Time for a little myth-busting: You don’t have to be an institutional investor to succeed in the world of commercial real estate.
The Kansas City-based Block Real Estate Services and its affiliate, Block Funds, are opening doors to investment opportunities that many individual investors would otherwise have a hard time accessing.
As a full-service commercial real estate company, BRES can broker deals for its clients, helping them purchase a 10,000-square-foot shopping center, a 40-unit apartment complex or other assets, said Don Maddux, senior vice president.
While investors have the option of overseeing their own properties, they can also hire BRES to perform virtually every duty involved in managing that asset.
“We offer quite a spectrum of services,” said Bruce Johnson, CCIM, vice president at BRES.
Their team knows what it’s doing. BRES was founded in 2009, but the Block family has been active in commercial real estate dating back to the 1940s. On behalf of its clients, BRES manages more than 38 million square feet of office, retail and industrial space, and approximately 7,500 multifamily units.
Rather not own a property entirely on your own? Through Block Funds, individual accredited investors can team up and participate in syndicated deals for large, institution-grade investments. While Block Funds does collaborate with pension funds and other large entities, about 90 percent of its clients are high-net-worth individuals.
Block Funds is on pace to complete 16 deals this year, with equity offerings ranging in size from more than $1 million to $10 million. Individual investors have the ability to participate only in deals that fit their interests. Thanks to its BRES network, Block Funds has the ability to source and vet deals with powerful cash flow.
“We have a pretty good deal pipeline that investors can take advantage of,” said Aaron Mesmer, an investment sales specialist at BRES and principal at Block Funds.
The Case for Commercial
If you’re an investor who primarily holds residential real estate, there are some notable differences that come with commercial real estate.
Commercial properties tend to be larger, more visible assets that attract fewer capable buyers. Turnover costs are higher, and re-leasing usually takes longer. Most of the players in this space are experienced, full-time professionals.
By putting money into commercial, investors can diversify their holdings and risk profile. Commercial isn’t a monolith. It consists of four main categories—office, retail, multifamily and industrial—each of which possesses unique strengths and follows its own cycle. (Block Funds does monthly distributions to its clients as well.)
Combine that with your single-family residential holdings, and “you have five different bets out there,” Mesmer said.
What Are the Best Opportunities in Commercial?
As a rule, Block buys and operates properties in each of the four main categories of commercial real estate, Mesmer said.
But there are three specific areas that it has found to be particularly strong.
Medical office buildings: The Affordable Care Act has led to greater consolidation in the health care industry. Many independent practices are selling to hospitals and larger health systems. Those smaller practices often own their own real estate, which the new buyer typically isn’t interested in holding.
Block will do a sale-leaseback with a long-term triple net lease. The smaller practice can stay where it is, and the health care system can use its financial resources elsewhere.
Multifamily housing: Block acquires apartment complexes that are a good fit, but it’s also in the business of developing new properties. Right now, given the higher cost of existing multifamily, new construction often makes more sense, Mesmer said.
A fresh start also allows Block to build the property exactly how it should be. That’s another advantage to possessing deep experience in property management: The firm knows what types of construction and amenities function best over the long haul.
“We’re developers and owner-operators,” he said. “So when we go to build something, we know what it’s like to operate it going forward.”
Industrial: The rise of e-commerce is creating major demand for distribution facilities.
Industrial has “always been our favorite asset class,” Mesmer said. “That’s the one we own the most of, particularly high-cube distribution facilities.”
As far as geography goes, Block tends to operate within a triangle between Chicago, Phoenix and Atlanta. In addition to its headquarters in Kansas City, the firm also maintains offices in the St. Louis and Atlanta metro areas.
What does Block like about that part of the country, as opposed to the coasts? The Sun Belt has strong demographics, Mesmer said, and the Midwest produces solid cash flow.
While the company will always look for deals with the best potential for appreciation, that’s something that investors can’t always control—you’re at the mercy of larger economic trends. A property’s ability to generate cash flow takes priority.
‘Something We’re All Proud Of’
Block has been recognized by several publications. According to Midwest Real Estate News, it’s in the Top 10 for property owners for its region, and is in the Top 20 for both Midwestern brokerages and property managers.
To stay on top, Block continues to sharpen its service offerings. This summer, the company unveiled a new online portal where clients can easily peruse deals, access records and make investments.
But a lot of the company’s success is rooted in its hands-on approach. The ownership personally signs for any debt that has to be placed on the property, Mesmer said. They not only put cash into the deal; they put their name on the note. And that leads to a more careful selection of assets.
“I think that we’re one of the very few companies of our size that is still owned and operated by a family,” Mesmer said.
“That’s something I think we’re all proud of,” said Johnson.
Block’s Full Suite of Services and Expertise
Make Commercial Investing a Viable Option for All.
For more information about Block Real Estate Services and Block Funds, visit www.blockllc.com or www.blockfunds.com.
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