4 Types of Commercial Spaces

Updated on August 11, 2020

The Private Equity Real Estate Podcast – Show 2

Summary
On today’s show, we break down the 4 types of commercial real estate spaces. Tony Grosso, co-founder and one of the managing principals at First National Realty Partners, joins us again to break down the good, bad, and ugly in each category and we discuss future outlooks for each space. If you have any interest in commercial real estate, either from a passive investment viewpoint or active ownership, this is a great listen. If you want to hear any topics from the pros we bring on the show, send me an email at Ncucci@fnrealtypartners.com

Show Notes
We mentioned a few books on today’s show. Links below!
Rich Dad, Poor Dad
The Art of Commercial Real Estate
Value-Added Real Estate

www.FNRPUSA.com

Announcer:
You’re listening to The Private Equity Real Estate Podcast, brought to you by First National Realty Partners, where investors learn from private equity experts and insiders. We share our own real-world experiences, so you can know exactly what it takes to be highly successful at investing in passive commercial real estate opportunities.

Nick:
Hey, what’s going on everyone? You are listening to The Private Equity Real Estate Podcast, brought to you by First National Realty Partners. This is the ultimate resource for passive real estate investors. I’m your host Nick Cucci, and today on the show we have one of the founders and managing partners of First National Realtor partners, Tony Grosso. Tony, thanks for joining us again. How’s the week going for you?

Tony:
Going well Nick, as always pleasure to be with you.

Nick:
Great. So, hey in our last episode we talked about what is value-added real estate investing. Tony gave us some background about himself and helped us understand what value-added real estate investing is, and what the best practices are. If you haven’t heard that yet, go back and give a listen when you have some time, it has some great info for anyone who is investing on any level. Today we’re going to focus on the four types of commercial spaces, and then we’re going to dive into each one, to give you a breakdown of the good, the bad, and the ugly from each. So, we’re going to take a look at these businesses, and understand why someone may or may not want to get involved. Before we get going, you mentioned last time that you’re a steak guy. Now you have a favorite steakhouse or a favorite way you like to cook it?

Tony:
You know, you’re putting me on the spot here, there’s a lot of great steakhouses. I would say the best piece of meat that I’ve ever had was at The French Laundry up in Napa. I forget I think it was in Yountville, California. Unbelievable piece of meat, just the best I ever had, jumps off the top of my head. But I’ve had a lot of good pieces of meat, but that was number one.

Nick:
I have yet to go to The French Laundry, but I’ve read about that it’s an incredible place to check out.

Tony:
Totally, it’s a hell of an experience. You have to go.

Nick:
That’s awesome. In New York City, we’re here in Jersey, the closest that I get to a great steak I go the New York City, there’s a place called Keens on 36th.

Tony:
I’ve been there.

Nick:
Oh man, all right but this isn’t the steak podcast.

Tony:
They got the pipes on the wall.

Nick:
The pipes on the wall and on the ceiling.

Tony:
Yep, I’ve been there once or twice, yep.

Nick:
Super cool. So, we’ll have to start the steak podcast next. But so for today, let’s dig into the four types of commercial real estate. And start off by telling the listeners, what are the four types?

Tony:
So when you talk about the four types, you’re talking about the four major food groups, office, retail, industrial, multifamily. There’s obviously more than four types, there’s more niche stuff. There’s student housing, there’s hotels, hospitality, you have self-storage, so there’s marinas, there’s mobile home parks, which are even more. So you have even really more than four, but when we talk about the four major ones for today’s show, we’re talking about office, retail, industrial, and multifamily.

Nick:
Nice. So, we want to dive into each one of those four. Which one would you want to start with?

Tony:
Let’s just, what did I say first? Office, let’s start with office.

Nick:
All right. So, kind of give us an overview of the office space.

Tony:
So, before I even jump into office, the one thing I want to preface by even getting into all these different product types is certain people like certain product types better than others. And I own more of certain classes than others. That being said, there’s pros and cons to every single asset class. Some deals, or some product types suit an investment strategy, I would say better than others. But anybody who’s going to rush out here and say, “Retail space is dead,” or, “You have to do multifamily,” or, “Industrial is the way to go,” that may be true to an extent, but it’s really a blanket statement and you can’t really do that, each one has its own ups and downs so to speak.

