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kTrim Size: 7.375in x 9.25inxviPainter6291158:35pmPage xviENCYCLOPEDIA TOPICSENCYCLOPEDIA TOPIC ESellingkftoc.tex V1 - 07/05/20201031 Exchange ChecklistAs-Is ClauseBroker CooperationAgreementCap/Capitalization Rate(Seller’s Perspective)Commercial Real EstateBuyer TypesCommissions,Commercial Real t (NDA),SellersContingency Clauses inSales Contract (Seller’sPerspective)Depreciation Recapture205205206Letter of Intent/Interest(LOI) Loan AssumptionNegotiating Repairs withthe BuyerOnline and MultipleListing System (MLS)MarketingOwner’s Title InsurancePolicyPrivate SaleProperty ConditionInspection ReportRealized GainTime Is of the EssenceClause207207207208209209211ENCYCLOPEDIA TOPIC FRepositioningAbsorptionAdaptive Reuse(Repurposing)Appreciation, ForcedBallpark QuotesBuilding Codes andPermitsCompetition AnalysisConstructionalRepositioning ChecklistCosmetic RepositioningChecklistDesign Drawings VersusArchitectural ssed PropertyEconomic ObsolescenceEnergy ManagementSystem (EMS)Functional ObsolescenceMaster Lease AgreementNonperforming MortgageNote PurchasingOperating Budget ProFormaOperational RepositioningChecklistRaising 7248248k

kTrim Size: 7.375in x 9.25inPainter629115ftoc.tex V1 - RevitalizationTenant ProfileVariance AnalysisWater Management/Conservation ProgramENCYCLOPEDIA TOPIC GDevelopmentkAbsorption ScheduleBid and Award ProcessBike ScoreBrownfieldBuildoutBuild-to-Core StrategyCar Stack ParkingCertificate of Occupancy(C of O)Conceptual DesignConstruction ContractPitfalls to AvoidConstruction MonitoringCost per Square FootCost-Plus ConstructionContractDensityDevelopment FeeDeveloper’sResponsibilitiesElevation DrawingsEnergy Star RatingEntitlement ProcessFurniture, Fixtures, andEquipment (FF&E)Hard CostsHydrologistsImpact FeesPage xviixviiEncyclopedia TopicsRatio Utility BillingSystem (RUBS)RebrandingRehab ConstructionContractRepositioning Pro FormaRe-Tenanting Plan forRetail 304kLand AssemblageLand Use AttorneyLEED CertificationLump Sum ConstructionContractModular ConstructionNew UrbanismOff-Street-ParkingRequirementsOpportunity ZonesPerformance BondPlanned UnitDevelopment (PUD)Predevelopment—20 StepsPreliminary DrawingsPro Forma Rent RollPunch List, End ofConstructionRaw Land DevelopmentSchematic DesignSetbacksSingle Room Occupancy(SRO)Site PlanSoft CostsSpecifications/SpecsStabilized Value, NewlyConstructed 09310310311311312312312313k

kTrim Size: 7.375in x 9.25inxviiiPainter6291158:35pmPage xviiiENCYCLOPEDIA TOPICSSubterranean ParkingTransit-OrientedDevelopment (TOD)Urban InfillValue EngineeringWalk ScoreZoning Variance313313314ENCYCLOPEDIA TOPIC HFinancingkftoc.tex V1 - 07/05/2020Adjustable/Floating RateCommercial MortgageAppraisal (ThreeApproaches toCommercialAppraisals)Bad-Boy Carve-OutsBlanket MortgageBridge LoanCapital ImprovementReserves/ Cap-XCapital StackCash-Out RefinancingClosing Cost Checklist(Commercial Loan)Commercial Constructionand Bridge LoanProgramsCommercial LoanSubmission ChecklistCompletion Guarantee(Construction Loans)Construction LoanSubmission ChecklistConstruction Rollover toPermanent LoanCoterminous LoanCumulative Loan To Value(CLTV)Debt Service CoverageRatio (DSCR)Debt Yield314315315357Declining PrepaymentPenaltyDefeasance PrepaymentPenaltyEarn-Out ProvisionEnvironmental Report(Required by Lenders)Equity Participation LoanEstoppel Certificate(Required by Lenders)Executive Loan SummaryFixed-Rate CommercialMortgagesForbearance AgreementForeign National LoanGlobal RatioIndexInterest-Only MortgageKey PrincipalLand AcquisitionFinancingLetter of Interest/Intent(LOI) (Lender)LIBOR (LondonInter-Bank OfferedRate)Loan ExtensionLockout PrepaymentPenaltyMarket SizeMezzanine DebtMini-Perm 4375375376376377377378378k

