The Secrets Behind The Commercial Real Estate Crash

[00:00:00] This week's listener of the week is Coffee Break. Coffee Break, DM me your mailing address and thank you for the five star review. For all you listening, if you leave us a five star review, you might be next week's listener of the week. Now, my husband was a chef for 15 years before he got into commercial real estate.

And I noticed a really interesting trend between Josh, my husband, and other chefs. We'll say, for round numbers, about 50% of the chefs that Josh worked with and interacted with went to culinary school. And another 50%, like my husband Josh, did not go to culinary school. They learned in a kitchen. Now the difference, interacting with these chefs 10 years later, 15 years later, did not 

lie in their ability to cook. But the difference between these two [00:01:00] groups is that One spent a bunch of money and one didn't. Some still had debt from that education. I'm watching this unfold as Locally, I live in Denver, Colorado. There is this stunning Johnson and Wales property, I love old historic property. The Johnson and Wales campus was in an old, some type of school or college.

And shortly after the pandemic, Johnson and Wales shut down. So it was very clear to me that culinary school was never necessary. And I really empathize with the chefs who were told that it was something they needed to see through their career as a chef. And the reason I bring this up is because commercial real estate and the secret behind the commercial real estate crash is not that the entire industry is in a free fall.

Right? The reality [00:02:00] behind the commercial real estate crash is that it's not a crash at all. It's a change. It's a change in the way that we, as a society, consume real estate. And our real estate is going to change as a result. Why? Well... Here's a big elephant in the room. Online education. Right? People are starting to realize that you can get all the knowledge of a degree on YouTube for free.

And you don't have to take out debt to learn how to make a mirepoix at Johnson and Wales anymore. Right? The world is changing. And so, I am noticing, you know, look, I know we all have heard a million times, work from home is crashing the entire industry, and while that's not true, aside from the fact that office space and the way we consume it is changing, I want you to next time you drive around your town and you see a school [00:03:00] campus or start to look at the various campuses in and around your city, we're going to see a big change in the way that schools are consumed as people, and we're just getting started.

So, you know, a big part of this podcast is just opening your eyes to what's going on in your city so you can better navigate your goals in commercial real estate, right? Be it investment, be it brokerage, change is upon us. This is normal and you are in the right place educating yourself to equip yourself from the change instead of being the naysayers in my comments who tell me the entire industry is crashing because it's not true and those people are going to miss out and lose.

So where are the naysayers getting all this information? Well, the media, [00:04:00] right? The media honestly profits off of fear mongering and therefore reports that the commercial real estate market is crashing. I tell everybody, save your tissues for somebody else because your local commercial real estate landlord is gonna be okay.

Let me give you an example. Everybody's saying real estate's crashing because nobody leaves their house anymore, and you're right. When I go into a retail store, rest in peace Bed Bath Beyond, I'm noticing A, less people, B, an older demographic in general, and C, less and less retail stores in general. Why?

Because then when I connect with people in their 20s and 30s, and 40s people who have come up in the age of the internet. I'm seeing a really common theme and we're all ordering everything online, [00:05:00] right? So this change of buying things in person, which my parents love, my grandma loves, did not quite translate to the Millennials and Gen Z.

Right? We love buying things online. Now, does that mean commercial real estate is crashing? No. Just because you're not buying your clothes from a retail store, there is still that inherent need for a product placement, right? So, the shirt is not in the retail store. Now that shirt... is in a warehouse, right?

It's not that the industry is crashing, it's that the way that we consume is changing and therefore our real estate needs are changing. The way we consume clothing, the way we consume information, right? Elephant in the room, the internet changed the entire world and real estate is going to translate. And that's okay.