Nick:
Right, and every deal is a different deal, and every deal has-

Tony:
Absolutely. And one of the things that’s been really hot lately is obviously multifamily. And I can show you deals where guys have bought multifamily and lost their shirt, and I would say maybe office is out of vogue lately, specifically with Coronavirus and all this stuff going on. And I can show you office deals where guys have just made absolute home run fortunes. So, you can’t go out and just say what we’re doing is best, what you guys doing is not good. It’s just not the way to look at it. Each product type has its own pros and cons. And you want to touch on office?

Nick:
Yeah, I want to touch on office, but really appreciate you giving us that general perspective because in conversations that I have, a lot of people do have that blanket mentality where it’s like I don’t touch office. And it’s like well what do you mean don’t touch office, look at the deal. What’s the deal telling you about the opportunity?

Tony:
Sure. So, the pros of office. Office, in my opinion, does well really with a value add strategy. And office a lot of times is perceived of the four as maybe the riskiest asset class. So, you potentially are buying a higher cap rates. So, going into the deal you may have a higher yield, which would be obviously one of the pros of going into office because maybe it’s even perceived a little bit of out of vogue now. So, you’re going in, typically your HAP rates are going to be higher, and I’m talking kind of general office, because medical office kind of is a different animal to itself. Doctors typically invest very heavily in the [inaudible 00:05:00] space, they sign longer term leases. And because of their practice, it’s harder for them to leave. Office overall though, it’s a lot of times it’s easier for people to leave, which is why you’re getting these higher perceived yields.

Tony:
The downside of office is that kind of I think transient sort of nature where tenants can kind of get up and move. In retail real estate, not to shift gears, location is really paramount. That’s not to say because the retail business is location, office while it’s important to be close to amenities, and population growth, and all this type of stuff, people can kind of get up and move their office. In my office, I think that in our big office we run now we have about 6,500 feet. I could very easily pick up and go across the street, and it’s a pain in the butt short-term to do that, but it’s not going to impact our business in a huge way. So, that’s probably the downside to office.

Tony:
The other downside to office is usually tenants are signing shorter term leases than they would say maybe in a retail center for an anchor, 15, 20, or 25 year deal if it’s a guy on a [inaudible 00:06:03] site. So, you’re getting shorter term leases, which obviously works against you. And you also sometimes have to fit out an office. I know it’s not uncommon to hear based on the market you’re in 25, 45, 50, 100 dollar fit out sometimes for office that landlords have to give up. But I think for a value add standpoint guys have done well with those. You can get in, sign a couple leases, and then exit to institutional sellers. So, that has worked. I would say that those are the pros and cons with office. You’re going to have a little bit more cashflow going into the deal, it’s heavier to fit out space with new tenants, and the lease is historically a little bit shorter.

Nick:
So, and you had touched on how it’s potentially out of vogue right now because of the current climate that we’re in, what do you think for the future space of office? How do you think that might look five, 10 years down the line?

Tony:
So, and I even said it myself, you look at may not necessarily be the truth though, because you look at major metropolitan areas, and I think what you’re going to start to see is guys who are buying maybe out of vogue suburban office buildings just a few years ago at higher CAP rates, nine, 10, eight, 11 CAP rate. As people kind of, there’s an exodus, and I’m just kind of talking, let’s talk New Jersey, suburban New Jersey where I know guys were buying 10, 11 CAP office buildings, there’s going to be kind of an exodus out of New York City. So, now these suburban office buildings these guys bought for a song are going to actually start to look really good because I think that businesses overall are going to want to be in the suburbs as well.

Tony:
So, wealth … or not wealth, but it’s a transfer. It’s a transfer maybe from New York City office to now New Jersey office. So, those landlords are going to be able to reap the rewards. I do think that there is going to be a longer term trend for people that want to work from home. I mean I’ve been at my house working for the last three, four months remotely, and I’ve actually really enjoyed it. And it’s made us put new systems and processes in place to make sure we’re holding everybody accountable and whatnot. I’ve actually liked being a little bit more remote and work from home, and I never thought I would have been before this.

