Is Commercial Real Estate Investing the Right Choice

Commercial real estate, a popular option for investors looking to diversify beyond stocks and bonds.

One way to make money as an investor is to look into real estate. Commercial real estate investing offers the opportunity to diversify beyond stocks and bonds with the potential for high risk-adjusted returns.

Here’s what you need to know as you decide if commercial real estate is a good investment for you.

What is commercial real estate investing?

Commercial real estate investing focuses on property that generates revenue. Common types of commercial real estate include:

Retail stores
Restaurants
Industrial parks and warehouses
Storage units
Healthcare parks and facilities
Hotels
Multi-family apartment complexes
Office buildings
Mixed-use complexes and buildings that include living, working, and retail spaces

If you want to invest in commercial real estate, there are plenty of asset types to choose from.

Is investing in commercial property a good idea?

When trying to decide if commercial real estate is a good investment, you should understand the pros and cons — and consider your own investing and financial goals.

Pros of investing in commercial real estate

Ongoing income potential. Commercial real estate investing comes with the potential for regular income from operations. Commercial properties operate like a mini business. They receive revenue from rents they charge tenants and must pay all the expenses to operate the property. If revenue exceeds expenses, there is a profit, which can flow to the owners as income.
Potential tax benefits. Depending on the situation, you might be able to take advantage of tax benefits that can help you improve your tax liability and shelter the passive income you generate from the asset.
Strong risk-adjusted returns. Commercial Real Estate investments often outperform returns generated from a traditional stock and bond portfolio. In fact, institutional investors have long understood the merits of holding private real estate in their portfolios. Today, most endowments, pension funds, and asset managers allocate a significant portion of their investment portfolio to real estate to bolster returns over what they can achieve in the stock market.

Cons of investing in commercial real estate

Higher initial investment. You normally need a higher initial amount for commercial real estate investing than what you’d need to start investing in stocks. For some investors, this can be a challenge.
Illiquid Investment. You can’t trade in and out of real estate like you can a publically traded stock. Buying and selling assets takes significant time, and there is no ready-made public market that will be at the ready to buy your real estate at the price you want for it.
Professional Expertise Required. Owning and operating commercial real estate is not a trivial exercise. Successful real estate companies employ experienced professionals to plan and execute their operating strategies. Even deciding to buy a duplex means you have to meet the demands of being a landlord, which is often seen as a full time job.

Can you make a lot of money in commercial real estate?

As with any investment, there are risks and you have the potential to make or lose a lot of money. However, when you work with good partners and have a clear set of goals and objectives, you can potentially see solid returns from commercial real estate investments that exceed what you typically see from the stock market.

One of the advantages of commercial real estate investing is that you have the potential to see returns in the form of profits from operations, as well as capital appreciation. It’s possible that, by the time you decide to sell your commercial property, you will have already made a substantial cash on cash return from regular operating profits even before you capture the appreciation in the asset’s value when you sell.

What is a good ROI on commercial real estate?

Calculating ROI on commercial real estate can be tricky, since there are many different methods of determining your return. However, ROI isn’t the same thing as a profit. With ROI, you’re trying to figure out your percentage gain on the investment.

One method of determining ROI is the cost method, which just takes into account what you bought the property for, how much you put into it, and the new value. For example, if you buy a property for $3 million, and then spend $1 million to upgrade it, you’ve now put $4 million into the property. However, if the property is worth $5.5 million after you finish, you have $1.5 million in equity, making your ROI $1.5 million divided by $4 million, or 0.375 — 37.5%.

Things get more complicated when you use the out-of-pocket method, which focuses on the capital you put down for your loan, how much you spend to rehab the property, and other factors. You might get a higher overall ROI with this approach because you’re basing your calculations on what you’ve actually spent out of your pocket, rather than the costs. You typically see an inflated ROI due to leverage.

Rather than doing a straight calculation, though, you can also look at potential annual ROI. In general, you can expect between 6% and 12% in terms of an annual return off the capital invested in many commercial properties. How much you actually end up with depends on the location of the property, the type of property, and economic and market factors.

