Using the Web and social media to sell real estate

What is the basic formula of success in commercial real estate investing when you are looking to attract local or international real estate investors? The properties you are looking to acquire should have multiple rental income streams but should not have a business connected with them. It is that simple.

Commercial buildings are more attractive when they don't require managing a business.

Let’s make an example: an office building that rents space to individual companies offers a pure rental return potential, you can rent the premises, you can rent the use of some common spaces (like conference rooms), you can rent equipment. You can offer an excellent level of service to your tenants by improving the premises and keeping the basic systems always operational (air conditioning, heat, and so on) but you don’t need to deal with a centralized reception or the office support staff that some companies provide as part of the rental service.

The management of the staff connected with the additional services prevents any standardization of the management activity. If you are acquiring, managing and turning around more than one property you need to standardize the type of services you provide so to make them less expensive and more effective.

But why rent and not just a straight flip? You lose most of the gain potential or you leave it to the next investor. Let’s take an example from a different market. Wayne Huizenga is the only man to have built three Fortune 500 companies practically from scratch: Waste Management, Blockbuster Entertainment e AutoNation. He began as the owner of a small garbage collecting firm and he built it to the national level by acquiring 133 other similar small companies, he then took over Blockbuster and AutoNation and expanded them big time and sold all of them for billions in profit.

The basic formula of his success was to find service based industries where he could create a recurring income and provide a higher level of services in areas where the existing industries were not meeting customer needs. So if you acquire a distressed commercial property you can remedy the management mistakes of the previous owner while you create cash flow for yourself and your investors and then you turn the project around in 18 months time and sell or refinance for a major profit.

Another example of good and bad: a standard apartment building that has just tenants in them is a simple enough operation to standardize and keep efficient for an investor. An hotel, even if partially converted into an apartment building, is a totally different scenario. If you acquire an hotel you now have to manage the hotel business in addition to the real estate and it can get quite complex. The potential of profit can be much higher, but also the risk increases in proportion. You will be absorbed by the project fully for a couple of years and you won’t be able to do much more.

So recurring income and standardization of services and “brand” are the way to go in the current commercial real estate scenario, whether you are an investor or you are looking for deals to bring to an investor.

Roberto Mazzoni

P.S. If you want to get street-smart information on how to find and evaluate commercial deals join my MEETUP and come to our meeting on June 9th.