Intro to Commercial Real Estate

Commercial real estate (CRE) is a different game than residential — longer leases, larger checks, and returns driven by income rather than appreciation. Here's the foundation.

The five CRE asset classes

• ▸Multifamily (residential): apartment buildings (5+ units). Most accessible for first-time CRE investors. Driven by housing demand.
• ▸Office: Class A (trophy towers) → Class C (suburban flex). Post-COVID occupancy pressure. High CapEx, sticky leases.
• ▸Retail: from neighborhood strip centers to regional malls. NNN leases put operating expenses on the tenant. Under structural pressure from e-commerce.
• ▸Industrial: warehouses, distribution, flex space. Lowest management intensity. Cap rates compressed by e-commerce demand.
• ▸Mixed-use: retail/office at base, residential above. Anchored by a strong street or transit.

How CRE differs from residential

• ▸Income, not comps: CRE values on NOI ÷ Cap Rate, not comparable sales. A 50bp cap-rate move changes value by ~8%.
• ▸Lease length: commercial leases run 3–10+ years (vs. residential 1-year). More stability, less turnover — but longer vacancy when a tenant leaves.
• ▸Tenant pays more: NNN leases push taxes, insurance, and maintenance onto the tenant. Your gross rent is closer to your net.
• ▸Financing: commercial loans are shorter (5–10 years, often with a rate reset) and based on DSCR, not personal income.
• ▸Larger checks: minimum viable deals start higher; syndication and partnerships are common.

Where to start

For first-time commercial investors:

1. Small multifamily (5–20 units) — the bridge from residential. Same tenant profile, larger income, still learnable.
2. Single-tenant NNN with a credit tenant (national chain on a long lease) — bond-like, lower management.
3. Syndications as a limited partner — learn the business with someone else's deal and your capital, before running your own.

The CRE Hub's Multifamily Underwriter and Deal Screener let you practice underwriting real deals before you commit capital.