There are real risks to investing in commercial real estate. While returns can often exceed what you might expect to make in the stock market, there is also the potential to incur significant losses if you fall short of your revenue goals or are otherwise not able to operate the property to a profit.

How do you invest in commercial real estate?

There are different ways to get involved with commercial real estate investing. If you don’t have the ability (or desire) to purchase the property on your own, you can buy the property yourself or you can invest with a sponsor. You can also get indirect exposure to real estate by purchasing shares in real estate investment trusts that specialize in commercial property.

A great way to begin making investments in commercial real estate is to use a program like what’s offered by CEP Multifamily. With CEP Multifamily, commercial real estate investing opportunities are brought to you. You can decide how much to invest in the real estate fund or specific property, and the heavy lifting of managing the investment and operating the property is handled entirely by CEP.

Before you move forward, consider your own risk tolerance and whether commercial real estate fits with your goals and portfolio strategy. With the right approach, though, you might be surprised to find that commercial real estate is a good investment for you.

LEARN MORE

Nich Carlsen

Nich Carlsen joined the team at CEP Multifamily in 2023 as an Investment Analyst and holds primary responsibilities for sourcing, researching, and underwriting new markets and opportunities throughout the West. He is also responsible for analytics and research in support of Capital Markets, Asset Management, and Dispositions. Prior to joining CEP, Nich held positions in Research at Colliers and VTS covering multiple commercial property types.

In his spare time Nich enjoys golf, ocean fishing, travel, and supporting all things Oregon State athletics.

Nich graduated from Oregon State with a BS in Economics and is a member of the Urban Land Institute.

Jeff Anderson

In his role as Director – Capital Projects for CEP Multifamily, Jeff is responsible for the planning, management, and execution of all capital improvement and deferred maintenance projects, in addition to closely collaborating with the Property Operations team on asset preservation and best practices. Jeff joined CEP Multifamily in 2022 as part of our pursuit to expand our operational capabilities and to bring project management and asset preservation under our in-house suite of services to better serve our growing portfolio.

Prior to joining CEP, he spent over 14 years with Kennedy Wilson, a global real estate investment company, working in various Project Management roles for their Commercial Investment, Property Services and Multifamily divisions. Most recently he served as the Multifamily Group’s Construction Manager for their 20,000+ unit portfolio in the Western United States.

Jeff attended Washington State University where he graduated Magna Cum Lade earning his BA in Business with an emphasis in Real Estate and a minor in Finance.

When he is not working, Jeff can be found relaxing on Whidbey Island, working on house projects, skiing or enjoying the various water activities the PNW has to offer.

Mark Whitcomb

As Director – Property Operations for CEP Multifamily, Mark leads the day-to-day operations of CEP Residential’s expanding multifamily portfolio. Mark is committed to executing core processes and fostering the growth of his CEP Residential teammates in the pursuit of asset and property management alpha.

Mark began managing his first property in 2001, two years after beginning his career in property management as part of an on-site team. Over the course of the next 20+ years, he worked in multiple capacities and markets throughout Washington, Oregon, Montana, and Virginia with portfolios totaling over 2,500 apartment homes and 49 communities.

Mark has always been passionate about developing both people and leadership skills through local and national multifamily housing associations. He was recognized as Property Manager of the Year in 2016 by Washington Multi Family Housing Association (WMFHA) and went on to obtain his NAA CAM and CAPS credentials by 2017. He spent two years as a Chairman on the Career Development Committee through WMFHA before being nominated and awarded membership to the NAAEI faculty in 2018. This allows Mark the opportunity to mentor emerging industry professionals seeking their own designations.

Mark has been married to his wife, Shea, since 2019. Together, they enjoy travel, cheering for their Seattle sports teams, and exploring the outdoors of the Pacific Northwest with their two dogs.

Jessica Disman

Jessica Disman joined CEP Multifamily in January of 2022 as Director of Capital Markets and Investor Relations and is responsible for new investor acquisitions.

