# Commercial Real Estate



## mrcheap (Apr 4, 2009)

I've been playing with the idea of getting into commercial / industrial real estate. Does anyone have any recommended resources (books or whatnot) that they think gives a good overview of the major issues / concepts / ideas?


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## HaroldCrump (Jun 10, 2009)

You mean do it on your own?

In case you are interested in a passive alternative, many of the major Canadian REITs are heavily into this sector.
And some smaller cap ones as well.


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## themortgageguy (Jun 28, 2012)

I'd be curious to know why the interest in commercial real estate specifically and what exactly "getting into" means. Are you thinking of constructing buildings or a buy and rent situation?

I can answer financing questions if you have any.


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## mrcheap (Apr 4, 2009)

HaroldCrump: Yes, doing it on my own. REITs would certainly be one way to go (I already own whack of RioCan), but I'm also interested in industrial condos, storefronts and the like.

tmg: "getting into" meaning buying and renting an industrial or office condo or small non-residential building. I'm interested because I've done a fair bit of investing in residential real estate, but the cap rate these days just doesn't make it worth the hassle (REITs, like Harold suggests, are as lucrative and far less risk + work). I get the impression that it's a completely different game for non-residential real estate. Non-residential clients (with more balanced, long-term leases) are attractive as well. I don't have any specific financing questions yet (I'm looking for more of a high level overview), but will keep you in mind when I get to that stage.


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## HaroldCrump (Jun 10, 2009)

mrcheap said:


> HaroldCrump: Yes, doing it on my own. REITs would certainly be one way to go (I already own whack of RioCan), but I'm also interested in industrial condos, storefronts and the like.


In that case, take a look at Dundee REIT (D.UN), H&R REIT (HR.UN), Primaris REIT (PMZ.UN), and Pure Industrial REIT (AAR.UN).
The last 2 specialize in exactly the sector you are interested in.


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## Mall Guy (Sep 14, 2011)

This would depend on what level of investment you are looking at, and how hands on you want to be. I'll have to think about book titles, none pop to mind. 

Starting small, storefronts in D.T. Oakville, Port Credit and other similar neighbors can be very good long term holds (always be ready to buy the neighbor or anyone on the same block). Creating value where no one else sees it also good. Advances knowledge of zoning and planning requirements needed. Many F/S SDM ("free standing Shoppers Drug Mart") in small town Ontario available (6 cap). Small portfolio of good covenant, very small town auto parts stores available (8 cap). Always have an exit strategy, and match mortgage and lease terms. 

I am not sure of the liquidity of industrial and office condos, not a market I like or follow. Small commercial properties can be as bad as residential properties, but you don't put up with the BS . . . default, demand, good bye! But the ensuing shortfall (ie no cash flow) can be brutal at commercial tax rates. And parking lots and flat roof cost a fortune to repair !

BUT, if you drive around enough, keep your eyes open, there is always that house on a corner lot just dying to become a Tim's or a Mac's !


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## Just a Guy (Mar 27, 2012)

I liked http://www.amazon.ca/Best-Commercial-Estate-Investing-Written/dp/0979364604

It's American, and the author has "disappeared" after being a star for a while, but it's not a bad book for beginners.


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## mrcheap (Apr 4, 2009)

Mall Guy: The long term vacancies seem to be the real killer. I e-mailed an agent for one property that has been sitting vacant for 1 *YEAR*! Crazy. Thanks for your thoughts, and if you think of any books you've found worthwhile I'd love to get their titles.

Just a Guy: In the description they say "The book Robert Kiyosaki's second book should have been." which, given that I'm not a fan of R.K., isn't high praise . That being said, if you found it good I'll have a look at it. Thanks!


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## Berubeland (Sep 6, 2009)

Ok here's a primer

Minimum 30% down

Here's a link to the Commercial Tenancies Act http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90l07_e.htm

Everything is based on contract law, I have a basic 30 page lease if you need one. 

After 17 days of non payment, you can get the private bailiff out in two days or just change the locks.

Leasing is harder, but tenants move less, there is no rent increase cap, you don't have to renew if you don't want to and everything connected to the walls and floors is yours. 

Personally those small industrial units are probably a good way to get your feet wet. I used to rent in an industrial park and you wouldn't believe the uses that can be made of those spaces. Everything from making those round little potatoes, to roofing. 

The units are not as liquid as residential real estate either. Unlike residential real estate where almost anyone with a pulse can get a mortgage, commercial requires great credit, larger down payments and good verifiable income. 

