The State of Commercial Real Estate Investing in Kansas City

I like to keep up with commercial real estate.  Mostly, I read about it.  Ask questions about it.  On very rare occasions I actually get to partake in a commercial real estate transaction.  But commercial real estate investing and residential real estate investing are two completely different animals.  The Kansas City Star has an excellent write-up today on the state of the commercial market today.

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First, let’s remember who I am.  I’m a residential real estate agent that works a whole lot with residential investment property owners and would-be owners.  Also, I rent commercial space for my own use in an entirely different arena that my wife and I also enjoy.  So I do have experience with both.  My thoughts;

Residential Investment Property Investing In Kansas City Today

While there are definitely areas to avoid, I can say with a straight face that if you have cash you should be buying.  Now.  Not later.  The money is currently in single family homes, not multi-family homes.  There are more reasons for this than I want to discuss here.  But that’s the way it is.

Commercial Real Estate Investing In Kansas City Today

Oy.  Read the article and look around.  In the retail strip center I lease property in we currently had 100% occupancy for the first time in a decade.  The strip center is run down and well-below the standards of other Olathe strip retail centers.  But one of the largest tenants will be closing it’s doors on May 23rd.  (The owner told me he just isn’t able to make it with his limited customer base cutting back.)

About a mile from my center I’ve had another retail center talking to me about moving up there when my current lease is up.  They took a previously run-down center and gave it a new face lift.  Looks good.  But they also tripled their lease rates.  And it sits about 35%-45% occupied.

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BBQCapital has a reader that goes by the name of Another Investor.  And AI once said that she didn’t understand the fascination with commercial real estate investing because of the capital and risk involved.  (If I’m too far off what you said AI, please correct me!)  And that it was her feeling that a commercial tenant will quit paying their rent before a residential tenant would.  After all, would they rather have a home to live in if they cannot make their store payments?  Probably.

I think for large capital investors commercial is an excellent way to go.  And there are hundreds of reasons for this.  But for 99.9% of our readership here you’re probably better off with 10-12 homes than one small, run-down strip center.  (Not saying you need 10-12.  But at that point you are probably thinking about going commercial.)

Just my thoughts for the day.

11 Comments

Filed under Commercial Real Estate, Real Estate Investing

11 responses to “The State of Commercial Real Estate Investing in Kansas City

  1. Another Investor

    The current cap rates for commercial/industrial properties and apartments are absurd. The only way to make money on most of these is to “hope” rents go up and/or cap rates go down and you can sell to a greater fool. Not a likely scenario in a deteriorating rent and occupancy environment.

    The pitfalls of these properties are much more complex and varied. These properties are not for the novice investor. For retail, it’s all about your leases and the tenant mix. Losing your anchor tenant can wipe you out. It takes an experienced commercial landlord to navigate these treacherous waters.

    I will be interested when cap rates on actual income are in the double digits and everyone thinks the real estate world is coming to an end. We are nowhere near that point in the cycle. Until then, I will stick with houses.

  2. I figured that’s along the lines of what you’d say. Thank you for your input.

  3. I’ve studiously avoided owning, with rare exception, commercial properties — period. The location can be AAA. Same with the tenants and the cap rate. Bottom line is this: When times get bad, and the cycle takes things southward, there are times when you as the proud owner could give your tenants a dime a foot to stay there, and they still couldn’t stay afloat.

    Meanwhile, back in the real world, their former employees are going home to their homes/apts/condos, where they will, for the most part, figure out how to find a new job quickly and keep payin’ rent. Livin’ in the Accord just ain’t an alternative.

    Rents may fall a bit, vacancy rates may rise, but in the end you’re not gonna find yourself awake at 3 in the morning wondering what you’re gonna do about your empty investment.

    My experience has shown me commercial real estate is great for teaching folks how to be calm in a storm. 🙂

  4. More evidence and opinion that commercial real estate investing is left to large capital investors….insurance companies, corporations and the like.

    Thanks for commenting.

  5. Another Investor

    Unlike Jeff, there are some commercial/industrial property types I would buy. Just not at today’s cap rates and values. If you have enough capital and buy at the right time and price, your returns will exceed those of houses.

    However, most people don’t have the capital or the expertise to understand when these properties are really “on sale” or to manage the income over their holding period. These properties are not for the average investor, and certainly not for folks with day jobs and lots of family responsibilities. Houses are easy to finance, easy to manage and easy to rent or sell. Perfect for someone looking for leveraged wealth building, tax shelter, diversification and retirement income.

  6. I have not ventured into the commercial world of real estate for all of those reasons. If a tenants leaves and your property is a dying area; it can be vacant many years. I’ve seen many of those run down buildings be turned into apartments.
    cashflow Cindy

  7. Cindy nails it! With residential investment property your abnormally long vacancy can last upwards of 3-6 months. With a commercial vacancy you can be empty for years!!!! Even in good times.

  8. AI – I think capital is the absolute key to commercial investing. Best left to commercial institutions with that kind of money.

    Like you and Jeff I firmly believe most of our readers should just stick with owning a couple to more-than-a-few rental properties. They will probably sleep much better at night.

  9. Geez, guess I shoulda said that. 🙂

  10. You did say that. She just said it in one paragraph. 😉

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