She brings over 25 years of experience in sales and marketing in the investment and real estate industry. Most recently she spent 8 years at Broadmark Realty Capital Inc. and Broadmark Capital LLC, raising capital for a series of private lending REITs that ultimately led to the IPO of the company.

Jessica attended Bryn Mawr College where she earned a BA with a double major in English and Fine Art.

An artist at heart, Jessica enjoys drawing and painting and has paintings in collectors’ homes nationwide.

Karin Christianson-Hart

Karin Christianson-Hart serves as VP Finance & Administration for CEP Multifamily. As a member of the CEP Team, Karin oversees all finance, HR, risk management and administrative support for both CEP Multifamily and CEP Residential, the in-house property management division.

Karin has many years of property management experience from small startup firms to a large regional company. Problem solving, tactical management of multiple teams and a working knowledge of day-to-day business operations are strengths that Karin brings to the table. Other areas of expertise include captive insurance management and family office accounting for principal partners.

Karin earned bachelor’s degrees in Accounting and Business Administration from Central Washington University.

With a heart for missions Karin has most recently served on the Board of Hands for Peacemaking, a nonprofit that provides high efficiency wood burning stoves and clean water systems to the Mayan population in the highlands of Guatemala. Financial management support has also been provided to the Snohomish County Economic Alliance in its infancy along with a nonprofit football academy.

Outside of work Karin enjoys riding motorcycles, camping, and travelling with her husband.

Shawn Hoban

For over three decades, Shawn has been responsible for establishing and growing each of the operating businesses in The Coast Group of Companies and Hoban Family Office. It all started in 1987 when he co-founded Coast Property Management alongside his brother Tom after identifying the need for a high performing, values-based property management company. Coast has long since grown into The Coast Group which is a vertically integrated, privately owned family of real estate companies. Coast is one of the region's largest and most respected real estate services firms of its kind with offerings in property management, facility services, specialized construction, advisory, and investment services.

Shawn is an integrator and strategist for the Hoban's various ventures with a particular gift of taking complicated situations and making them executable. A leader with strong character, Shawn also
possesses a competitive streak that has shaped the success of their ventures together.

The Hoban Family Office, the holding company for the operating businesses, brings innovative ideas to the commercial real estate industry through Coast Innovation Center while serving the charitable causes of the Hoban family and the Coast Group. He is passionate about identifying and developing talent to
support their businesses, while mentoring the next generation of leaders inside and outside of his family.

His service and awards include Top 40 Under 40 Business Executive by the Puget Sound Business Journal, Director for The University of Notre Dame Alumni Association, Archbishop Thomas J. Murphy High School Board of Trustees Chair and Board of Regents, Fulcrum Foundation Board of Trustees, Vistage, Entrepreneur’s Organization (EO), and many other community organization throughout the Pacific Northwest and U.S. The brother’s ventures together earned them two very prestigious awards: The Washington State Family Enterprise Institute’s Family Business of the Year and The University of Notre Dame Alumni Association of Seattle co-alumni of the year.

Shawn holds a Bachelor’s degree in Business Finance from the University of Notre Dame and is both a Certified Commercial Investment Member (CCIM) and a Certified Property Manager (CPM) with the Institute of Real Estate Management (IREM).

Shawn and his wife, Kathie, enjoy travel and outdoor recreation on the Puget Sound while following the active lives of their four adult daughters and a growing generation of grandchildren.

Tom Hoban

Tom has over thirty years of experience as a property manager, real estate advisor, and investor. In 1987, he co-founded Coast Property Management alongside his brother Shawn after identifying the need for a high performing, values-based property management company in the market. Coast has long since grown into The Coast Group, which is a vertically integrated, privately owned family of real estate companies encompassing property management, facility services, specialized construction, advisory, and investment companies. Today, The Coast Group is one of the region’s largest and most respected
real estate services firms of its kind as it is able to leverage the different companies' resources to provide the best possible returns for clients.

Built as an extension of their humble servant leader view of themselves, the Hoban brothers and their executive leadership teams have become synonymous with excellence, innovation, and reliability. Along the way, the brothers have been recognized for their professional accomplishments and work in the communities they serve, earning them the co-alumni of the year award from the University of Notre Dame alumni association and The Family Enterprise Institute’s Washington Family Business of the Year.