This is normal, [00:06:00] right? Technology is a steam train that you cannot stop, right? Nobody is going to go back to a horse and buggy from a car, right? If I asked you, hey, give up your car, you know, hey, give up your credit card, hey, give up your cell phone, give up your email, we're not going back, right? Nobody is going to take

okay, I'll do snail mail from now on. So it's not that commercial real estate is crashing. It's just that our use cases and therefore real estate needs are changing as a result. Which is actually pretty logical if you think about it. So ultimately, in order to see your commercial real estate career through, you need to adapt. You need to be adaptable. You need to be nimble. You know, when I started in commercial real estate, [00:07:00] warehousing was the butt end of the business, right?

I would go to these conferences and there'd be 10 people there and everybody had their nose up to warehousing, cue e commerce, okay? All of a sudden, E commerce, you know, I do transact warehouses in Colorado, which was the first state to recreationally legalize cannabis. That helped. When all of a sudden, after 2010, between e commerce and cannabis, I'm starting to see more people at these conferences.

And they're getting fancy. You know, it used to be a Joe in his t shirt. Now it's Tyler in an Armani suit. E commerce took warehousing from the ugly duckling and made it the belle of the ball in like five or ten years, right? So that's a massive massive shift in the way that we consume real estate in a short period of time. [00:08:00] Right? And it doesn't mean it's crashing. To be honest with you, there are not nearly enough warehouses in our country to support the demand. Period point blank. That's why they can't build them fast enough.

Look around your town. Look at what's being built. Warehouses and multifamily, right? Or let me tell you three words that will get any commercial real estate investor going right now. Industrial storage yard. What's that? Only the easiest product type to own, lease, and manage. Right now, right? The result of e commerce is the fact that we need so much more in terms of logistics as a country, and we don't have the infrastructure to support it.

Well, where are we gonna park those trucks? Where are we gonna park our construction material to build the warehouses? In industrial storage yards. Guess [00:09:00] where you can't really break much on a yard that has no building, no disposals or washing machines that can break, right? People are starting to notice that industrial real estate is not only widely needed societally, but a way easier asset class to manage and maintain and I talk about that ad infinitum on this podcast and in my content. But really that change that I saw because of the rise in e commerce taught me a lot about what's to come into commercial real estate, right?

So, a lot of investors talk about kind of finding the new hot thing before everybody else does and that's when you get the good deals, right? So, I saw a lot of folks buy warehouses when they were the ugly duckling and then they became cool, everybody who bought when they were the ugly [00:10:00] duckling is killing it. Now the rest of the investors follow. They want to buy it too. They're never gonna get as good as deals as the guys who bought it before it was cool and by cool I mean income producing and necessary and way easier to fill with a tenant. Right? I could fill a warehouse in a day.

I can't fill an office space in a day anymore. Things are changing and that's okay. But the point I'm trying to make here is I want you to understand that the way that you can maximize your commercial real estate investment is by not always going with the crowd, right? There's an element of like assessing your risk and understanding the reward in correlation to the risk, but there's also an element of seeing around a corner, right?

And understanding what's next? [00:11:00] Where is our world going that what's the next asset class that's going to be warehousing between 2010 to now. And you know one that I really think is going to shine are these campuses. These school campuses where the need for this type of education, in class, culinary school is gone, right?

So, now we have these stunning school campuses that are vacant. What are they turning them into? Housing. We need housing in this country. But, where is there opportunity? Well, I'll tell you one. Senior housing. What do we not have enough of? Senior housing. Right? The baby boomers are living longer. They're a massive generation and we do not have the infrastructure right now to support them.

That is looking around a [00:12:00] corner. So, my friends, the secret behind the commercial real estate crash is that it's not crashing at all. But in order to really crush it in this industry, you got to stay nimble. You got to stay educated. You got to stay liquid and be curious. But calculate it when you find your next deal.

What questions can I answer for you? DM me any questions you may have at @avivarealestate. For all of you listening, I made a freebie that you can see in the show notes. The freebie is how to get into commercial real estate as both a broker or investor. Go get that free guide. It's super dense and I'm really proud of it.

And next week, we are going to be discussing commercial real estate news in Denver, Colorado, and how that applies to the United States. Thank you for listening and we'll see you [00:13:00] next week.