kTrim Size: 7.375in x 9.25inPainter629115ftoc.tex V1 - ond Mortgage/Subordinate LoanSecondary MarketSelf-Directed IRACommercial LoanSpringing Lock BoxStated IncomeCommercial LoanSupplemental FinancingSwap RateTax and InsuranceEscrow/ImpoundThird-Party ReportUnderwriting InterestRateUpfront FeeWraparound MortgageYield MaintenancePrepayment PenaltyENCYCLOPEDIA TOPIC ICommercial Loan ProgramsCommercialMortgage-BackedSecurity (CMBS) LoansCommunity BanksCredit UnionsCrowdfunding LoansFannie Mae MultifamilyLoansFreddie Mac MultifamilyLoansHard Money Bridge andConstruction LoansHUD/FHA Multifamilyand HealthcarePage xixxixEncyclopedia TopicsMultiple ResidentialInvestment PropertyLoanNo Money DownCommercial LoanNon-Recourse LoanOperating Budget ProFormaOwner-OccupiedCommercial MortgagePACE FinancingPoor-Credit CommercialMortgagesPortfolio LoanPrivate Debt Fund LenderRate Lock and Rate-LockDepositRehab Loan (BestPrograms)Replacement 388391391392392393394395396396kLarge Commercial BanksLife CompaniesNational Bank CapitalDivisionsPoor-Credit SecondaryMarket LoansPrivate Debt FundsRegional Bank IncomeProperty DivisionsSBA for Hospitality,Self-Storage, andOwner-User398399400400401402402k

kTrim Size: 7.375in x 9.25inxxPainter6291158:35pmPage xxENCYCLOPEDIA TOPICSENCYCLOPEDIA TOPIC JManaging and Leasingkftoc.tex V1 - 07/05/2020Absolute Triple Net LeaseAmericans withDisabilities Act (ADA)ComplianceAssignment of LeaseClauseAudit Rights for LandlordsAudit Rights for TenantsBase RentBuildoutCommon AreaMaintenance (CAM)FeesCredit/Investment GradeTenantCreditworthy TenantDouble Net LeaseEffective RentEscalation Clause (Rent)Estoppel Letter (LeaseClause)Eviction ProcessExpense Stop and FullyServiced LeasesFirst Right of RefusalFurniture, Fixtures, andEquipment (FF&E)(Commercial Lease)General Vacancy andCredit LossGo Dark Clause (Lease)Gross/Full Service LeaseLease-Up Fee (LeasingCommission)Letter of Intent (LOI) toLeaseManagement Duties forCommercial PropertyManagers427427Modified Net LeaseNet LeaseOff-Site Management FeesOn-Site Management CostOperating Expense CapsOption Clauses (Leases)Percentage LeaseProperty ManagementContract (Protectionsfor the Property Owner)Property ManagementSoftwareRent AbatementRent ConcessionsRent per Square FootRequest for Proposal(RFP) (Leases)Security DepositsSingle Net LeaseSublease Clause (Leases)Subordination,Non-Disturbance, andAttornment Agreement(SNDA)Tenant Allowance(TA)/TenantImprovementAllowance (TIA)Tenant Improvements(TI)/LeaseholdImprovements (LI)Tenant MixTenant Relocation ClauseTerm of LeaseTriple Net LeaseTurnkeyUseable Square FootageVersus Rentable 45446446k

