Navigating the world of commercial real estate can be complex, but finding the right national tenant can be a game-changer. This post breaks down the entire process, from identifying the right property to understanding market trends and potential pitfalls. Whether you’re new to real estate or looking for new strategies, this guide offers actionable insights to help you succeed.
Identifying the Property
Due Diligence
The first step in acquiring a property is performing due diligence. This involves looking at traffic counts, understanding national tenant requirements, and engaging with the city’s economic development office.
- Traffic Counts: Most national tenants require a minimum of 25,000 cars passing by per day.
- National Tenant Requirements: These requirements can often be found on the retailer’s website.
- City Economic Development: Engaging with city officials can provide valuable insights and support for your project.
Marketing Materials
Once you’ve identified a potential property, create detailed marketing materials, including a comprehensive market study and high-quality property photos or renderings. This helps make a compelling case to potential tenants.
Outreach to Brokers and Managers
Build a robust email marketing list consisting of brokers, real estate managers, and potential tenants. Utilize platforms like LoopNet for listings and respond to inquiries from interested parties.
Letter of Intent Negotiations
When a tenant shows interest, the next step is negotiating a letter of intent. This document outlines the basic terms and conditions of the lease before executing a formal agreement.
Potential Pitfalls
Tenant Pullout
Even after putting in months of work, tenants can still pull out. For example, Chili’s was initially interested in a property but decided to scale back its expansion plans, leaving the deal hanging.
Ownership and Landlord Issues
Uncooperative neighbors and legal disputes can complicate matters. For example, securing a storm sewer from a neighboring property can become a significant hurdle if the neighbor is unwilling to cooperate.
City Planning Changes
Unexpected changes in city planning, like new medians or access road closures, can affect your project’s feasibility. Always keep an eye on city developments that might impact your property.
Due Diligence Oversights
Failing to uncover back taxes or zoning issues during the due diligence phase can lead to unexpected costs and complications. Always verify current tax status and zoning regulations.
Development Process
Land Acquisition
Finding willing sellers often boils down to timing and price negotiations. Persistence and a good offer can turn a “no” into a “yes.” For instance, after numerous road trips and persistent negotiation, a motel owner eventually agreed to sell a prime piece of property.
Financing
Securing financing is crucial. Traditional bank loans or bringing on investor partners can make the difference. One fruitful approach involves finding a partner willing to provide collateral, such as another property, to secure the loan.
Permitting and Approvals
Permitting and city approvals can be time-consuming but are essential. Ensure you have all necessary permits and that the property meets local zoning laws.
Construction
For some deals, you may need to build the property before leasing it. Know whether the tenant expects a build-to-suit arrangement or will handle the construction themselves.
Deal Examples
Land Flips
Copperas Cove Land Flip: For a first deal, Copperas Cove, Texas, provided a substantial profit. Starting with a $5,000 down payment and selling the land for a $148,000 profit after expenses showcases the potential in such deals.
Existing Properties
Euless Office Building: Buying a $300,000 office building with a $60,000 down payment and securing a single tenant provided an annual profit of $15,000 after all expenses. This type of deal offers immediate cash flow.
Redevelopments
Tyler Mattress Firm Project: Redevelopment can be incredibly profitable. After buying a run-down building for $750,000, securing Mattress Firm as a tenant, and investing in improvements, the property sold for $1.38 million, resulting in a $630,000 profit.
Ground-Up Developments
Tyler Chase/Walgreens Development: Ground-up development can take years but offers high returns. Starting with a 5-acre plot, this project included a Walgreens and Chase Bank and resulted in a $700,000 profit per partner after a three-year development period.
Tenant Expansion Plans
Dollar Stores
Dollar stores like Dollar General and Dollar Tree plan to open hundreds of locations each year. Identifying areas with growth potential can make these tenants appealing targets for your property.
Fitness Concepts
Fitness chains like F45 are expanding rapidly, driven by trends in health and wellness. With celebrity investors like Mark Wahlberg, these types of tenants bring both stability and popularity to any retail space.
Retail Market Trends
Online Sales vs Brick-and-Mortar
Despite the rapid rise of online sales, only 10% of total retail sales happen online. This means that brick-and-mortar stores still hold a significant market share, debunking the myth that retail is dying.
Delivery Services Growth
The rise of delivery services is revolutionizing retail. As services like Amazon Fresh and Uber Eats become more popular, traditional retail spaces are adapting, integrating more delivery and pickup options for consumers.
Innovative Concepts
Brands like Nordstrom are launching new retail formats, such as stores with no merchandise but offering personalized services and amenities like wine and coffee bars. These innovative concepts aim to create an enhanced shopping experience.
Finding the Right Opportunity
Missing Retail in Your Area
Identify retail gaps in your community. By understanding local needs, you’ll be better positioned to attract the right tenants.
Fast vs Slow Growth Retailers
Pay attention to which retailers are expanding and which are contracting. Fast-growth retailers like discount chains and fitness centers offer more opportunities.
Thinking Long-Term
While some deals can be turned around quickly, others require a long-term investment. Balancing quick flips with longer-term projects can create a steady revenue stream.
Time Investment
Short Deals
Flipping land or purchasing an existing property can be quick, sometimes taking as little as 30 days to a year. These shorter projects provide quick returns.
Long Deals
Ground-up development or large-scale redevelopments can take 1-5 years or longer. These projects require more patience but can yield substantial profits.
Key Takeaways
- Don’t Give Up Too Soon: Persistence often pays off.
- Leverage Relationships: Utilize your network to find opportunities.
- Have Patience: Real estate deals, especially commercial ones, take time.
Key Takeaways
Finding national tenants and navigating commercial real estate development is rewarding but comes with its own set of challenges. By understanding the process, from property identification to overcoming pitfalls and leveraging market trends, you can make informed decisions that lead to success. Keep these insights in mind as you pursue your next commercial real estate venture.
Get started with Propelio and unlock all the tools you need to succeed in real estate. Sign up now for a 14-day FREE trial: Start Free Trial
