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Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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Meet the Faculty
MODERATOR:
William McGuinn - Sugar Felsenthal Grais & Helsinger LLP
PANELISTS:
Tracy Treger - Syndicated Equities
Biff Ruttenberg - Atlas Partners
Jason Doran - Momkus LLC
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About This Webinar
Investing in Commercial Property
Before taking the plunge into commercial real estate investing, one should have a clear
understanding of how to select the right location, preferred type and class of property, what
due diligence to do, how to secure financing, how to negotiate a deal, and how to manage the
property going forward as a commercial landlord. This Financial Poise panel explains the
process from looking for the investment, to contract, to closing, and beyond.
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About This Series
Real Estate Investing 101
Real estate has always been a popular asset class for investment. After all, as the adage
says, “they’re not making more of it.” More and more investors are turning to real estate as an
investment class.
Investors considering making an investment in real estate have a variety of choices: retail,
office buildings, industrial, raw land, and, of course residential. This Financial Poise webinar
series covers several types of real estate classes that one may choose to invest in, explaining
where to look for opportunities; how to diligence them; possible funding solutions; and best
practice for execution.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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Episodes in this Series
#1: Investing in Residential & Multi-Family Real Estate
Premiere date: 2/18/20
#2: Investing in Commercial Property
Premiere date: 3/10/20
#3: Investing in Real Estate through Equity Crowdfunding
Premiere date: 4/14/20
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Episode #2
Investing in Commercial Property
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Choosing Commercial Property
Why choose commercial real estate/property for investment and what do we mean
by “commercial Real Estate”?
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Defining Commercial Property
• Multi-family
• Industrial (single vs. multi-tenant)
• Office (single vs. multi-tenant)
• Retail (single vs. multi-tenant)
• Hotel
• Land
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Sources of Equity
• Individuals
• Joint Venture Partners
• Broker Dealers
• Crowd Funding
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What to Expect
• What can an investor expect from the various property types?
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Property Considerations
• What are the biggest risks associated with different classes of commercial real
estate?
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Economic Due Diligence Tips
• Determine market rates for similar properties in same area
• Determine vacancy rates in area
• Determine costs for repairs/painting and maintenance
• Estimate operating costs
 Fixed expenses – obtain copy of seller’s insurance policy, property tax
bill, utilities bills, management company bills
 Variable expenses – obtain property’s financial statements & compare
to actual invoices. Consider cost to eventually replace roofs, HVAC, etc.
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Key Considerations
• Tenant turnover
• Collections
• Maintenance
• Potential for appreciation
 Discounted price
 Fixer upper
 Rezoning potential
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Expenses to Consider
• Advertising
• Cleaning and maintenance
• Commissions paid to rental agents
• Insurance premiums
• Legal fees
• Mortgage interest
• Taxes
• Utilities
• Management fees
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Acquisition Costs
• Transfer taxes
• Title insurance
• Loan fees (tax and insurance escrows)
• Move in- move out fees
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Key Contract Provisions
• Contingencies – inspections and attorney review
• Tax proration – make sure you understand local taxes, payment and
reassessment dates
• Seller reps and warranties
• Required condition of title
• Default and remedies
• Amount of Earnest Money required and who holds
• Proration of Rents and assignment of Security Deposits
• Assignment of leases and collection of rents following closing
 Need to understand all provisions of leases in place and any surviving
contracts
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Title and Survey Considerations
• Boundary line issues – (Insured over by title?)
• Easements (must be reviewed and understood)
• Liens - should be released at closing
• CCR – covenants, conditions and restrictions of record – should be reviewed
and understood
• Any applicable maintenance issues.
• Tax status.
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How to Take Title
• Personally?
• LLC, Partnership or corporation
 Advantage is limitation of liability to assets of the entity
 Holding title personally is never recommended
 Lender issues with holding in an entity
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Managing
• Deciding between self-managing vs property manager
• Factors include size of building, number of tenant, location, management
experience
• Property managers generally provide owners with expertise in both securing
tenants and maintaining the property that owners may not have
• Downside - fees
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Financing
• Commonly based on property’s ability to generate income as opposed to buyer’s
credit
• Sometimes such investing is encouraged through favorable financing regs
• Leverage – pros and cons
 Amount of equity invested can change risk profile
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Cap Rates
• If you collect $1,000,000 in rents and other income (i.e. vending machines,
satellite tower) and pay $600,000 in expenses (excluding major capital
expenditures), your “Net Operating Income” is $400,000
• Once you have the NOI, divide the price or value of the property into it. For
example, if you have $400,000 in NOI, and you paid $4.8 million for the
property, the Cap Rate is = 8.33%.
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Generating an Operating Proforma
• Revenue: Rent and other income (parking, utility/tax reimbursement, etc.)
• Expenses: Property Taxes, Insurance, Repairs & Maint., Turnover Costs (leasing & make
ready), Landscaping, Utilities, Contract Work, Legal, etc.
• Net Operating Income: Revenue less Expenses (NOI: Purchase price creates a cap rate
value)
• Financing Expenses: Interest, Principal, Reserves
• Capital Expenses (roof, windows, appliance replacement, major repair, etc.)
• Cash Flow: NOI less financing costs and Capital Items – when created for a predicted
investment hold period, a DCR analysis can be completed.