Trim Size: 7.375in x 9.25inkPainter629115flast01.texV1 - 07/05/20208:21pmPage xxiForewordover 20 years, I’ve invested in commercial real estate in nearly every sectionF orof theUnited States and have taught thousands of everyday people how to suc-kcessfully invest in large apartment buildings, shopping centers, office buildings, andself-storage facilities, and the list goes on.When I first met Terry Painter in 2004 at my favorite Italian restaurant inSan Francisco, my commercial real estate business was experiencing a bit ofout-of-control growth. I needed to talk to him about a 140-unit apartment complexwe were purchasing in Dallas, Texas. We had just been within days of getting ourfinancing approved and the lender, without warning, backed out. On that day anduntil today, I still wonder how a guy who’s so intelligent can have such a wittysense of humor. Typically, people as sharp as Terry aren’t very funny.Well, to make a long story short, and humor aside, Terry was the smartestfinance guy I ever met. But not just book-smart; Terry had gleaned his wisdomfrom the most valuable school one could attend—the School of Hard Knocks. Hecould virtually read through our deal’s financial statements and share with uswhat the numbers truly meant from not only a rate of return perspective, but ahuman and emotional perspective. It was at that time that I started learning theimportance of closely working with people who were smarter than me. Just to letyou know, Terry came to the rescue on that Dallas deal and closed on a loan forus in 38 days with zero issues. Since then, he is the first person we call when acommercial loan is needed—pretty much anywhere in the United States.Some of the best deals our group got involved in were the ones Terry advised usto pass on. Sometimes the greatest value is exiting at the beginning a deal that couldbe a time bomb. And likewise, many deals that Terry advised us to move forwardon were personally life-changing deals for us and many others. Terry was, and hasalways been, the smartest guy in the room. Period.The Encyclopedia of Commercial Real Estate Advice is a serious bottom-line bookabout making sound business decisions concerning buying and selling a commercial property, raising money from investors, deal due diligence (most important, inmy opinion), developing from the ground up, repositioning a property to its highest and best use (my personal favorite), leasing and management, and, of course,financing. It’s probably the most useful advanced real estate book I’ve ever read.xxikk

Trim Size: 7.375in x 9.25inkxxiiPainter629115flast01.texV1 - 07/05/20208:21pmPage xxiiFOREWORDFor Terry to pour his vast real-world knowledge and passion into this book isa true blessing to any reader or student of this great business called commercialreal estate. Terry is more than just a great lender, though. His deep and practicalcommand of the commercial lending world is more than just concepts. His adviceis from years and years and hundreds of closed transactions all over the UnitedStates, helping investors (perhaps just like you!) reach lifetime financial targetsand lifestyle goals. To me, and perhaps you, that’s what life is about. My advice towhomever has picked up this book is to get someone who’s smarter than yourselfon your team. That person is the author of this phenomenal book.Peter Harris, best-selling author of Commercial Real Estate Investing For kkk

Trim Size: 7.375in x 9.25inkPainter629115flast01.texV1 - 07/08/20204:22pmPage xxiiiIntroductionIf you are reading this book, you are a very lucky person. If youC ongratulations!are already investing in commercial real estate, thinking about it, or working inkthis field, you are a member of a very exclusive group. According to the IRS, lessthan 8% of all Americans who file tax returns get to invest in income property andunder 3% own commercial investment real estate. And if you work in this industrylike I do (I do commercial mortgages), well, I hope you think it’s fun, as I do, and,might I add, never boring.As an investor in commercial property, you get to wake up in the morning andsay to yourself, “What can I do to this property to add value?” Maybe you have founda Class C minus apartment complex in an up-and-coming neighborhood. Yes, getrid of the slow-paying and no-paying renters, and the ones who have rusty bikes andjunk on their patios. Then do about 4,500 per unit in cosmetic upgrades and therents can be raised 100 per month. Just with those ideas you can be on your wayto increasing the property value by 20% or more in five years. I know of no otherinvestment opportunity that is designed like commercial real estate—one whereyou can choose the right property, add value, and be rewarded with a pay raise,increased equity, and amazing tax benefits.Remember when you just had a day job? You only had one source ofincome—the paycheck. With commercial real estate, you get to have four sourcesof income: rental income, rental increases, appreciation, and depreciation (Iknow, how can something appreciate and depreciate at the same time? Only inAmerica.) Oh, but wait! There is actually a fifth one—leveraging your equity taxfree into a larger, more profitable property by doing a cash-out refinance or a 1031tax-deferred exchange. These are covered in detail in Chapter 5.Is commercial real estate a better or safer investment than the stock market?Well, this is really comparing apples with oranges. Commercial real estate is slowmoving. It just doesn’t have wild swings from one day to the next like the ones stocksare known for. It is unlikely that you will ever lose 25% of your equity or, for thatmatter, gain 25% as stocks can over a year—or, even worse, experience a drop of 12%in one week as the Dow did on February 28, 2020, as fears of the COVID-19 crisisimpacted the world.xxiiikk