Nick:
That’s also a narrative that I keep on hearing, and I feel like I was of the mind that over the next 15 years we were going to see that work from home life kind of, we’re going to see that come to life. But now with Coronavirus, there’s just been a quickening.

Tony:
Yeah, yeah. And it’s definitely in our part of the country been definitely impacted. That being said, what happens to office, office is not going anywhere. I think what happens is maybe as office is a little bit more out of vogue, there’s just going to be less development. And as you have population growth, people are still going to come into the offices that are currently standing. People are going to continue to improve their current office portfolios, and rents are probably going to go higher as we have inflation as well, and markets continue to grow. So, by no stretch of the imagination is office dead, specifically if you’re buying well located buildings. Like we just bought a building, a class A building on the [crosstalk 00:08:56]-

Nick:
Beautiful [inaudible 00:08:57] Navesink.

Tony:
Navesink River in New Jersey, and it’s just that building’s always going to have appeal because it’s very unique. So, I would say overall we look at medical office, we’re not the biggest bulls on just generic office, but if you buy the right types of offices, you can certainly be successful.

Nick:
Yeah. And I don’t want to go too far down the rabbit hole on office, but I think in the future it’ll be really interesting to see what the new office space looks like, how it needs to change to become its highest and best use.

Tony:
Landlords are going to have to continue to implement amenity programs to reposition buildings and bring them up to snuff, but I think that it’s definitely an interesting place. And if you put a great office deal in front of me, I’m certainly not running away from it because it’s office. People tend to … I forgot Warren Buffett or whoever said it, “When there’s blood on the street be hungry, when everybody’s looking good you got to be fearful,” something along those lines. I think that that’s true really in business overall, especially in commercial real estate and maybe office that fits the narrative there.

Nick:
What is that, “Be fearful when they’re greedy, be greedy when they’re fearful.”

Tony:
That’s exactly right.

Nick:
Yeah. Well thanks for the deep dive into office. Now, I know a little bit about office, a good amount about multifamily and retail. Industrial, I don’t know very much about. So, I guess take us through the industrial space a little bit.

Tony:
So you kind of have just like an office, and even retail you have kind of different segments of industrial. You have manufacturing, and then you have warehousing, and what’s really been in vogue and hot lately that everybody’s building are these 30-foot Amazon facilities where there’s guys that are just moving, Last Mile Distribution and all this different stuff has definitely been in vogue with the advent of eCommerce, and all that stuff. So, industrial is definitely a product type that I like. And I think that there’s a good runway, I think that there’s some markets that may be a little bit overheated right now. But I think just with the advent of eCommerce and manufacturing uses will always be there where guys are building something in the space, you’re creating a product, or a chemical or what have you in the different space. That’ll always be there.

Tony:
And historically, those facilities there’s a tremendous amount of fit out that go into these properties. And when I say fit out, I mean the tenant has to really put machinery and spend an arm and a leg to really get it the right way. But still yeah, as you see even spec development, industrial now, I think that it’s definitely an interesting asset class to take advantage of. CAP rates obviously now in this part of the market, part of the cycle, are very, very low. But I like industrial for the longer term. And one of the beauties that I like about industrial is the fact that typically the tenant fit out allowance that the landlord gives. Now each market’s different, some are giving more money to the tenants, some they’re not giving at all.

Tony:
But historically speaking when you’re re-tenanting a second generation industrial or warehousing space, you’re not giving out the big TI credit that you would in say office, or maybe even retail as well. So, historically maybe it’s a couple bucks a foot based on the market that you’re in. So, that’s definitely appealing for a landlord. Because what a lot of people don’t understand is that when you get a new tenant in a retail center in an office building, there’s a lot of money that can go into these different deals, the landlord has to come out of pocket to strike the deal. And industrial historically it’s been a little bit less.

Nick:
Now, the bells that are going off for me as you’re talking is the evolution of supply chain and ecom. As ecom continues to be the space where everybody is going, and it’s not the future of shopping, it’s just shopping now at this point, but the supply chain hasn’t caught up to that. And that’s where industrial, it makes perfect sense that that space is just going to need to evolve and shift to facilitate the need there.

Tony:
Absolutely right. Well, I’ll give you the downside too and then we can move on.

Nick:
Okay.