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Cash on Cash Return
• If you have a mortgage, your return isn't the money you collect in your NOI. It's what you
have left after making your mortgage payments
• To calculate your after-debt return, called a cash-on-cash return, you divide that net cash
flow by your down payment. If you put $700,000 down on that $2.4 million property, you
would owe $1.7 million
• If your annual debt service was $130,000, and you took it out of the $200,000 NOI, you
would end up with a $70,000 annual cash-on-cash return
• When you relate the $70,000 to your $700,000 down payment, you would end up with a
10 percent cash on cash return
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Alternative to Cap Rate
• A Discounted Cash Flow analysis assumes an investment for a period of time, and
discounts it back at an investment rate. This can be analyzed as an IRR or Net Present
Value. Ignoring the NPV for now, the IRR allows one to determine the return of an investment
over a period of time. The calculation includes the initial investment, a projected end value for
the investment and all of the distributions in between. While it has some faults, it can be a
more accurate tool than a cap rate.
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How Do You Calculate NOI?
Net Operating Income Formula:
Potential Rental Income
- Vacancy and Credit Losses
Effective Rental Income
+ Other Income
Gross Operating Income
- Operating Expenses
Net Operating Income
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Indirect Investing
• Investing in a fund/with a syndicator
• Advantages/drawbacks to indirect investing
• How to evaluate your fund sponsor/REIT/syndicator
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About the Faculty
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About The Faculty
William McGuinn - wmcguinn@sfgh.com
Bill’s real estate practice extends to the acquisition, development, sale, leasing and financing of
commercial, office, residential and retail properties. In his affordable housing practice, Bill has
represented owners and developers of thousands of housing units in numerous states with multi-
layered financing including taxable and tax exempt bonds, low income housing tax credits, HOPE
VI, Community Development Block Grants, Neighborhood Stabilization Program funds, Tax Credit
Assistance Program and Tax Credit Exchange Program. Bill has also represented developers of
conventionally financed projects, both residential and commercial. He also guides buyers and
sellers, landlords and tenants through all aspects of their respective transactions. Aside from real
estate matters, Bill has worked with numerous closely held businesses on a variety of matters
including representing business in obtaining credit facilities, structuring start-up organizations and
the purchase and sale of a number of business entities. Bill is an avid sailor and participates
annually in the Chicago Yacht Club Race to Mackinac. Bill has also competed in the Transpac,
racing from Long Beach, California to Honolulu, Hawaii.
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About The Faculty
Tracy Treger - ttreger@syneq.com
Tracy Treger is Principal at Syndicated Equities. Tracy helps high net worth individuals and family
offices to profitably invest in real estate. She also assists investors in identifying appropriate
replacement property to complete tax-deferred exchanges under Section 1031 of the Internal
Revenue Code. Drawing upon her 20 years of legal experience in the areas of real estate,
bankruptcy and corporate restructuring, finance, and commercial law, Tracy seeks out
opportunities to improve the relationship between Syndicated Equities and its investors, to cultivate
new investors, and to identify new investment opportunities and align them with investors’ goals.
Tracy joined the Syndicated Equities team in 2013 after serving as vice president and assistant
general counsel for a private REIT, where she handled all legal aspects of the company’s daily
operations and its joint venture relationships in the U.S. and Mexico. Prior to working with the
REIT, she was a partner in two large Chicago-based law firms with national and international
practices. Tracy holds a B.A. in Psychology and an M.S. in Psychological Services from the
University of Pennsylvania, and a J.D. from Chicago Kent College of Law. She is a committee chair
for CREW Chicago, and actively serves on the Global Advisory Committee, Foundation board, and
regional board of the Anti-Defamation League (ADL).
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About The Faculty
Biff Ruttenberg - biff@atlaspartners.com
Biff Ruttenberg has 48 years of retail development, redevelopment, management, and leasing
experience. His real estate background, including mortgage banking, construction, real estate brokerage
and lending experience, has contributed to Mr. Ruttenberg’s years of successful business projects and
relationships. He holds a BA from the University of Pennsylvania and an MBA from the Kellogg Graduate
School of Management at Northwestern University.
He is the president of Atlas Partners, LLC, a real estate services firm focusing on consulting to asset-
based lenders, institutions and other users of commercial space. It specializes in workouts, turnarounds,
dispositions, and maximizing the value of difficult properties. The company’s registered slogan is "The real
estate department for companies that do not want to be in the real estate business...but are."® Affiliates
of Atlas Partners also acquire distressed debt and operating businesses.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/biff-ruttenberg-2/.
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About The Faculty
Jason Doran - jdoran@momkus.com
Jason A. Doran was born in Park Ridge and was raised in Bolingbrook, Illinois. After studying for two
years at Lewis University in Romeoville, he completed his undergraduate studies at Northern Illinois
University, graduating from its School of Business in 1996 with a Bachelor of Science degree in
Marketing. After graduation he worked for a few years at AAR Corporation in Wood Dale Illinois before
attended law school at Northern Illinois University. He earned his Juris Doctor with honors (Cum Laude) in
2001. Jason was admitted to practice law in the state of Illinois in November of 2001. In January 2002, he
was admitted to practice in the United States District Court of the Northern District of Illinois and in 2010
he was admitted to practice before the United States Supreme Court. His practice is concentrated in
estate planning and estate administration, commercial real estate (including "work outs" (forbearance,
foreclosure, short sale, and deed-in-lieu agreements)), business transactions, and general representation
of business entities and their principals. In the beginning of his career Jason was a litigator with a firm in
Aurora, Illinois, and he brings that experience as an invaluable tool in assisting his clients in his current
practice.
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Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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About Financial Poise
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