Over the years, they invited others who possessed complimentary if not superior talents to join them as partners and co-leaders in the Coast Group of Companies. In 2017, they formed The Hoban Family Office (HFO) to create a platform for innovation (Coast Innovation Center), talent development, and leadership in service to the Coast Group of Companies, their families and the communities they serve. It also serves as their charitable arm, with a focus on service to the poor and vulnerable and development of tomorrow’s leaders.

Tom leverages his vast network, engaging personality and refreshingly transparent approach into many venues, including his long-running column in the Herald Business Journal, as a freelance writer and as a guest speaker or lecturer all while serving on several boards or advisory functions, including Santa Clara University Real Estate School Advisory Board, Washington State University – Everett, University of Portland board of trustee’s, The Washington State Governor’s Affordable Housing Advisory Board, The
Commercial Broker’s Association of Puget Sound, Archbishop Murphy High School (Everett, WA), The Boys and Girls Clubs, chairman for the Snohomish County Airport Commission, The City of Everett
Economic Development Advisory Council, and others. The brother’s ventures together earned them two very prestigious awards: The Washington State Family Enterprise Institute’s Family Business of the Year
and The University of Notre Dame Alumni Association co-alumni of the year.

Tom graduated from The University of Notre Dame with a BA in Finance. A former coach, scoutmaster, and basketball referee, in his spare time today Tom continues to play recreational basketball, remains active in his church and enjoys time with his wife, two sons, and daughter on the Puget Sound.

Josh Jansen

Josh Jansen has over 20 years of multifamily investment experience, both as a broker and principal. As CEO, President, & Managing Partner of CEP Multifamily (CEP), Josh leads the firm’s strategic growth and acquisition, disposition, and asset management functions. Since joining CEP as a principal in 2012, Josh has played an integral role in growing the firm’s acquisition and capital raising volumes tenfold. Prior to joining CEP, Josh was a top national multifamily broker at Sperry Van Ness for multiple years.

Josh is active in his community and spent 9 years as a volunteer varsity football coach at a local high school. Josh also served as a founding board member of the Private Enterprise Coalition of Snohomish County, and was the Founder and Board Chair of Wildcat Football Academy (WFA), a Mill Creek, WA-based 501(c)3 nonprofit youth sports organization.

Josh attended Occidental College in Los Angeles, where he earned a BA in Politics, as well as All-American honors as captain of the football team.

Josh, his wife Cheryl, and their two children enjoy traveling, hiking, and snow and watersports.

Mike Harmon

In 2004, Mike joined the Coast Group of Companies as CFO and Managing Partner of Coast Equity Partners. Mike’s role is to drive the growth of Coast Equity Partners through the acquisition of investment properties that produce outstanding returns for our clients.

Mike brings many years of business leadership, entrepreneurial drive, and real estate experience to the table. He has held critical roles in the strategic management of high growth companies and early-stage technology start-ups. From raising capital on Wall Street to buying his first rental property while still in college, Mike brings a unique broad range of talents to Coast Equity Partners.

Mike’s entrepreneurial spirit is grounded in a solid business background. He has designed and managed the development of several mission-critical business systems for fortune 500 companies, participated in

the creation of new businesses and nurtured new growth opportunities for existing businesses. Mike has created and grown departments, successfully identified, negotiated, and closed strategic partnerships, managed key client relationships and secured new capital investments for the companies he has helped lead.

Since 1992, Mike has been engaged in the identification, acquisition and rehabilitation of real estate with excellent investment potential. His portfolio of properties includes residential holdings as well as rental properties in various markets throughout the Pacific Northwest and United States.

Mike holds a BS in Finance from San Diego State University and an MBA with concentrations in Marketing and Management from the University of Notre Dame.

Mike enjoys travel, youth coaching, winter sports, water recreation, golf and fishing. He lives with his wife and four sons in North Seattle and is active in his church, children’s schools and local community.

Is Commercial Real Estate Investing the Right Choice For You?