While multifamily remains the holy grail of real estate, the commercial real estate space can’t be ignored. With great earning potential and versatile uses, commercial spaces can be profitable investments. In this episode, we explore the commercial space as Sam Wilson interviews commercial real estate agent and investor Raphael Collazo. Raphael talks about how he entered the real estate industry, how he got into commercial and what he thinks is the future of the space. Curious and want to know more? Then tune in and listen to Raphael’s lessons on commercial properties.
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Commercial Real Estate: A Guide To Investing Success With Raphael Collazo
Raphael is a Licensed Commercial Real Estate Agent specializing in income-producing property. Along with being a full-time commercial agent, he’s also the Author of the Millennial Playbook series. It’s a book series that focuses on personal and professional development topics for young professionals. As a Performance Coach and Speaker, he’s had the opportunity to speak to thousands of students and professionals on a wide range of subjects. Raphael, welcome to the show.
Thanks for having me, Sam. I’m excited to be here.
The same three questions I ask everybody who comes on the show. Can you tell us where did you start, where you are now and how did you get there?
It’s a windy road, I would say. I’m originally not from the United States. My mom’s Italian and my dad’s Puerto Rican. I was born in Northeast Italy. I moved around Europe until I was about fourteen then moved to Arizona. I went to high school. I got an Engineering degree from Arizona State University. I got into the software business and did that for about five years. I’d got into commercial real estate back in 2019 and I’ve been doing it ever since. I’ve been in the commercial real estate brokerage side primarily.
I also own a small multifamily property myself, which I house hacked, which was my first foray into commercial investments. My business partner and I started a company called Fidelity Development. We’re going to be focusing on acquiring and redeveloping retail and industrial opportunities. That’s a very brief overview of my story.
What was that like coming to the US, finishing out high school and then going to school here?
My dad was in the Air Force. He’s Puerto Rican by descent. We live in the United States for a long time. The main transition was the scenery. You go from Belgium where we were in a rich shape, which is Supreme Headquarters Allied Powers Europe, NATO headquarters. It’s a completely different environment. A lot of my classmates were from all over the world. You’re looking at the Italians, Turkish and Greek. My best friend was Dutch. I had a lot of people who were from all over the world that was there because of NATO.
We moved to Arizona and where we moved to was Fort Huachuca, which is in the Southern part of the United States near the Mexican border. Leading to Fort Huachuca, it’s all desert. It’s like you’re driving from the airport in Tucson down south and it’s barren wasteland everywhere. You’re like, “What in the world is this?” I remember when I first moved here, that was shocking to me. I went to American schools and in Europe too. There wasn’t as much of a language barrier or anything like that. That was probably of the biggest shocks to me.
The thing I love about that is the adaptability that instills, especially for well-traveled kids, you can always pick them out because they’re like, “I can fit in here.” It seems like their version of what’s possible is a lot bigger than someone who’s never traveled, never been out or never lived in other places. You’re going with the flow and were moving on. It sounds like you’ve embodied that through college. You were in IT is that right?
I was a Software Implementation Consultant. Think of it as a developer and consultant. We’d go onsite and implement large software projects for government agencies.
There you are doing that and then you’re like, “I want to go into commercial real estate,” and you took the next plunge. What was that jump like?
You go from a job where it’s very lucrative. We were making well over six figures to a job where you’re a commission-based job. In my first year, I made almost nothing. One of the things that allow that to transition was the house hack property. I bought that four-unit property. It pretty much eliminated my brand expense. I had reserves in place and everything else. I knew that even if I didn’t make income for a year, I wouldn’t necessarily be hurting that bad.
That’s the mindset that I had and that’s what enabled me to do that and hit the ground running from there. It’s been a road, especially on the brokerage side for commercial real estate where there’s a significant ramp-up period. The first couple of years, you’re not making a whole lot. I finished my second year, going into my third year and I’m starting to hit some traction now. That’s what enabled me to do that.
If you like more of a passive type of investment opportunity, single-tenant properties could be a great buy for you.
What are some things you’ve learned on the brokerage side that you are now taking and translating into what you’re doing on the investment side for yourself?
I tell people this all the time, it’s learning by transacting. I’m helping other people transact real estate and using their money to learn these lessons. A lot of these people that I’m dealing with are pretty sophisticated investors. You get to learn lessons from them and build those relationships with the key players within the market. That translates to you doing deals in that same market. That’s the first piece.