Tony:
So, historically speaking in industrial you have shorter term leases I would say, and I’m not talking about brand new built to suit facilities for tenants and whatnot. But historically speaking, let’s say older warehouse or industrial, the leases are longer than they would be in say a retail or a medical office property. So, shorter term leases in industrial, but right now globally it’s a pretty hot market, so leasing is getting done so to speak.

Nick:
It seems, I asked you about the future of office, I’ll ask you about the future of industrial as well. Before I speculate, I’ll just ask you what do you think about the future of industrial?

Tony:
I think it has a really nice runway, and I would be a bull over the long-term in the space. You just got to be careful of overheating because that’s what happens in the way that the system is set up and globally now with central banks, and credit creation and monetization and whatnot. What happens is we have cycles. So, industrial’s definitely in vogue right now, so everybody’s buying land and developing and all that good stuff because they can make a profit. You just got to be careful buying into very hot markets. And I’d say the same thing on multifamily as well.

Nick:
Well, and speaking of, I was about to transition us over to multifamily. I guess tell us, give us an overview of that space.

Tony:
Multifamily?

Nick:
Yep.

Tony:
I’m definitely a bull on multifamily longer term. You got to be careful of overheating and overbuilding. The theory behind multifamily just as a product type overall is everybody needs a place to live. And I think that maybe even as there is a continued deterioration of the middle class in this country, there’s going to be a lot of renters I think in the space. And you look at millennial trends and guys don’t want to buy houses anymore, they want to rent apartments. So, I think workforce housing, or even housing that’s generated to this new generation of maybe not super affluent, but just below that of guys that want the amenities, that want the community effect, maybe they’re younger on the age curve. There’s going to be a longer term trend for multifamily. And it’s not a surprise, I’m not the first guy to see this. You see where CAP rates are, a lot of people are looking at that.

Nick:
Now, so you’re thinking it’s going to be the guys who want the nicer amenitites in these multifamily spaces. So, does that translate to you to finding the value added spaces that can be repositioned to take care of that?

Tony:
It can be, yeah. And there’s no question that a big part of a business plan can be getting into a dated B or C complex, and then adding more amenities. Doesn’t mean that’s the only business model, but that’s definitely a great value add strategy to look into. Whether it’s putting in washers and dryers, or club houses, or dog parks, or all this crazy stuff that people have done before, or obviously we have. But that’s definitely a great value add strategy. But also, I think workforce housing, just working people is definitely where people that work for a living are definitely assets to go after now. And I think that more than ever people want an affordable, clean, safe place to live, and it’s a good place to invest.

Nick:
Yeah, absolutely. I know there’s a couple guys who one of the first things that they do, you’re saying a clean, safe place to live. One of the first things they do as soon as they acquire an asset is they repave the parking lot, put in new higher end lighting, restripe the parking lot. Because right away, it’s brighter, it’s cleaner, it feels like a safer place.

Tony:
Lighting’s huge. Not just in multifamily, but lighting is huge, and definitely in multifamily as well though. I would say, to cut you off because you’re probably going to ask me, is downside of multifamily.

Nick:
That’s where I was going, yeah.

Tony:
Multifamily is definitely an operational asset, heavy intensity on the management. And a great operator and manager versus a poor operator and manager can be completely night and day situation. So, you have to make sure if you’re using a third-party, of if you have your own in-house team, you got to be competent, and you have to know what’s going on. Because if you’re not, when you’re dealing with say buying a 300 unit complex, there’s 300 different people that you’re liaising with, these are their homes as well. Whereas you go out and buy a single tenant industrial building leased by Amazon, there’s way less of a managerial push on something like that than there is on something like multifamily.

Tony:
So you have to make sure that you have all the different processes and systems in place from a management standpoint. It’s kind of similar to hotels. In multifamily, at least historically, you’ve got a year-long lease. In a hotel business you think about turning over rooms every single day, there’s a lot more than can go wrong than signing a long-term lease with Walmart or something like that. So, the managerial effort that goes into a successful apartment complex should not be overlooked, and it’s really not a place for amateurs to play in. And if you’re getting in and doing your first multifamily deal, I would recommend vetting the hell out of a bunch of local or regional managers that know that market, know how space gets leased there, know how to run it very lean, and will give you a good sense of being successful.

