19 min

How to Buy Value Add Industrial Real Estate & Biggest Lessons Learned Commercial Real Estate Investing From A-Z

    • Investing

How to add value to industrial investing, an asset class full of competition? What were some of the major lessons learned getting into the industrial asset class? Monick Halm, founder of Real Estate Investor Goddesses will be sharing her insights.

You can read this entire interview here: https://bit.ly/32GC1N0
What are some value add strategies in industrial?
There's a niche in industrial that we do called a sale leaseback, and sale leaseback is this, there's a company that has a facility that they are using and they want to sell, mostly because they want to get the equity out of it. But they still want to use it. So they sell it and then they lease it right back. This is very, very niche, very few people do this. And because it's so unusual and so few people do it, that really is the value add. We'll buy it and then the seller becomes a tenant, usually with a 20 year lease, built in rent increases, NNN. They're paying rent, property taxes, insurance, and maintenance. If there's an issue with the toilet, they fix the toilet, if there's an issue with the roof, they'll fix the roof.
We will typically sell it in four to six years to an institutional buyer, a pension fund or insurance company. They love these deals with an industrial tenant already in place with several years of steady rent, payment history with 15 to 17 years left on the lease. They'll buy those all day, everyday but they do not do the sale leaseback, so that is where the value is added. We also buy these slightly below market so we have built in equity. We rent it slightly below market as well to the seller/tenant which also gives us room, that's how we're adding value.
And the one risk is in that tenant. So we do a lot of due diligence on the company to make sure that they're a super good bet, a good risk. They're well capitalized, they're very strong companies. The youngest company we've done one of these deals with is 17 years old. I think we've had one of those as old as 80 something years. They're very strong companies that are not going anywhere.
Besides digging deep into these tenants, are there any other lessons that you can share that you learned in this asset class so far?
With our 109 spots in Houston, we have our various industrial park, those parks are flex warehouse space. Some of it is a little bit like retail. We have all different types of tenants. We have three churches, bakers, garages, all different types of tenants.Those tenants had mixed success during the pandemic, and the economic fallout of all of that. Churches couldn't meet, so it was hard for our churches to pay rent, the retail type spaces weren't able to do business and the other ones were fine. What's nice about that is we had 109 tenants, we have a mix of different things. Some are good, some are not bad, some didn't do as well. The lesson we learned, is having that variety of different tenants and really working with them and staying in communication with them, helping them to access some of the federal money that was available for businesses, that helped allay the risks. In our sale leasebacks, we actually had no problem with those companies. They were all essential businesses. A lot of them, like our food ones, were doing more business in it than ever. They were great.
And when you had a certain percentage of your tenants not paying, did you have to raise more funds? How did you deal with that?
We were fine. We had to get creative, stay in communication with them. We had to help our tenants be able to access cash so they could stay in business. We did have a couple that closed their doors and weren't able to last, there were enough that survived. On that particular deal, we paused distributions but we definitely did not need to get extra cash.

Monick Halm
www.reigoddesses.com
Podcast: https://apple.co/2Parmai

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Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support

How to add value to industrial investing, an asset class full of competition? What were some of the major lessons learned getting into the industrial asset class? Monick Halm, founder of Real Estate Investor Goddesses will be sharing her insights.

You can read this entire interview here: https://bit.ly/32GC1N0
What are some value add strategies in industrial?
There's a niche in industrial that we do called a sale leaseback, and sale leaseback is this, there's a company that has a facility that they are using and they want to sell, mostly because they want to get the equity out of it. But they still want to use it. So they sell it and then they lease it right back. This is very, very niche, very few people do this. And because it's so unusual and so few people do it, that really is the value add. We'll buy it and then the seller becomes a tenant, usually with a 20 year lease, built in rent increases, NNN. They're paying rent, property taxes, insurance, and maintenance. If there's an issue with the toilet, they fix the toilet, if there's an issue with the roof, they'll fix the roof.
We will typically sell it in four to six years to an institutional buyer, a pension fund or insurance company. They love these deals with an industrial tenant already in place with several years of steady rent, payment history with 15 to 17 years left on the lease. They'll buy those all day, everyday but they do not do the sale leaseback, so that is where the value is added. We also buy these slightly below market so we have built in equity. We rent it slightly below market as well to the seller/tenant which also gives us room, that's how we're adding value.
And the one risk is in that tenant. So we do a lot of due diligence on the company to make sure that they're a super good bet, a good risk. They're well capitalized, they're very strong companies. The youngest company we've done one of these deals with is 17 years old. I think we've had one of those as old as 80 something years. They're very strong companies that are not going anywhere.
Besides digging deep into these tenants, are there any other lessons that you can share that you learned in this asset class so far?
With our 109 spots in Houston, we have our various industrial park, those parks are flex warehouse space. Some of it is a little bit like retail. We have all different types of tenants. We have three churches, bakers, garages, all different types of tenants.Those tenants had mixed success during the pandemic, and the economic fallout of all of that. Churches couldn't meet, so it was hard for our churches to pay rent, the retail type spaces weren't able to do business and the other ones were fine. What's nice about that is we had 109 tenants, we have a mix of different things. Some are good, some are not bad, some didn't do as well. The lesson we learned, is having that variety of different tenants and really working with them and staying in communication with them, helping them to access some of the federal money that was available for businesses, that helped allay the risks. In our sale leasebacks, we actually had no problem with those companies. They were all essential businesses. A lot of them, like our food ones, were doing more business in it than ever. They were great.
And when you had a certain percentage of your tenants not paying, did you have to raise more funds? How did you deal with that?
We were fine. We had to get creative, stay in communication with them. We had to help our tenants be able to access cash so they could stay in business. We did have a couple that closed their doors and weren't able to last, there were enough that survived. On that particular deal, we paused distributions but we definitely did not need to get extra cash.

Monick Halm
www.reigoddesses.com
Podcast: https://apple.co/2Parmai

---

Support this podcast: https://anchor.fm/best-commercial-retail-real-estate-investing-advice-ever/support

19 min