We’re looking at the retail and industrial side, that’s my specialization here locally is retail. I’ve already established relationships with potential tenants. If I were to identify a location that would be a good fit for someone, it may be an opportunity for me to approach them and say, “I know you’re looking for space, let’s see if we can work out a deal where you lease out the space, we buy the building and redevelop it.” That’s your 1st, 2nd or 3rd of many properties because you already have those relationships. Those are the key pieces.
Talk to us about why you’ve selected retail and industrial. You’ve noted that this is the silo you’re going to work in.
I came from a software background. I didn’t even know anything about commercial real estate to be quite honest with you. The reason I jumped into real estate was that my mom was a residential agent in Arizona. I thought about going the residential route at first but then I want to start doing more and more research on both opportunities. Commercial spoke to me more. I’ve always been entrepreneurial. I had a small catering business in college, managed a restaurant and I thought I was going to get in the restaurant space out of college. I didn’t end up panning out but that’s what got me into commercial real estate.
The brokerage that I ended up joining, do a lot of is industrial and retail. My broker does a lot in the shopping center space. One of our other agents within the office happens to be a son and does a lot in the industrial and development space. I’ve learned a lot from them regarding those two property types. That’s what made me focus on those because now I feel pretty well-versed and I can identify opportunities in those two property types. Not to say that other property types aren’t great. Multifamily is awesome and other offices even. If you know a lot about the office and you can identify those properties that could be of value, there are usually unique opportunities there. It’s just those two property types are what my brokerage does a lot of.
Since you’re getting a front-row seat to that, it makes sense to parlay that experience right into you on the ownership side. Is there any conflict of interest between you and the potential parties represent as you go out hunting for your deals?
You have to work with tenants that are looking to lease. There are a lot of retail tenants out there that don’t want to own their own physical retail space. They prefer to lease. If you can merge the interests’ together saying, “We’re willing to buy the space if you’re willing to lease it.” I don’t think that’s necessarily a conflict of interest at that point because you both want to make something happen. It’s just what does that look like? It becomes an open negotiation between yourself and the other party.
You guys were doing a lot of tenant lease representation?
My broker, he’s done a lot of that as well but we’ve done a lot in the shopping center space, representing investors that want to buy midsize to large shopping centers like a strip center that has bakeries, nail salons, medical uses, optometrists and that thing. Neighborhood strip centers were what we’ve done a lot. Since I’ve started in the business, that’s probably where the largest focus that I’ve had in the investment space has been.
What opportunity is there in the retail space? It sounds like that’s the one where you see the greatest upside still.
It depends on what’s your cup of tea is. There’s a lot on the single-tenant at lease side, that’s becoming extremely popular where you’ve got the dollar generals out there and standalone buildings like the Starbucks, etc. If you like more of a passive type of investment opportunity, that could be a great buy for you. In particular, if you can find an opportunity whereby if the tenant were to live the 20-year or 30-year period, you could still achieve a pretty solid rent growth at that point.
If you can find a well-placed piece of real estate that has a Starbucks or some of these other types of corporate tenants in it and if they were to leave, which is the worst-case scenario twenty years from now once the lease expires, what rents could you achieve at that point? That’s something to consider as you’re going through that opportunity. I love strip centers located on high traffic roadways, it’s great visibility and the tenant mix is what you got to look at it. You got to think about experiential tenants and things you can’t replicate online like nail salons or bake restaurants.
Online retailers are starting to realize that it’s never going to go 100% online. There’s going to be an equilibrium point met at some point, and there’s still a strong case to be made for physical retail.
Although it has been somewhat of a challenge through COVID going forward, it’s still going to be something that’s very strong. You’ve got some specialty stores where it may or may not be able to be replicated online. It depends. That’s why strip centers are so unique because you have to analyze each of the tenants, what their viability is and what’s backing up those leases. If they’re a multi-location franchise, it’s going to be way better of a tenant than one mom-and-pop shop. There are a lot more variables to consider as you’re looking at these opportunities.
I love that it’s not even the last mile idea. It’s that you can’t go elsewhere. You can’t Amazon getting your nails done.
In the intersection too, the last mile is even more of a value here because a lot of these shopping centers are located in very good locations. Some of these rundown, old shopping centers can be converted into last-mile delivery silos. You’re seeing a lot of utility from the Amazons and various other online providers that are saying, “We value physical retail.” Amazon bought Whole Foods and they got the Amazon four-star stores now. Let’s say you buy something on Amazon and you don’t necessarily like it.
