The economic crash of 2008 sent commercial real estate prices into a free fall. According to the Massachusetts Institute of Technology Center for Real Estate, property values plummeted by 10.6% in the fourth quarter of 2008. As we all know, it only got worse from there. This created a spectacular buying opportunity for savvy investors. They didn’t have to reach for low-hanging fruit. All they had to do was pick the fruit off the ﬂoor.
Commercial real estate investors don’t make emotional buying decisions. Investors are primarily focused on getting the highest return on their investment while minimizing their risks. Usually, the deals with the highest risk offer the highest rewards. A perfect example of this is a shopping center we sold to a client in January for $1,525,000. The property consisted of 149,000 square feet, sitting on 15 acres of land at a very busy intersection. Now this center was only 50% occupied and it needed some renovations, but it was still bringing in a net operating income of $166,000 a year. The main tenants of this center were Cash America Pawn and Mcdonalds. One doesn’t need to be Donald Trump to see the value in this acquisition. Our client started with a fresh coat of paint and the center started to come to life. Prospective tenants began to ﬁll the vacancies and the net operating incoming slowly started to climb. The Mcdonalds ground lease will soon be closing for over $1,500,000 dollars and our client is will be playing on the house’s money. Within a year, they will have received all their money back, and they will have a shopping center that will bring in over $200,000 dollars a year until they decide to sell. As their occupancy reaches closer to 100%, that net operating income will only continue to rise. With annual escalators in the leases, that number will eventually reach north of $350,000 to $400,000 a year. Can you say “Show me the money?”
This was such an incredible deal because it required a little work and some strategic planning. There are plenty of buying opportunities out there that will produce similar results. Keep in mind that in the game of high risk, high rewards real estate investing, it is imperative that you use the help of a seasoned commercial real estate professional. Before you choose your broker, ask them to show you their recent resume of investment sales. Ask them to show you the letters of recommendations from their past clients. Don’t just take their word for it, look up the transactions online and verify if the numbers that they’re bragging about match up to the numbers recorded in the public record. The numbers don’t lie, but swampland sales people do.