🗞️ News & Moves 🏠

Commercial Real Estate in 2025: A Quiet Comeback?(Commercial Observer)

After years of turbulence, it feels like commercial real estate is finally finding its groove again.

Industrial properties are still the darling of the market—warehouses are hot, and vacancy rates have just dipped, the first drop since 2022.

The office scene is starting to stabilize, too. Suburban markets are showing signs of life, with NYC holding strong at 13.1% vacancies.

Retail is loving the increased traffic. Grocery-anchored centers and high-end malls are thriving as shoppers come back in force.

And multifamily? Markets like Austin and Nashville are adjusting to overbuilding by mixing income-based rentals into their Class A portfolios.

Could this be the rebound we’ve all been waiting for?

Amazon’s $2B Industrial Spending Spree (The Real Deal)

After hitting the brakes on industrial real estate during the pandemic, Amazon came back swinging in 2024.

The e-commerce giant doubled its investments from the previous year, dropping over $2 billion on nearly 40 deals.

The real story?

Data centers. With demand for Amazon Web Services booming, thanks to AI, nearly half of Amazon’s spending went to central Virginia, now a hotspot for data centers.

It’s a stark shift from their 2022 slowdown, when they shut down or delayed nearly 100 facilities.

Now? Amazon is all-in again, riding the e-commerce and AI waves.

With stricter return-to-office policies, is more office space next?

🚨 The Fed Pulse 🚨

The economy is stuck in place—neither falling apart nor moving forward.

Recent data is a mixed bag: single-family home permits are at an 18-month low, but retail sales show a small spark.

Bottom line?

The economy is in neutral and will likely stay there for the next few quarters.

Mortgage rates aren’t budging either.

The 30-year fixed rate is at 6.95%, barely down from two weeks ago, and the 10-year Treasury yield is virtually unchanged.

Hoping for lower rates in 2025?

Don’t hold your breath.

There is some light ahead, though.

The inverted yield curve has normalized.

It suggests slow improvement from late 2025 into 2026.

Want to see my best steady eddy deal?

This weekend, while skiing and chatting about real estate with my mastermind buddy, Danny Newberry, he said something that hit home:

"Building cash flow is much harder than buying, stabilizing, and selling."

And I couldn’t agree more.

For years, I thought success in commercial real estate required mastering four skills: finding great deals, raising debt and equity, construction, and leasing/property management.

And don’t get me wrong, these are essential.

But they don’t guarantee the discipline needed for the hardest part: building cash flow.

Real estate's magic often works behind the scenes, like compound interest in investing.

You don’t see it day-to-day.

Over time, wealth and cash flow grow quietly as rent increases and loan principal is paid down.

But the patience to resist selling is where many investors falter.

Why is it so hard?

Because cash flow is slow-moving.

It doesn’t feel like you’re gaining much until years later.

It’s the invisible gravity of real estate—a force that works quietly but, over time, pulls massive value.

To illustrate, let me share a deal my partner and I closed.

It's a steady cash flow play, not a value-added opportunity.

At the end, I’ll share some key takeaways.

The Deal

Back in late 2019, my partner found a unique deal: two school bus terminals in the Chicago suburbs, Naperville and Wheeling, Illinois.

• Naperville facility: 12,604 SF on 5.05 acres

• Wheeling facility: 12,375 SF on 2.88 acres

• Tenants: Long-term occupant since 1975 (Wheeling) and 1982 (Naperville)

The seller, Septran Inc., a subsidiary of a billion-dollar transportation company, National Express LLC, was doing a sale-leaseback.

We negotiated a $6 million price at a 10% cap rate.

Rent was $50K/month NNN for five years, with 3% annual bumps and two renewal options.

And we had a parent company guarantee—rock solid.

This was the largest deal of my career at the time.

We stretched our limits to make it happen.

But, the fundamentals were undeniable: prime industrial land, a sticky tenant (I mean, how do you relocate a school bus terminal?), a solid guarantee, and a true NNN lease (single tenant).

Closing Day—and a World on Edge

On March 5, 2020, we closed the deal.

At the time, I was in New Zealand, preparing for something I’d been training for months: my first full Ironman.

Two days after the closing, I crossed the finish line.

But while I was celebrating my win, a nasty virus was sweeping through Asia and Europe, and it was starting to spread in the US too.

2 weeks later, the country was shut down - Covid pandemic.

Schools were shut down too, so our buses were grounded as well.

Like everyone, we wondered if they would keep sending us rent payments or if this was the deal we read about in the newspaper that would take us down.

We were fortunate; the rent check didn't skip a beat.

It was a combination of two things.

First, a strong guarantee.

Second, rents tied to school transportation contracts.

Economics

Let’s talk about value-add potential.

There wasn’t much.

The price per square foot came out to $240 for buildings situated on nearly eight acres of prime industrial land in Naperville and Wheeling.

Even if you adjust for the land value, we were paying north of $100 per square foot.

The only real value growth here would come from the 3% annual rent bumps.

But that’s what made this deal special.

It was never about a quick equity pop.

The beauty of this deal lay in its long-term lease with a strong tenant.

It was the epitome of a steady-eddy play, where results wouldn’t show in two years but would become apparent over a 5-10 year horizon.

We financed the deal with 80% leverage—$4.8 million.

To cover the equity, we raised $1.25 million, with my partner and me contributing one third.

From the start, the property generated cash.

Day one, we were able to pay investors a 10% preferred return from our cash flow.

Beautiful.

What’s Next

Our plan was straightforward.

After the initial five-year lease, which ends this year, we expect the tenant to renew.

At a monthly rent of around $59,000, the property's value is likely to increase to $7.7 million with a 9% cap rate, or $8.7 million with an 8% cap rate.

Meanwhile, our loan principal will have paid down to approximately $4.2 million.

This means, with principal paydown and rent bumps, our equity is up $2.2 million to $3.2 million.

Not bad for a hands-off deal.

It had no construction, no leasing efforts, and minimal operational demands.

Here's the key point: After we extend the lease, we plan to refinance and pay back investors.

Once we return their money, the obligation for preferred returns ends.

Then, the property will cashflow about $270K a year.

It will easily rank as one of my best deals, considering the effort and bandwidth it took to build that cash flow.

It required patience, discipline, and the resolve to hold firm despite numerous unsolicited inquiries coming in.

Takeaways:

1️⃣ Discipline and patience are the invisible gravity of real estate.

2️⃣ Value add deals are great for a quick boost, but over a 10+ year timeframe, value add, and steady eddy will yield similar results. For me, this means moving forward, I'll alternate between buying one steady Eddie deal and one value-add deal (thanks to Alan Schnur for this idea).

3️⃣ ‘Be fearful when others are greedy, and greedy when others are fearful,’ as Warren Buffett famously said—a timeless reminder.

That wraps it up for today, fellas!

Till next Sunday @ 9:07 am.

Yes, this email is real, and yes, I will reply. Hit me back with your questions so I can keep you on track.

Be well,