Commercial Real Estate

Key Takeaways

Buncombe County had 1.7 months of inventory in November 2022. Zac Ruiz called 5 to 7 months a balanced market, so the county was still firmly a seller's market.
The median Buncombe County home sold in 15 days that month, up from 8 days in November 2021, an 88% increase.
A $550,000 home financed at 4% carried a payment of about $2,600 a month. At 8%, the same house ran about $4,000 a month, which is why so few owners were listing.
Commercial tenants sign for 3 to 13 years, against roughly a year in residential. Wes Reinhardt and Austin Walker closed one 12-year lease together.
New commercial brokers should plan for a slow start. John Spake told Wes it would take 12 months to close his first deal in Asheville, and it took almost exactly that.

The Challenges of Navigating Commercial Real Estate

Three of Asheville's top commercial real estate experts presented at AVLmeetup to share their journey and explain commercial real estate fundamentals. Because a lot of complex terminology and calculations are involved, this topic can be difficult to understand. Nevertheless, the speakers offered valuable insights into how the business works and provided helpful resources for those looking to get into it.

Despite coming from varied backgrounds and not having much initial experience in commercial real estate, Wes Reinhardt, Chris Gragtmans, and Austin Walker have all managed to become accomplished professionals in the field. Reinhardt has been in this business for 18 years ever since he moved away from Wall Street to Asheville and created his own company Altamus Property Management. Gragtmans invested in multifamily properties after his athletic career ended, prompting him to teach himself more about real estate; After seven years of learning more about it, he is currently working with KW Commercial. On the other hand, Walker started out as a part of a project related to the redevelopment of the Basilica property when he first moved to Asheville in 2001 and shifted over to Whitney Commercial Real Estate in 2006.

Residential vs. Commercial Real Estate

Austin, Chris, and Wes provided insights into commercial and residential real estate differences. The nature of the lessor-lessee relationship is much more established in commercial real estate than it is in residential. This is largely due to the length of a tenant's stay; in residential properties, it averages about a year, while commercial tenants may remain for three to thirteen years - thus making it necessary for landlords to ensure that the property meets the tenant's needs throughout their tenancy. Furthermore, part of a landlord’s responsibility with regard to commercial real estate is to make sure any modifications improve their client's business environment. In contrast, when working with residential property owners or tenants, emphasis is put on ensuring basic maintenance (e.g., shoveling snow and mowing lawns).

It is commonly believed that commercial real estate transactions take longer than residential real estate, but in reality, there is no set timeline for commercial transactions. Generally, leases take less time than sales, and the amount of time spent varies depending on whether the agent represents the tenant or not. When Wes entered the real estate industry, a seasoned commercial player told him it would take a year to close his first deal. This advice did not fully register with Wes until ten months had passed without a deal, causing him to question his decision to change jobs and uproot his family. It was not until the end of the twelve-month period that Wes could finally land his first deal. Both Wes and Chris advise new entrants to the commercial real estate business to be patient and gain experience, as it can be a slow process at first.

Valuing Commercial Real Estate

There is a prevalent misunderstanding regarding how property values are determined in commercial real estate. Cap rates denote a property's income and are commonly used to establish its value. However, this process is more intricate than it seems, and having a professional who truly comprehends the market is crucial. The value of a property is frequently unique to each transaction and asset. Nevertheless, gauging property value becomes less complex with expertise and industry awareness.

Expert Advice From The Panel

The three panelists were asked to share some wisdom from their experience that would benefit beginners in the field. They discussed potential tips on how to get started and what strategies could best cultivate success.

Wes: As a commercial real estate broker, it’s critical to understand the complexity of this market and be able to provide guidance throughout the process. Maintaining an ongoing relationship with clients and having open communication is important to ensure they have the most complete understanding of their dealings. Aim not only to close deals but also to always give attentive service to build rapport and trust.

Chris: Many individuals possess hard skills, such as comprehending the mechanics of math and deal-making, but it's the soft skills, like acting as a mediator between opposing parties, that truly matter. Being aware of this enables you to effectively represent your client, thereby increasing the likelihood of a successful transaction. While it's crucial to know about real estate, it's equally important to understand human behavior.

Austin: Know the product! The only way to know the product is to go out there with the people doing the deals.

Questions From the Room

Should you get an appraisal before you sell a commercial property? Chris said brokers love it when an appraisal exists, though they will sometimes counsel slightly against the number, often on the high side. Without one, they underwrite the property themselves and look for continuity across several valuation methods. He keeps a relationship with every appraiser he works with so he can call and compare notes. Pricing is a fiduciary act: overvalue it and the property sits, undervalue it and the seller leaves money on the table.
Why invest in retail or industrial instead of apartments? Wes pointed to the numbers rather than a preference. Industrial vacancy in the Asheville market was under 3% at the time, and rent growth over the previous 12 months was compelling across sectors. His caution was about timing: do the market analysis, and be careful not to be midstream when the music stops. Risk that is taken deliberately, he said, tends to be rewarded.
How does a small investor break into multifamily against the big developers? Wes was blunt that economies of scale work against small buyers. He had recently run a roughly 30-unit residential project eight different ways and could not make the numbers work, because construction costs and interest rates had not found equilibrium. Take the shot if the deal pencils, he said, but be realistic. Rodrigo Afanador added that he would look at mobile home parks instead.
What can we do about the red tape around development in Asheville? Wes thought the process was better defined than it was around 2010, but said he is now seeing tones of regression. Austin tied part of it to staff turnover at the city, which cost the process some interpretive stability, and suggested voicing concerns directly to the plan reviewers on specific comments. Chris offered a case in point: an opportunity zone deal died because the city wanted 20% affordable units for 20 years and the buyer could only underwrite 10.
How do you buy a 10 to 20 unit building without a traditional loan? Chris framed negotiation as information, power, and timing. The more you learn about the seller's motivation and constraints, the more you can structure something creative that helps both sides. He quoted Henry Ford: "I'll let you set the price if I can set the terms." Seller financing can sit on top of conventional lending or replace it entirely, and price is only one of the levers available.

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