How to Make Money in Real Estate in the New Economy by Matthew A. Martinez

Author:Matthew A. Martinez
Language: eng
Format: epub
Publisher: McGraw-Hill
Published: 2011-03-12T16:00:00+00:00

Case Study 2

Sergio Delgado from Invest Real Estate Enterprises launched his career in real estate as a residential broker. During the boom, he would put well-situated land under contract and sell the deals at a significant profit. Suddenly, developers started to pull back and weren’t buying his contracts in late 2007. “The easy money was gone,” said Sergio.

Up to that point, he had worked diligently for five years selling land contracts, condos, townhomes, and single-family houses before transitioning into commercial real estate by acquiring his first retail property. Since that time, he has partnered with Ramon Mendez, and they have quietly added more shopping centers to their portfolio.

Sergio’s mentor told him never to pay more than $100 a square foot for any property, and always buy at great locations (as they say, “Main on Main”). He also consolidated his search for new properties to a relatively small area—Miami-Dade County. He avoided chasing deals in nearby Broward or other parts of Florida.

Their strategy consists primarily of the following tenets:

• Put 30 percent or more down at closing.

• Pull money out of a project only if it doesn’t exceed a 50 percent LTV.

• Be religious about managing your own properties—don’t use management companies.

• Keep rents at or below market to keep centers full, because full centers drive traffic for all tenants.

• Cater to mom-and-pop retailers. It’s better to lease to several small companies. It’s far worse to have a big-box space of 30,000 square feet leased to one tenant. In a poor economy, if they leave your center, it will kill you! “Give me mom-and-pops every time!” In a good or bad economy, mom-and-pops pay the bills.

During the downturn, Sergio and Ramon’s goal has been to maintain what they own and to live off the cash flow from their shopping centers. “We are hunkering down. We don’t want to lose any tenants, and expect and hope the existing tenants pay at the beginning of the month,” Sergio explained. To maintain occupancy, they have agreed to rent abatements and will work with tenants to keep them in place. “This is not the time to play hard ball!” he noted. Currently, they are nearly at 100 percent occupancy across seven properties with 140,000 square feet of retail space. Amazingly, they only have 800 square feet available for lease.

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