Nick:
That’s so interesting to me. I actually just took a note because I want to get you back on another podcast just to focus on that, because I’m sure we could just go down a rabbit hole, and I won’t go into it now, but the ins and outs of making sure that that effort is well executed I’m sure can to deep.

Tony:
You got to manage the manager, and if you are the manager as well, then there’s all the intricacies that go into that. Another downside of multifamily is it’s a gross lease. So, what that means is it’s not a net lease where the tenants are responsible, maybe in a retail center or in an industrial building, where the tenants are on the hook for all of the expenses associated with the property. With multifamily, you’re wide out in the open. So, if the tax assessor comes along and says, “Your property was assessed at 20 million,” you just bought it for 45 million and you’re in an area where you get assessed at 100% of full value, you better make sure … not that you don’t do that when you’re buying a retail center, where it’s all triple net leases. But you better be prepared for that increase in taxes, because the value, what you’re going to be paying is going up, even if you fight tooth and nail.

Tony:
So, additionally that goes for the other expenses as well, when you’re buying the triple net lease, or multi-tenant triple net lease property, a lot of your expenses you’re kind of insulating, you’re pushing it off to the tenants. Whereas if you don’t [inaudible 00:19:01] the right [inaudible 00:19:01] in a multifamily deal, it’s very easy to see your ROI get dried up. And you don’t just go out there free willy when you’re doing triple net by any stretch of the imagination. But it’s just you have an added level of padding and installation. Whereas with a gross deal, whether it’s a gross office or it’s a multifamily, you’re wide out there exposed. You got to be very, very stringent with your underwriting calculated.

Nick:
So, and I think I know your answer to this question, but as far as the future for multifamily, are you feeling good about it?

Tony:
Yeah, I feel good about it.

Nick:
Now, we had talked a little bit before-

Tony:
I feel good, sorry to cut you off, I feel good about real estate long-term overall.

Nick:
Right, so do I.

Tony:
I mean they’re not making any more of it, so you have the simple supply and demand working in your favor. There’s only so much land until we can go into Mars, or other planets, or whatever it is. But we’re capped by how much inventory is out there, even as the population continues to grow and expand, I think real estate overall is a good place to put money long-term.

Nick:
And a good deal is a good deal in any market, but how strategic do you think you’ll have to be with any of the types of spaces, but specifically with multi family in secondary and tertiary cities over the next 10 years as you start to see population growth?

Tony:
A lot of people have this notion that you just buy an apartment building, and it’s just going to lease itself and whatnot. I think that there’s going to be growth in the renting population, which I think bodes well overall. But really in multifamily location is everything. I don’t just mean location in the submarket, I mean the market you’re buying in. If people are blowing out left and right, and they’re leaving to the Midwest or the Northeast to go to Utah, or Florida, or Tennessee where population growth has been … you got to definitely take that into account when you’re buying a building in one of these markets where for whatever reason taxes, political climate, weather, people are actually bailing out of there.

Tony:
So, you got to be careful specifically when you’re in these more tertiary markets, just because more can go wrong. Whereas if you’re in South Beach, Miami and you got all these people coming in from all over the world, there’s capital being created, there’s wealth being generated, there’s population growth, the building is going to tend to lease itself a little bit more. Just like if you buy a retail center on the absolute best corner in town, tenant leaves somebody’s right behind it. You buy something back behind that nobody can see with no visibility, no foot traffic, again you’re going to have a harder issue leasing it. So, when you’re buying in more tertiary markets, you got to definitely be more careful than when you’re buying in a primary market, because there’s going to be less leasing juice, there’s less people.

Nick:
Yep. You just started talking about retail, so let’s dig into retail. Now am I mis-speaking, or is retail, is that where you’re done the bulk of your deals?

Tony:
I have a lot of retail experience, I’ve worked with all product types, but a good chunk of our portfolio actually today as we speak is necessity based neighborhood type retail centers.

Nick:
Yeah. So, let’s dig into it. Give us an overview of the space, and let’s talk pros and cons.

