Commercial Real Estate Investing

Dolf de Roos is a New York Times and Wall Street Journal bestselling author and prolific real estate investor. He is the Chairman of Property Ventures Ltd, an innovative publicly-held property investment company with holdings ranging from office towers to vineyards, and a founding director of Best Choice Properties. His other real estate titles include Real Estate Riches, The Insider's Guide to Real Estate Investing Loopholes, The Insider's Guide to Making Money in Real Estate, The Insider's Guide to Tax-Free Real Estate Investments (all from Wiley), and 101 Ways to Massively Increase the Value of Your Real Estate without Spending Much Money, from Timelife Direct. For more information, visit www.dolfderoos.com

Preface xi

Acknowledgments xiii

Notes on Reading This Book xv

Introduction xvii

CHAPTER 1 Just What Is Commercial Real Estate? 1

CHAPTER 2 People versus Contracts 5

CHAPTER 3 Why Invest in Commercial Real Estate? 11

Lease Duration 11

Assignment of Lease 15

The Tenants Pay the Outgoings 17

Tenants Earn Their Income on Your Premises 18

Landlord Pays for Improvements to Commercial Premises 21

Certainty of Collecting Rent 22

Upward-Only Rent Reviews 24

Government Interference 25

Management Overhead 27

CHAPTER 4 The Downside of Commercial Real Estate 29

Much More Difficult to Acquire Commercial Tenants 29

Banks Will Lend a Smaller Proportion of a

Commercial Property 30

CHAPTER 5 The True Value of Real Estate 33

CHAPTER 6 How to Overcome the Disadvantages of Commercial Real Estate 41

CHAPTER 7 How to Attract a Tenant 45

Who Wants to Run a Funeral Business? 45

Finding a Tenant for a Warehouse in an

Oversupplied Market 50

The Power of the Internet 55

Many Prospective Tenants Know Your Building 56

Engage a Real Estate Firm or Property Management

Company to Find a Tenant 59

Wait for (or Cause) a Zone Change 60

Split a Single Tenancy into Multiple Tenancies 62

Consolidate Multiple Tenancies into One 64

The Ultimate Way to Attract a Tenant 66

CHAPTER 8 How to Increase Rental Income (and hence the Capital Value) 71

Helipads 72

Cell Phone Towers 73

More Rooftop Antics 74

Naming Rights 76

Air Space 77

Parking 81

The Humble Webcam 89

Interior Remodel 93

The Triple Win of Alarm Systems 100

Rent Reviews to Market 101

CHAPTER 9 What Were the Disadvantages of Commercial Real Estate? 103

CHAPTER 10 Finding Commercial Real Estate 107

Newspaper Advertisements 107

Real Estate Firms 112

The Internet 114

Keeping Your Eyes Peeled 116

Networking 118

Word of Mouth 118

Helping Other People 124

The 100:10:3:1 Rule 126

Summary 130

CHAPTER 11 Analyzing Deals 131

Due Diligence 132

Four Questions to Ask about Any Commercial Property 142

Return on Investment 144

CHAPTER 12 Negotiating Commercial Real Estate Deals 155

The Uncooperative Seller 156

Other Negotiations 159

CHAPTER 13 Financing Commercial Real Estate 163

Proposal for Finance 166

Summary Paragraph 171

General Description of Property Offered as Collateral 174

Property Portfolio Statistics and Cash Flows 176

Statement of Assets and Liabilities 177

What to Include in the Appendix 178

How to Use the Proposal for Finance 179

Umbrella Loans 182

CHAPTER 14 Structuring Commercial Real Estate Ownership 183

CHAPTER 15 Managing Commercial Real Estate 187

Tenant Selection 188

Rule Enforcement 189

Rent Reviews 190

How to Get a Tradesman to Do Your Work First 190

Accounting 193

Summary 193

CHAPTER 16 How to Beat the Average 195

Geography 196

Zone Changes 199

Proximity to Views 200

The Center of Town 200

High Technology 201

Leasing and Management Tactics to Beat the Average 202

Combining All Methods of Beating the Average 202

CHAPTER 17 Raw Land 205

Best Choice Properties 208

Spring Mountain Ski Ranch 211

The Benefit of Having Great Partners 214

Getting Back to Commercial Real Estate Investing 216

CHAPTER 18 Extraordinarily Odd Commercial Deals 217

Oil in Them Thar Hills 219

Marine Farms 222

CHAPTER 19 Property Ventures Limited 225

Five Mile 230

CHAPTER 20 Never Sell 233

CHAPTER 21 Thirteen Golden Rules of Commercial Real Estate Investment 239

Golden Rule 1: Risk Is Equal to Yield 239

Golden Rule 2: Ensure Safety of Principal 240

Golden Rule 3: Control Your Liabilities 240

Golden Rule 4: Add Value to a Deal 241

Golden Rule 5: A Broker or Agent Must Bring Something to the Deal 242

Golden Rule 6: Real Estate Is a Long-Term Investment 243

Golden Rule 7: The Number of Voting Partners Is Directly Proportional to the Failure of the Project 244

Golden Rule 8: You Are Going to Be in a Lawsuit 244

Golden Rule 9: It Only Takes One Deal to Go Broke 245

Golden Rule 10: It Only Takes One Deal to Make a Million Dollars 245

Golden Rule 11: The Value of a Property Is Limited by the Tenant’s Ability to Pay Rent 246

Golden Rule 12: Appreciation and Inflation Are Compounded Annually 246

Golden Rule 13: You Cannot Give Kindness Away—It Is Always Returned 247

CHAPTER 22 Investing Abroad 249

CHAPTER 23 Live Life to the Fullest 261

About the Author 269

Appendix: Resources 271

Index 281