10 Things To Consider Before Investing In Commercial Real Estate

resource-thumb_commercial side of real estate

Brian D. Milovich

Managing Principal, Calvera Partners

The commercial side of real estate can be an appealing proposition for any investor. It offers you the ability to dip into a new pool of clients and grow your business interests. But, the commercial side of real estate is also a different beast that requires some additional considerations versus the residential side of the business.

Patience is a virtue with these transactions as the sales cycle is longer, requiring an investor to remain vigilant with the market demand. But many indicators point to commercial real estate as a strong choice for agents looking to move their business forward in 2018.

Ten members of Forbes Real Estate Council shared the one thing investors should be aware of before getting involved with commercial real estate. Here is what they recommend:

1. Remember Everything Takes Longer

Compared to residential investing, everything takes longer. Due diligence is months instead of days. Finding new tenants takes longer. Build out or renovation is longer. But the leases are longer, as well. Patience is key. It just takes longer. – Roger Blankenship, Flipping America

2. Understand The Market

Investors need to understand the market they are investing in. Having a good wherewithal of the fundamentals (legal implications, competition, vacancy, rents, etc.) will allow them to make savvy investments that could yield high returns. This will enable investors to fine tune their commercial real estate investments and diversify their portfolio. – Juan Zaragoza, Exan Capital LLC

3. Consider Area Demographics And Trends

When investing in commercial real estate, the investor needs to consider demographics and trends for the area. Do they play into the reason for investing? Do you plan to develop? If so, find a local broker who understands the area and knows the playbook of the local authoritative agencies. You will need to understand civil engineering and environmental law in this playbook! – Rita Santamaria, Champions School of Real Estate

4. Assess Risk By Property Type

Risk assessment is very different in commercial when compared to residential real estate, and varies greatly by property type. The success of two residential properties right next to each other is typically similar, while commercial buildings in a similar position could fluctuate independently, so it’s important to understand the range of risks inherent to your potential investment. – Nav Athwal, RealtyShares

5. Avoid Failing Businesses Or Business Models

If your tenants include restaurants, grocery stores, bars or business models that are migrating online (like banks), you need to assume that they will default on their lease at one point, and you need to prepare your insurance correctly to make sure you are covered when that happens. Search for failing businesses and do your best to not deal with them as there may not always be a golden parachute. – Kent Clothier, Real Estate Worldwide

6. Know The Time Frame For All City Approvals

After working with more than 75 different city jurisdictions for the overall city permit approvals, I know it can take one month or even a few years prior to receiving a building permit. Before buying a commercial property, set up a meeting with the local authorities to determine the required approvals — from planning and zoning, site plan, city council, etc. – Pamela J. J Goodwin, Goodwin Commercial

7. Understand Market Trends’ Impact On Demand

It’s important to understand the dynamics of the property type you are selecting. For example, if you are looking to invest in retail, consider the near- and longer-term impacts of e-commerce on tenant and consumer demand. If you are looking at offices, consider how trends like co-working and telecommuting could impact demand for office space in your market. – Gary Beasley, Roofstock

8. Be Ready To Have An Active Role

Investing in commercial real estate is not a passive investment. The most successful investors take a very active role. They have systems and processes in place to ensure that the property is achieving its maximum operating potential. They are constantly keeping tabs on development and economic trends in the local market, as well as broader economic trends. – Jay Crotty, SkyView Advisors

9. Find Capital Or A Good Deal

To be successful in commercial real estate you need two things: capital or a deal. Currently, the market is flush with capital and if you can find an attractive deal, the equity will be there for you. If you don’t have a deal and are worried about high valuations, finding a patient source of capital should be your priority. Lining these two items up will give you the credibility to be successful. – Brian MilovichCalvera Partners

10. Consider CRE Debt Instead

Some investors aren’t aware there is opportunity to invest in real estate with less risk and greater potential return than property ownership — through investment in commercial real estate (CRE) debt. With returns in the range of 8-10% and a stronger standing than property owners in the event of a market correction, this opportunity is often overlooked by those looking to dive into CRE investing. – Evan Gentry, Money360



Click here for more information on the Calvera Income and Growth Fund.

Or to find out more directly from a member of our Investor Relations team, click here.

2 Embarcadero Center, 8th Floor
San Francisco, CA 94111

729 Washington Ave N, Suite 600
Minneapolis, MN 55401




Performance data listed in this website or is otherwise provided by Calvera Partners, LLC, or its affiliates (“Calvera”) with respect to a particular property or project represents past performance calculated for the relevant project and does not purport to reflect the overall performance of any private funds managed by Calvera, which may include other projects, as well as charge additional fees or carried interest, or have additional expenses, which would reduce the overall performance of the project from the perspective of a fund investor. Past performance does not guarantee future results; Current performance may be lower or higher than performance data presented. Calvera is not required by law to follow any standard methodology when calculating and representing performance data; the performance of any of Calvera’s projects may not be directly comparable to the performance of other investment vehicles or funds; and qualified potential investors can contact Calvera Partners for more current performance data of any private funds managed by Calvera. 

This website is provided for informational purposes only. Nothing contained in this material is an offer or solicitation to buy or sell any security. In addition, (i) any securities offered to investors that respond to any general solicitation or general advertisement made by Calvera, may be sold only to accredited investors; (ii) such securities will be offered in reliance on an exemption from the registration requirements of the Securities Act and such securities offered are not subject to the protections of the Investment Company Act or required to comply with specific disclosure requirements that apply to registration under the Securities Act; (iii) Neither the SEC, nor any state securities regulator, has passed upon the merits of or given its approval to any securities offered by Calvera, the terms of the offering, or the accuracy or completeness of any offering materials or the accuracy or completeness of any of the information or material provided by or through this website; (iv) the securities will be subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell their securities; and (v) investing in securities involves significant risks, and investors should be able to bear the loss of their investment. Please click here for additional important disclosures.