Street Smart Success

Anyone who’s been following the trajectory of commercial real estate over the past few years knows there’s a lot of distress in the market. If you’re in the enviable position to deploy capital, however, this can be good news. With distress comes opportunity, and the market is currently presenting great investment opportunities on both the debt and equity side. Beyond Real Estate, there are also opportunities that can generate high returns while diversifying out of the public market and private real estate. One example is Litigation Finance. There are dozens of others. Patrick Grimes, CEO of Passive Investing Mastery, helps investors achieve strong returns without unnecessary risk in several alternative investment classes.

Passive investing in private offerings can yield above market returns, it can also be a complete disaster. Apart from evaluating proforma numbers, it’s critical to evaluate the General Partner and the team. The numbers are generic, the intangibles, including the character of who you’re investing with, are less quantifiable and therefore harder to vet. There are too many newer, and generally inexperienced operators, cutting their teeth on passive investor’s life savings. Unfortunately, this often results in investors losing their money. Mike Arndorfer, Founder of A2 Passive Coaching, helps passive investors avoid losses and secure gains by vetting deals they’re considering investing in. 

The multifamily business has been brutal for most operators over the past few years, especially for ones who took on bridge debt. There’s been too much new supply, and skyrocketing interest rates caught most operators off guard. For low-income workforce housing, the tenant base has gotten crushed by inflation which has resulted in higher delinquencies and higher vacancies. At the same time, however, there has been almost no new construction over the past couple years and excess inventory will be absorbed. There will be great opportunities to buy properties over the next 12-24 months. Charlie Young, Partner at Madera Residential with 12,000 units, has experienced major challenges since 2023, but is gearing up to make major acquisitions over the next couple years. 

The multifamily space has many niches and myriad ways to maximize invested dollars.  One of the more specialized multifamily niches is government voucher programs, otherwise known as Section 8. These can be great properties to invest in because the need for this kind of housing is immense, tenants stay for many years, and rents are guaranteed by the government. There are complexities to implementing these programs, so the competition to acquire these properties is lower than market rate apartments. Beck Vissat, Principal at Boundary Stone Capital, operates section 8 properties in Washington, D.C. and is looking to expand into surrounding states.

One asset class within commercial real estate that many people don’t think about is luxury Short-Term Rentals. Houses that cost between $2 and $5 million typically rent for $500-$1,500 per night and generate $200,000 or even more per year in revenue, comparable to small apartment buildings. Investors can use these properties themselves, they enjoy the cash flow, plus they benefit from capital preservation and appreciation. Stephen Petasky, Founder and CEO of the Luxus Group, manages high-end Short-Term Rentals, develops luxury condo communities in partnership with The Four Seasons, and refurbishes centuries old farmhouses in Tuscany and converts them into luxury rentals. 

Investing in private real estate deals can be fraught with pitfalls, so you need to get to know who you’re investing with before investing. In the past five years, many multifamily operators in particular, paid too much for properties and got the wrong kind of debt with too much leverage. Unfortunately, many investors have lost their principal as a result. At the same time, there are better multifamily opportunities to invest in now since the global financial crises, as many operators are being forced to sell. Hans Box, co-founder of Box Wilson Equity, has been successful investing in multifamily properties, industrial, and Mobile Home Parks. 

Investing passively is a great way to generate cash flow and appreciation, without having to deal with day-to-day operations. You just need to develop the skills at vetting operators and specific deals. David Shirkey, a fellow passive investor, has done a great job finding quality operators and profitable deals over the past eight years. David has made successful multifamily investments plus several profitable investments in Mobile Home Parks, in addition to making some mistakes early on. Additionally, David founded the Michigan Investor Group to help other investors like himself learn about Real Estate and other alternative investments that produce cash flow.

Over 90% of U.S. businesses generate less than $5 million profit per year, yet these businesses are the backbone of our economy. Although the majority of Private Equity investments are in larger companies, many smaller companies are investable and need access to capital and expertise to grow. Ariez Dustoor, Partner at NB Group Investors, invests in founder or family-owned Wellness related or multi-location service businesses with $10 - $100,000,000 million in revenue, and attempts to achieve a 3 to 4 x multiple on invested capital within five years. 

In the last several years, industrial Real Estate has become a highly favored asset class, largely because of ecommerce. A thriving subset of this category is Industrial Outdoor Storage, a 2 billion asset class. Industrial Outdoor is a great asset class because it’s still mostly ma and pa owned, there’s very low capital expenditure, and little day-to-day management. These properties are comprised mostly of land with small, sparsely furnished industrial buildings, and sometimes no building at all. As a result, it can be lucrative to operate. Brandon Schubert, Founding Partner at Bird Dog Ventures, is acquiring Industrial Outdoor Storage facilities in the Dallas-Ft Worth metro and beyond. 

In certain markets, you can buy suburban office property for as low as $10/ft where it costs $200/ft to build. What’s more, you don’t have to go through the toil of finding off market deals, they’re listed publicly on LoopNet, Crexi, and other prominent sites. As workers have left downtown offices, they’ve chosen to work closer to home. Buildings with smaller one to three person offices in particular are seeing strong tenant demand. As a result, many suburban office buildings are at 90% occupancy.  Ash Patel, a successful Value-Add investor, invests in office buildings, flex Industrial, strip retail, and ground up construction. Ash doubles his money on most deals in three to five years.