Tony:
So, I really like retail, and I think that it’s out of vogue, which is a place that I want to be investing in. And everybody’s afraid of retail, because like we talked about with the industrial, and that’s the eCommerce and whatnot, and I think that it’s not … I think this whole breakdown is just kind of, or eCommerce, the end of retail is just kind of overblown. I think longer term, what’s going to happen in the bigger boxes as retailers start to do more online delivery and people come to the store and pick up, is that grocery store boxes are not just going to be places where people walk in to shop, they’re also going to operate almost as a last mile distribution facility, almost like you’d see an industrial type piece, because retail real estate is close to the consumer. You look at a good retail center, you look at it from above, you see all the houses, the rooftops that are around it. And no matter how you slice it and dice it.

Tony:
Retailers, whether you’re an online eCommerce only guy, whether you’re a brick and mortar only guy, or whether you’re an Omnichannel guy, which we’ve seen people successfully adopt and be successful with, the closer you are to the customer, the better off that you’re going to ultimately be. So, I think that that may be kind of how things jive. And then additionally you look at service based uses, you look at discount oriented uses, which have done and help up really, really well in eCommerce. And you take advantage of the fact that you’re buying with a little bit more yield, you got to buy the right assets. And if you have a strategy to actually go in and reposition retail assets, which is what we do, I think that you’re going to be very, very successful.

Tony:
I like retail because if you have national tenants, you build those relationships, you can bring them around and put them in places like a puzzle piece to add value for whoever’s investing in the deal. You get long-term leases out of your anchors, [inaudible 00:23:50] 20 year deals being done. And it’s just a fun place to invest, and there’s a lot of different ways to create value. And I like working in the retail because of that. So, I think it’s overblown, the whole eCommerce thing. I think eCommerce is obviously huge, and going to play a big role as we move forward, but if you buy the right types of assets there’s always going to be utility there. I mean we’re doing deals with colleges, we’re doing deals with medical doctors now, we’re back filling spaces with gyms and other experiential type uses. So, it ain’t going anywhere.

Nick:
Yeah. And do you find there’s a lot of high credit brand name tenants that you have in the spaces, do you find that as you’re finding other deals you can now work with them to potentially bring them into those spaces?

Tony:
One of the biggest value adds in retail, specifically with national retailers like I touched on, is having that relationship and knowing that such and such national tenant is also looking for space in Phoenix, Arizona, and we have them in four other locations. And having the ability to have that direct pipeline communication with that group and say, “Hey this site meets your demographic, here’s the traffic count, here’s the population growth. You guys aren’t in this market, you want to get into this market,” boom and put them in. And off a phone call you can really do some real damage.

Nick:
And it’s a win-win-win, because you’re becoming a strategic partner with them, you’re helping build out a community. Yeah, that’s great.

Tony:
That’s what we do. So, the commercial versus multifamily I kind of feel is more of a sophisticated so to speak operator with the tenant. It’s not to say there aren’t sophisticated multifamily guys out there because there’s no question there’s operational guys that are genius’s in the multifamily space. But you add a different layer when you’re dealing with let’s call commercial versus residential, because that tenant relationship really comes into play, specifically in retail because you have Taco Bell or Walmart, whoever is all over the country. You develop that relationship with those guys, and now you can use that to go out and add value at your properties, and do new sites, and new deals, and extend leases. And specifically before we’re going into a deal, I have all these relationships with these guys. If I see these tenants, I’m going to call Joe over at Big Lots, or I’m going to call so-and-so over here, and you know what the game plan is and how everybody’s performing there. Now if we hear everybody’s doing well, we know we might be onto something.

Nick:
And first of all that’s amazing insight right there, so thanks for kind of giving us a glimpse into the retail world. Now, when it comes to the future for retail spaces, what do you think is going to, the future space will look like?

Tony:
I think there’s no question that some tenants obviously are not going to transition into the Omnichannel approach. But you look at all these different uses, like I said there’s trampoline park concepts, indoor go karts and all this different stuff. So, what happens is medical guys going in, experiential guys going in, there’s just no end to the uses that are going forward. What’s going to happen though, as retail becomes out of vogue, or has become out of vogue let’s say, you’re going to have less development. In New Jersey there’s no real spec retail development, maybe small properties, but there’s not a lot of guys that are going out to New Jersey let’s say and spec developing retail, versus let’s say the 1960’s, and 70’s, and 80’s, and whatnot.

