over here. What's going on with the building? What's your competitive advantage? Here's a floor plan of the space like, I have no idea what your space actually looks like. I know it's 15 150 square feet, but I actually have no idea. Oh, Nick's here. Nick, what's up? Man, he's saying, Yes, sir, trying to get at least before the snow. If we can, awesome. Well, hopefully we can, we can get you some help here. Okay, so let's see diving into this. You know, I've got all sorts of pictures of the building. You've got on site, parking like we're showing off the mural, what the space looks like. You know, you can very easily tell what's going on here, right, especially combined with that floor plan. And then we go into an overview. 5000 square feet. It was built in 68 and renovated in 22 contact us for pricing. Here's the zoning. And then we have a form for everybody to fill out. We've got a map so you can see where it is, you know, close to downtown Nashville. And that we even have the leasing steps, right? Some, some people don't know how to go through the process, right, especially if you're working with smaller tenants. So like, hey, submit your info, schedule a call with us, walk the property, sign a lease, right? So we make sure that we just kind of put all that information in front of them, right? So, you know, you could tell like there's just so much information here, whereas when I look at the listing on crexie, and to be fair, maybe they have a website that is different, but there's, I'm just not seeing a lot now, they've got some good pictures in here on cracksy, they definitely do. Let me see if, but I don't know if there's a four point anywhere. Sometimes it's hard to tell from pictures, like, how big a space actually is. It looks like there may be. I mean, this seems kind of big. I can't Okay, so here's the thing, it looks like there may be pictures of multiple spaces, because there's one that's unfinished and there's one that's finished. Maybe that's all one space, but I can't tell. So okay, then there's a video. Let's watch the video that's a little too loud for me. Okay, so just an overall highlight view of the property. It looks like the finished space is a different tenant that you guys. Oh, cool. All right. Trev is jumping in Nick's partner. He's saying the suite is not built out. We're looking at starting to break it down. Thought about doing the QR code on the property. As you've mentioned. Know, our brokers haven't done much to help us at all, especially on packages and floor plans. Guys, you could probably get this lease yourself. To be honest with you, it's a smaller space. If the broker doesn't really want to take it seriously, that's totally fine. I mean, I would just say, hey, look, you know, help us buy the next building. We will figure out the leasing here. But if I were y'all, I would just get a sign up front with a QR code on it and your phone number that says, For Lease. Go and create a landing page with all of the information on it. I would take over the Craxi page that they have on on crexy. Three and just add in all sorts of information. Create your own, your own brochure, make it look really beautiful, and add a floor plan. If you guys want to add a floor plan, you can do it for free. By the way. I know a lot of people get stumped up by that, but I've got an app on my phone called Kubi, casa, C, U, B, I, C, A, S, A, so cubicasa, and you'll go in with your iPhone and literally, just like aim it, aim the camera throughout the room, and it will, within 24 hours, send you a floor plan of that space so super easy to, like, just shoot a nice professional grade four point, like that four point that I just showed you guys, that was all from Kube casa, and it looks, it looks pretty sweet. So Nick Trev, that's what I would do. I would just have that, you know, the the come to Jesus conversation with your broker. I would take over the leasing on it, and I would do everything that you can to get it done the next 30 days, because after that, it's probably going to be very slow until March. That's just generally what we see in Nashville. I would imagine up in Minnesota, it could be the same, maybe worse. The other thing you might want to consider is finishing the space out and making it moving. Move and ready. It looks like a smaller space, right? It looks like it's not going to take a lot of it doesn't look like it's going to take a lot of work to really get it to where somebody could move in. But sometimes tenants, especially on the smaller side, they're not very creative. Oh, never mind. It does look like it'll take a fair amount of work. You don't have a drop ceiling or anything in there anymore. I mean, it'd be nice to have the open ceiling. Maybe you just spray from the top so that it dampens the sound a little bit. Put some light fixtures in there and put put a carpet floor down. Other than that, you might not have to do anything if there's a bathroom already in there, you guys would be pretty good. Maybe there's not a bathroom, though, or maybe it's common area. But typically what I would say is, like tenants on this size, tenants of this size, they want to just be able to move in. So it might make it easier on you guys to build it out. Now I know, obviously that's going to cost you more money up front, but you could probably ask higher rents, so depends on what you're looking to do. Trev, is saying, we've done a fair amount of that on our own. As you've mentioned, the fear of going completely solo is losing out on broker connections. Trev, I wouldn't be worried about that, man, if you if you get it up on Craigslist, if you build your own list of brokers that you could work with. Shouldn't be a problem at all. I mean, you're not going to miss out. Brokers love being the only broker involved, because you could pay that broker four and a half percent for bringing you a tenant, right? They don't care. They're going to get paid one and a half percent more than they typically would. They'll be the only broker involved in the deal. And you guys can just jump in here and ask for me for advice, as we're going through that, right? I'll help you guys negotiate with them. It's super it's relatively straightforward at the end of the day, saying thoughts on paying to break it out into smaller offices. What would you spend per square foot to build that out? Trev, I probably wouldn't break it into smaller offices, unless you have people coming along that say, Hey, you know, if I, if I took 500 square feet, you know, what would that look like, if it's already very easily demizable, like you could just punch a hole in a wall and add a door and get access to the common area? Then what I would do is, I would just finish out the space. I mean, it might cost you 20 bucks a foot, maybe 25 bucks a foot, depending on the level of finishes that you're doing, to get this space finished out. Now, to be fair, I'm looking at pictures. I can't 100% tell, but that's what it seems like to me. If somebody came along and wanted 500 square feet, like a third of the space, all you'd have to do is run a demising wall, punch a door into the common area, and you'd be good to go, just charge them a premium for that, but at least then that tenant would be able to visualize it. And all you'd have to do is put up that demising mall, which would take a weekend, you know, be super straightforward. All right, that's it. I've got to get on site to salt ranch. We've got a construction review. I've got a bunch of people coming this week, so I gotta make sure that things are going well out there. Nick and Trev, thanks for being patient with me. Sorry that I almost forgot about your deal. Guys, if you want me to dive into deals like this on your behalf, shoot me an email office at the cobble group comm. We'll make it happen. All right, don't forget to tune in every Tuesday, 8:30am Central Standard Time. And guys, if you're listening, do me a favor. If you like this YouTube channel, if you like the podcast, give it a like, subscribe, leave me a comment. Let me know what your thoughts are, what questions you have, what you'd like to see in future episodes of office hours. If you're listening on the podcast, leave us leave us a review. It helps us get in front of more people that are interested in can. Commercial real estate, maybe I can save more people from having to jump into single family home investing. We don't want to see that anymore, right? I'll see you guys in the next one. 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