Once the tenant rents they are generally responsible for everything in the space, including their furnace and whatever else you can think of, as the landlord you are responsible for the roof and the parking lot. Leases are usually cost plus which insulates the landlord from property tax increases, maintenance increases.

Rentals are WYSIWYG no renting a crappy basement apartment for $500 and having to maintain it to the standard of the Royal Hilton. 

All in all this type of real estate investing is pretty much all in the landlord's favour as long as the market can bear it. Frankly yes you can change the locks on the people who don't pay their rent in 17 days but you'd be an idiot to do so, unless it benefits you because they have below market rent most of the time you'll give the tenant time to catch up, maybe even longer than in residential. The owner of the business is personally liable and has to pay you for the term of the lease in theory. 

Really though you just can't charge what you want in rent and keep your tenants. If the tenants do well, you do well. If not welcome vacancy tax credit. Yep there's a property tax credit when your property is vacant. 

If I was putting my money down...I'd go commercial in a heartbeat.


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## the-royal-mail (Dec 11, 2009)

My understanding is the people who deal in this need a LOT of money and are not your typical 9-5 office worker. In some cities a lot of the commercial real estate is concentrated among a limited number of companies. My understanding is the bar of entry is very high.


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## Berubeland (Sep 6, 2009)

Well you would be wrong about that TRM http://www.icx.ca/propertyDetails.aspx?propertyId=12116372&PidKey=-585350826 

Basically you can buy this 550 square feet concrete box or you can buy a 550 square feet residential condo, which is better value on the face of it?


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## Berubeland (Sep 6, 2009)

This looks even better... vendor take back with 30% down 1550 square feet (mezzanine really shouldn't be included but whatever) Asking price $88,000. 

http://www.icx.ca/propertyDetails.aspx?propertyId=12236172&PidKey=-1402309165 

What's not to like?

Here's a direct rent/buy comparison. 

http://www.icx.ca/propertyDetails.aspx?propertyId=12193838&PidKey=-390514616 for rent $1450 or you can buy it for $179,900 asking price
http://www.icx.ca/PropertyDetails.aspx?PropertyID=12189717&PidKey=-1896839355


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## the-royal-mail (Dec 11, 2009)

Interesting info thanks. I guess I was thinking more of larger buildings, ie. towers and large warehouses etc.


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## mrcheap (Apr 4, 2009)

Rachelle,

Thanks for the info and links. You don't have any books you'd recommend, eh?

The vacancies are my largest concern. I think most commercial units get sold when they don't have a tenant (makes sense), but it seems like it could be a bit of a nightmare to buy something then have it sit un-rented for 2 years... Would you agree that it's like residential that if you set the rent properly it will rent, or is the location and local economy a much bigger factor?


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## themortgageguy (Jun 28, 2012)

Great answers Berubeland.

Commercial mortgages are available with less than 20% down depending on the property and the income profile. And yes commercial units can sit vacant for an extended period of time.

I'd suggest that a good place to start would be to find a good commercial realtor that is willing to spend some time with you and answer any questions you may have.


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## Cal (Jun 17, 2009)

Personally I wouldn't buy just 1 unit. You have no control over the builidng or the neighbouring tenants. If you were to purchase a small plaza or block of commercial units in a good location at least you could build your core of tenants over the years. 

Also stay away from tennats like tanning beds and such with high turnovers.


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## Mall Guy (Sep 14, 2011)

Get you a good deal on a Zellers anchored mall !!!


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## Berubeland (Sep 6, 2009)

Actually I've leased a fair bit of commercial space that has been vacant a long time. 

The biggest mistakes I see is...

Keeping tenant "valuables" that restrict the use such as restaurant equipment or deli stuff or other stuff worth a "fortune". Get RID OF IT. 

Dirty space

Lack of advertising

Lazy real estate agents that can't be bothered to show a place

Landlords that give up, don't know what they want, raise the price, change lease terms etc. 

Renting space is not rocket science folks, just keep going until it's rented. Yeah you've been there a ton of times with losers but this might be the loser that rents it 

And don't tell me you don't want to spend the money getting rid of expensive old tenant fixtures to get a new tenant in a space empty longer than a few months. The clothing store is not gonna want to have those fryers even if they're gold plated. Also if the place has been a restaurant for 10 years and they go broke every 2 years and you have to rerent it...you don't have a good location for a restaurant, or clothing store, or widget factory. 

That's not to say that some larger industrial warehouses don't stay empty forever, they do, I like spaces 1000ish square feet but under 5000.


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## mrcheap (Apr 4, 2009)

Rachelle: That's about the size and approach I was thinking... Good to hear that it's not hopeless to rent out spaces.


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