April 2020

Before making any decisions to invest in a commercial real estate development project, it’s important to understand how the entire development process works. That will allow you to be able to track the progress of your investment. There are 7 major steps to commercial real estate development. Site Acquisition Due Diligence and Feasibility Entitlements Design Financing Construction Lease-Up Site Acquisition Site acquisition is where the development process really begins. There are several things to look at when selecting a site for development including: Demand Drivers – Understand the characteristics that make the asset you are wanting to develop successful. That…

What is a 1031 Tax-Deferred Exchange? 1031 Tax-deferred Exchanges have been around since Congress passed the Revenue Act of 1921. The actual law is found in 26 U.S. Code Section 1031 of the Internal Revenue Code. Under Section 1031, the law specifically states that “a taxpayer may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property.” These transactions are known as a 1031 Tax-Deferred Exchanges. 1031 Exchanges are an excellent wealth-building strategy because it leaves you more money to invest in bigger and better properties. Note, however, that the tax…

A preferred return is part of the real estate equity waterfall and is often referred to as a “pref”. A preferred return is often associated with limited partners in a commercial real estate project. Limited partners will usually receive a “pref” and will be the first to receive returns up to a certain percentage, generally between 6 and 10 percent. After this profit percentage is attained, the excess profits are then split among the rest of the investors (limited partners or LPs and general partners or GPs). The split is usually based on ownership percentages or an amount stated in…

Capital Stack Intro A real estate capital stack is the financial structure of real estate deal. The capital stack shows the amount and relationship of all the different types of capital used, or expected to be used, in a real estate deal. While that explanation may seem a little daunting to even the most seasoned investors, it’s actually pretty simple if you break the capital stack into its separate parts. Let’s start with an extremely simple example, your home. If you bought your home for $300,000 and were required to put 20% down, or $60,000, the capital stack on your…

What is Self-Storage? Self-storage rents out and leases space to individuals and businesses. Most people at one time rented a self-storage unit. A majority self-storage leases are on a month-to-month basis. Some of the largest companies in the industry are Extra Space Storage, Public Storage, and CubeSmart. Currently the self-storage industry has a market size of around $39 billion dollars with an estimated 60,000 facilities currently operating in the space. While those are large numbers, they are about 1/5 the size of the apartment industry which is around $176 billion with an estimated 564,000 facilities currently operating*. What that means,…