Trim Size: 7.375in x 9.25inkxxivkPainter629115flast01.texV1 - 07/08/20204:22pmPage xxivINTRODUCTIONCommercial property investment certainly has its risks, which are explained indetail in Chapter 1. One major risk is choosing a higher-risk property type. Unlessyou have experience and a nice chunk of cash, you might want to avoid hotels, retail,and office properties. Recessions consistently seem to give these properties heartburn. Oh, and I had better add Class C minus apartment complexes in blue-collarneighborhoods to this list. Boy, do they take a lot of mothering, complete with nagging tenants to be nice to each other and pay the rent. During the Great Recession and the coronavirus recession, these properties had the most slow-paying andno-paying tenants in the multifamily sector due to job loss. Class A, B, and C apartment buildings in good neighborhoods had a very low rate of default.Recessions can actually offer a bonus when buying commercial property.Many of my clients can’t wait for the next one. They have cash put aside to snatchdistressed properties at a discount. Many of my experienced clients are careful torecession-proof their properties. Chapter 2 gives you 10 tested methods of doingthis. Just one of them, structuring the property so that it can break even at 75%occupancy after paying all the expenses and the mortgage, can make your propertybulletproof during a recession.Actually, in my experience the highest risk is taking shortcuts on due diligencewhen buying, and getting married to a property who is not who you thought it was.To avoid falling into this trap, be sure to read Chapter 3, especially the 11 due diligence mistakes to avoid.Unlike investing passively in stocks, investing in commercial real estate is ahands-on business. What causes stocks to go up and down is the performance of thecompanies they represent and the whims of investors buying and selling each day.Conversely, commercial real estate depends on your entrepreneurial skill. This iswhat I love the most about it and why I am writing this book, which is chock-full ofsolid, tested advice on how to make the right decisions and avoid pitfalls when buying, selling, repositioning, developing, financing, and managing commercial realestate.When my editor, Richard Narramore, contacted me to see if I would beinterested in writing this book, my first thought was—“sounds interesting.” Mynext thought was: “Hey, wait a minute, this is my book.” Why? Because for 23years, I have lived and breathed commercial real estate. I have financed just aboutevery type of commercial property—from memory-care facilities to a biodieselplant—during every economic cycle. I know the pros and cons and the quirksof just about all of them. I know that a light-industrial complex will survivebetter than an office complex during tough economic times. That for the newbie,apartments are one of the easiest types of property to learn about, but that theycan be alarmingly risky, since managing them is a bear. That self-storage is a muchbetter investment for the beginner, as it is easy to manage and usually highlykk

kTrim Size: 7.375in x 9.25inflast01.texV1 - 07/08/20204:22pmPage xxvxxvIntroductionkPainter629115profitable at 85% occupancy, but that self-storage properties are difficult to buy. Ihave learned that owning a commercial property out of state quadruples the risk,and that if you do not have any working capital that’s an even bigger risk. Did youknow that smaller property management companies steal from the properties theymanage more often than you would think? There are 11 very creative ways they dothis, outlined in detail in Chapter 12.I have taught seminars to new investors about how to choose the right commercial property, how to finance it, and how to recession-proof it. I have trainedcommercial realtors on how to avoid having their deals crash and burn after theyhave put over a hundred hours into them. I have assisted many of my clients inputting together financing proposals for repositioning all kinds of commercial properties. One of my deepest passions is working with developers—they are amazingpeople! They start out with an idea, which leads to finding the right piece of land.They then run some numbers. This leads to a design drawing. Next they mix inthousands of hours of work and a lot of brick and mortar. They then get to walk bythe bustling property someday with their grandkids and say—“I built this!” ReadChapter 8 to find out if you have what it takes to be a developer.At my companies, Business Loan Store and Apartment Loan Store, we financeall types of commercial real estate, but we are also advisory firms. I love assisting ourclients with making the best decisions based on their long- and short-term financialgoals. You would be surprised how many are sitting on the fence on what those goalsare. What? You don’t know yet if this is going to be a fix-and-flip or a long-term hold?From a lending perspective, my work is foren

— PETER HARRIS, Bestselling author of Commercial Real Estate Investing for Dummies Sound, advice on the A-to-Z of commercial real estate Apartment complexes, office buildings, self-storage, long-term care centers for the right investor, commercial real estate ven