Understanding the Different Types of Commercial Real Estate

I'm Andrew Dunn welcome back if this is our first time meeting I'm with vac development and I'm a commercial real estate investor you know what I love about commercial real estate there's so many different ways to make money in the industry and it caters to a variety of asset classes that cater to your investment style whether it be retail which is the Shopping Center's office for the buildings that you work in industrial where the warehouse and Logistics all come into play for your Amazon packages storage for you to store your random knickknacks and Paddy wax or your RVs and boats Apartments which is where a lot of people live or Hospitality or you know it's a data center where everything that you upload on Facebook or online and all that information is stored inside these data centers let's go and dive in on these different types of asset classes our first asset class we're going to talk about today is retail now what is retail retail is a Starbucks a Walmart a Lowe's shopping centers malls anything that is typically service orientated where a consumer comes in and they go and buy something you know in Urban Outfitters or a restaurant like a Taco Bell an IHOP those are all retail assets there's different types of retail there's Standalone retail drive through or you have the shopping center there's an inline shopping center which is basically you have these McDonald's a gas station and a Starbucks out front and then you have these little strip centers in the back that have you know a nail spa or a restaurant or various just kind of retail services that you see in your community Shopping Center or there's a grocery anchored shopping center which is a Walmart an Albertsons a Ralphs of Vons and all the retails surrounding this grocer driving it so a grocery anchor shopping center has value because the grocer is the main traffic point that drives this traffic into the center that then is kind of feeded off into these other in-line tenants you always want in these retail shopping centers some sort of anchor that drives traffic next we're going to talk about office you've seen the news lately with the whole work from home and since the pandemic that company has been closing offices across the country now let me tell you there's different types of offices there's Suburban office core and urban office and then there's medical office all three of these different office types have different opportunities to create value and to create security for the investor so a Suburban office is typically these one to four story buildings in car dependent markets like a Las Vegas a phoenix or Tampa where everybody has cars urban office is these high-rise buildings that you typically see in Chicago or New York these types of buildings have has seen a lot of vacancy because a lot of these people have left these Urban markets for more Suburban markets now what is the purpose of suburban office Suburban office houses call center type of tenants and you need a lot of space that these office companies use to help service you as a consumer the urban offices have a financial services component large Law Offices large large corporations and these are more the high-end Professional Services that can be easily accessible to a variety of amenities so my personal favorite is medical office because it's a quasi blend between retail and office meaning these medical professionals hold their position in these different office locations for a long period of time during covid doctors had a 99 collection rate in their rents meaning they paid their rent 99 of the time and nobody really ever defaulted and I believe as our population in the United States continues to age we're going to need more medical office we're going to need more of these Health Care Services to help our community so what I like about medical office is it's a segmented position you need medical professionals and people need these Services no matter where they are across the country so I just talked to you the three basic forms of office I personally really enjoy office because it scares a lot of people because it's complicated and it takes a really skilled real estate professional to understand stand this asset class but don't be afraid of it because there's different types of sub-asset classes of office that cater to a variety of investors needs now let's talk industrial so what is industrial the most common forms are either a warehouse space where companies store their goods or it's a distribution and Logistics kind of operation where goods come in and they go out based on where these trucks or these goods are going now the two largest distribution companies besides a UPS or FedEx are Amazon and Walmart and they're critically positioned across the country these assets are probably some of the most secure positions in commercial real estate because they're dependent on global consumer spending if you believe in consumer spending you believe in the US economy you believe in industrial real estate now I'm going to talk to you about a different form of industrial which is storage yeah there's warehouse but I'm talking about self storage the Mini Storage you know where you go and get a five foot by 10 foot locker and you go and store your couch because you're in between moves I like these because they have a higher rent than industrial they're smaller they have a low management oversight you can have one person for 500 storage units or even sometimes you can just have a parking lot with a bunch of covered spaces and electronical keypad and they can be self-managed from you remotely they're all over the place and they're very demographic focused meaning what's the age of the population what's my average household size what's the income of the population and how many other storage facilities are around in the sub Market it's very keen on data and it's typically a very easily funded asset class by the bank because it's so data focused another asset class is Data Centers these data centers have become massive over the last 10 to 20 years because as Facebook Amazon web services Microsoft's Azure as much as you think that your data and pictures and videos that you post online just go into the cloud the cloud isn't the theoretical thing in the sky the cloud is actually these data centers that are in your market so what happens is Facebook and Amazon and Microsoft they all have these data centers across the country that store these photos and videos and documents and that they need a large footprint and typically they need to be around water and cheap electricity the water cools all these massive data center units and the cheap electricity funds all these data centers so that you don't go offline when you're playing your video games online or you're live streaming that's what these data centers are used for here's an asset class I don't like to talk about often because I don't really ever invest in it it's a hospitality industry so Hospitality are hotels you know Marriott Hilton these ones are a little bit more complex to understand and are very operator focused hotels is a specific type of asset class where you know you have a metric of your average daily rate and your target occupancy hotels typically never underwrite to a specific like 90 plus percent occupancy they have a variety of occupancy rate rates in a variety of daily rates to help you underwrite and understand the value of these hotels hospitality and simplest format are just hotels this next access class is typically the one that you see advertised all over your social media if you're an investor looking for opportunities it's multi-family multi-family our apartment complexes and in the commercial real estate industry it's anything over four units up to 500 or a thousand units there is no limit on the size of the property but you know you have different types of multi-family you have Garden style which is typically your one and two story product mid-rise which is three to five stories and then you have high-rise multi-family that you'll see in more urban developments in cities like Boston New York Miami and these are multi-family developments can go up to 50 stories if the economics makes sense but these are just apartment units and the interesting thing about multi-family is I can run the same apartment complex with the same staff of a hundred units I can run with 250 units so it's a great asset class as you get more units it's easier to scale thus increasing your profit margin because your expenses go down versus the rent let's talk mixed use developments a mixed-use property is something that has a variety of uses but typically you're going to see a mixed use development have apartments on top and retail on the ground floor or you'll see a blend of Apartments office and Retail altogether now why do people like mixed-use developments it mitigates the risk of just taking the asset as Standalone I get more in rent for retail I get more in rent for office than I would for apartments depending on your Market it's a diversified risk opportunity it really maximizes the value of your building there are all these different types of asset classes for every type of investor invest in what you believe in if you believe in shopping centers because you like going to these restaurants in these stores invest in retail if you believe in storage because you use a storage facility yourself use storage if you believe in Amazon and all these packages that you order to your front door invest in industrial there's so many different ways to invest in real estate and there's so many different asset classes for what you want to invest in I'm more deal orientated Focus I'm asset class agnostic I don't really care about what necessarily the asset class is I care about what the deal is I care about what the opportunity is what risk it perceives to me as an investor now some people are asset class allocators where they only buy apartments or they only buy retail and even get more specific where they only buy apartments in a certain type of market like the Southwest which is you know Arizona Nevada and New Mexico or they only buy them in urban environments and major Metro cities like New York or Boston or Miami it just matters what you want to be as an investor and what works for you that's what you need to think about so we're putting out a video every Tuesday let me know in the comments what you want to learn about and looking forward to seeing you next week