Tony:
So, as there’s less development in a retail office, those current properties just become more valuable. And it’s that whole supply and demand equilibrium, everybody’s going to rush out and build industrial and multifamily, what’s going to happen to maybe office and retail? Guys just aren’t going to want to build it. So what’s going to happen is there’s going to be more consolidation of tenants into what’s currently out there. And that’s it, you just got to understand that curve, and what’s going on.

Nick:
And we won’t hold you to this one, but 10 years from now if you had to rank the four spaces, where do you think it lands as far as-

Tony:
You can’t.

Nick:
You can’t do it right?

Tony:
It’s impossible to do, because I’ll give you an example. If I’m in my offices, if you told me that I could buy this building at a 30 CAP, or I could go buy the most choice class A multifamily piece at a two CAP. Now look, you got to look at more stuff than that doing a deal, but just as a blanket statement, I’m buying my damn office at a 30 CAP.

Nick:
Yep.

Tony:
So, it’s all about … we’re talking product types, which is really, really high level. That’s part of the investment, that’s like executing a business plan and finding the right deal you could make a case is more important let’s say short-term than being in the right product type. Now, as you extend out 10 years, like your question, stuff certainly will do better than others. But you don’t want to give an answer to that question, because it’s not a real …

Nick:
It just doesn’t exist.

Tony:
It doesn’t exist, it doesn’t exist.

Nick:
So, we have a lot of passive investors that we see coming, and you have a ton of passive investors in the deal. Is there a space that passive investors prefer out of the four types that you’ve noticed?

Tony:
No, I think a lot of passive guys like to have broad, like to be diversified. They like to have a little bit of each type of product type. Again, it’s so deal driven. When you’re out there, if you’re going out and you’re raising a trillion dollar blind pool to go buy the broad real estate index, or if you’re buying VNQ, which is Vanguard ETF, I think that when you’re looking at it from a macro standpoint, it’s way different, way different than when you’re looking in the submarket on different deals. So, I can tell you right now, like I just gave that example. A lot of guys like multifamily now, right? And I do like multifamily, and I’m working on a bunch of multifamily deals.

Tony:
But when you look in the submarket at the deals, who’s making deals? Where are the deals to be had? That’s so important. Finding the right deal is more important over the short to medium term, in my opinion, than getting married to one type of product type. And I invest with other sponsors, and I invest in other deals in all different kinds of product types, and I’ve worked with all product types. So, at a certain point and time you meet the market. And if I can go out and buy great retail centers and great locations, I’m going to keep doing it. If I can go out and buy multifamily and the CAP rate is there. But it starts to get to a point where if you’re not creating upside or value added strategy, you can’t really even touch certain stuff.

Nick:
Yep. So, I think this was great. Thanks for giving us the overview of the four types of commercial spaces, and digging into it. At the end of every podcast we ask three quick questions. We asked you our usual last week, so I’m going to ask you three different ones this week.

Tony:
Oh God, here we go.

Nick:
Yeah, what’s your favorite movie?

Tony:
Casino.

Nick:
Casino. If you could see any sports moment ever, what would it be?

Tony:
Man, there’s so many good ones.

Nick:
I know.

Tony:
Give me next week.

Nick:
All right, cool.

Tony:
I love it all, I like all sports really. I played football in college, but go ahead.

Nick:
All right. What position did you play?

Tony:
Offensive tackle.

Nick:
OT. And if you could visit anywhere in the world, where would you go?

Tony:
Oh man. There’s a lot of places, I want to go, I don’t know if they’re great. I do love Italy though. I like to go to Italy. So I love the Mediterranean, so let’s say Italy.

Nick:
There it is. That is awesome. Thanks, Tony. We appreciate as always you taking the time to be with us today, giving us the deep dive that you just did. And thanks as always to all of you who are listening to The Private Equity Real Estate Podcast. The show is brought to you by First National Realty Partners, one of the top syndicates of private institutional quality commercial real estate in the country. If you’re interested in learning more about First National Realty Partners, or you would like to get access to our private offerings, please click the link in the show notes, or visit fnrppodcast.com. We’ll see you next week.

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