Building Resilient Portfolios with Storage & Flex | Interview w/ Jeremy Friedman

Investing in commercial real estate is a journey filled with opportunities and challenges. For many, it begins with a dream and a well-thought-out plan. In this article, we dive into the world of commercial real estate investment through the eyes of seasoned professionals. Their experiences, insights, and strategies offer valuable lessons for both novice and experienced investors.

Investing in commercial real estate is a journey filled with opportunities and challenges. For many, it begins with a dream and a well-thought-out plan. In this article, we dive into the world of commercial real estate investment through the eyes of seasoned professionals. Their experiences, insights, and strategies offer valuable lessons for both novice and experienced investors.

The Genesis of an Investment Journey

Starting with a Vision

Grant Reeves and his partner started their venture, Equity Partners, in 2020. Both were experienced commercial real estate brokers with a shared ambition to move to the principal side of the business. When COVID-19 struck, they saw an opportunity to pivot and create their own investment firm.

The First Deal: A Strategic Acquisition

Their inaugural deal was the acquisition of an old grocery store repurposed into office spaces. With COVID causing a drop in office usage, they negotiated a lease buyout with the tenant and converted the space into climate-controlled self-storage. This strategic move set the stage for their future investments.

Building a Portfolio: Diversification and Strategy

From Self-Storage to Flex Industrial

Initially focused on self-storage, Equity Partners successfully completed three additional storage investments. They then diversified into flex industrial properties, acquiring and managing a portfolio of 13 properties, totaling 800,000 square feet and valued at $30 million.

The Shift to a Fund Model

The first ten investments were syndicated specific asset deals. Realizing the limitations of this approach in expanding their investor base, they transitioned to a fund model under a 506(c) offering. This change allowed for broader marketing and a more permanent investment vehicle.

Understanding Investor Requirements

Accreditation and Verification

Equity Partners deals exclusively with accredited investors. For their 506(b) offerings, investors self-certify their accreditation status. However, the 506(c) fund requires third-party verification through services like Accredify, ensuring compliance and streamlining the process.

Transparency and Information Flow

Investors receive detailed information about the fund's focus, including geographic location, property size, and targeted returns. Equity Partners aims for a 15% IRR and an 8% cash-on-cash return, with a clear strategy for property acquisitions and value additions.

The Dynamics of Different Asset Classes

Self-Storage: Flexibility and Rapid Turnover

Self-storage leases are typically 30 days, allowing for frequent repricing in response to market conditions. This flexibility is beneficial in a rising rate environment but can be challenging during downturns.

Flex Industrial: Stability and Long-Term Leases

Flex industrial properties offer more stable cash flows with longer lease terms, usually ranging from one to five years. This stability is balanced by the need for tenant improvements and leasing commissions, which are factored into the investment strategy.

Market Challenges and Opportunities

Navigating Competitive Markets

Finding viable deals in both self-storage and flex industrial markets requires thorough due diligence. The rising interest rates have made it challenging to find profitable deals, but the low supply and high demand for flex industrial properties present significant opportunities.

The Impact of Economic Trends

The commercial real estate market is influenced by broader economic trends. For example, the shift to remote work has affected demand for office spaces, while the resilience of service-based businesses has kept the flex industrial market robust.

Key Strategies for Success

Value Addition and Renovations

Equity Partners focuses on value-add strategies, such as converting underutilized spaces and updating facilities to attract higher rents. This approach ensures consistent growth and higher returns on investment.

Strategic Leasing and Tenant Management

Effective tenant management and strategic leasing are crucial. By maintaining a hands-on approach, Equity Partners ensures high occupancy rates and optimal rental incomes.

Conclusion

Commercial real estate investment is a complex but rewarding field. The journey of Equity Partners highlights the importance of strategic planning, diversification, and adaptability. For aspiring investors, understanding market dynamics, focusing on value addition, and building a strong management team are key to success.