Although it might be very “sexy” to land a giant corporate tenant, this could be a terrible mistake for the landlord. Many office building landlord’s will go to great lengths to land a major corporate tenant to lease up all or the majority of their property. On the surface, this may seem like a great idea.

Real estate investors often look at the highest IRR when comparing one investment to another. But, in commercial real estate, such criteria is potentially short-sighted. Instead, investors should be evaluating commercial real estate opportunities by looking at their risk-adjusted returns – not just the overall IRR.

Real estate professionals tend to be old-school. A room full of investors, brokers, and mortgage lenders may resemble an episode of Mad Men more so than an episode of Silicon Valley, complete with the bourbon and the blue blazers. Real estate, they say, is a business of relationships—a series of handshakes, meetings, and phone calls, learning who can play ball and who can’t over luncheons, mixers, tee times, and kids’ graduation parties. That’s how deals get done.

Most real estate investors understand the value of a good property manager as a key member of their team.
Do-it-yourself (“DIY”) property management is way too time-intensive for serious investors. That time is better spent finding more deals. Even if you make a little less money each month by paying some of your gross income to a property manager, you could end up purchasing five, ten, or twenty properties with a fraction of the effort.

Success may look like it comes out of nowhere, but more often there is a long history that built up slowly over time. Our business today is no exception to that rule.

Early in the current economic cycle, the large metro areas like Boston and Washington, D.C. were the fastest growing regions for commercial real estate. They tended to recover faster than other parts of the country, and as a result, saw major construction projects driven by strong economic growth.

You might chuckle at a three-page sublease clause in a commercial lease, thinking that some lawyers are putting their kids through college billing with this wasted verbiage. The reality is that owners of commercial real estate do need to properly restrict sublease rights to protect their profit, income streams, and property value. It’s important that landlords don’t allow high-profile tenants to weaken these crucial sublease clauses that protect their interests.

Long-term leases are generally the preference in office building ownership. Indeed, companies like Feldman Equities are even willing to undercut competitors in order to secure a long-term lease from a strong tenant.

It’s not uncommon for investors to think of large office buildings with dozens of tenants as being broadly diversified, risk mitigated investments. Like an apartment building, it is often assumed that by having a good mix of many tenants without overdependence on just a few, a building can be operated with relative impunity because if one tenant moves out, the impact will be minimal.