Now, you’d have to go through the process of getting printing the tag and going into the post office but if there is a physical retail store nearby for Amazon, you can say, “I’ll stop by the Amazon store.” A little bit later you go drop off the product and it’s like, “While you’re here, here’s 20, 30 or 50 other items that you could potentially buy.” That’s an upsell opportunity for Amazon. What’s the utility there? It’s pretty significant. Online retailers are starting to realize that it’s never going to go 100% online. There’s going to be an equilibrium point that’s met at some point and there’s still a strong case to be made for physical retail.
Talk to us about industrial. What do you see there? Why is there opportunity? What is a good opportunity look like for you?
Industrial as a whole now is doing extremely well across the nation, more so in logistics. Manufacturing is one of those things that is very much market-specific. I’m more interested in the logistics side. Finding a well-located building that’s close to major arteries whether that’ rail, highways or close to the airport, those are good opportunities. The one thing that I’m seeing locally is that a lot of contractors that don’t necessarily need 100,000 square foot facility, you can find some of these flex buildings.
Let’s say it’s a 30,000 or 40,000 square foot building and you demise it out into 5, 6 or 7 spaces and have a small amount of office in the front so that people can receive customers or whatever they need to and then they have a warehouse in the back. Those are flying off the market. I have people call me all the time that’s like, “I need 3,000 feet of space. I’ll need 400 square foot office or 500 square foot office but I need 2,500 square feet of office or warehouse in the back.”
Those things lease-up like crazy and it’s very hard to find those opportunities in the marketplace. That could be of extreme value to someone who takes an old rundown building that may or may not be useful in its current form but you can convert it into something like that. It could be a very lucrative opportunity.
This is the type of thing that you guys are actively looking to buy.
We’re looking at either standalone buildings for retail, particularly if they have a drive-through capability, that would be something that we’d be very interested in, a long high track roadway and then redevelopment opportunities for industrial properties. The reason we’re going with a redevelopment play to start with is we’re somewhat new in the business so ground-up development is something that we eventually do want to get into but starting out, redevelopment has a lot of benefits.
You get to utilize the existing bones of the building and then do that renovation as opposed to a full ground-up construction we have to deal with the city. You still have to deal with the city in some capacity but a ground-up construction in particular, if the land is not properly zoned for what you’re trying to do, could even be a more cumbersome process. For our first couple of deals, this is a unique opportunity to be able to do that.
That makes great sense. I love hearing your thesis and how you guys plan on tackling that. Tell me about the financing side of this. Let’s say you find the perfect opportunity. How are you guys going to fund it?
A lot of it was self-funded at least initially. We’re not going to be starting somewhat small as far as the dollar values are concerned. Under $1 million is what we want our first deal to look like. That’s going to be either self-funded or with friends and family’s money. That’s how a lot of people typically get started. That’ll be to start off.
At some point and afterward, after doing a couple of deals like that, it’s syndication model, building out that network of individuals. That’s similar to what you’re doing now with your show and all that stuff. I have a show. I have written several books. I’m trying to become an industry expert within this particular space and that in and of itself will open up opportunities to be able to raise money for these types of deals.
Talk to me about the books. What’s the first book about if there’s one or if there are multiples already, can you tell us how the first few books you’ve written?
I’ve written five and I’m almost done with my six. I started back in 2016. I was in this position at the software consulting company that I was at. I had a very lucrative job. I was in Puerto Rico on a big high exposure software project down there and my apartment was a stone’s throw away from the beach. Inside, I felt lost and confused. Most 23, 24 and 25-year-olds of that time are struggling with the idea of, “What exactly do I want to do with my future?” That’s when I started my personal development journey.
I started doing a lot of research and realized that a lot of information out there was fragmented across the internet so I decided to start a blog. I started the strong professional, which is the blog that I started. I did that for about a year almost. After looking back on my articles, I got 35,000 words or something like that. I read an article that said that 50,000 words were a 200-page book. I took those 35,000 words, rounded them out and added some more words to it. That was my first book.
That’s where the Millennial Playbooks series came into fruition. Each subsequent book after that was one of the key topics that I talked about, which were personal development, professional development, exercise, healthy eating habits and finances. That’s where the serious came to be. My most recent book, which is after I got into commercial real estate and started doing several lease deals. I realized how cumbersome the process was and how a lot of people didn’t understand how the commercial leasing process works.
I wrote the book Before You Sign That Lease: The Small Business Owner’s Guide To Leasing Commercial Space, it’s a comprehensive guide from start to finish about how do you lease commercial property. I finished my most recent book, which I’ll be publishing in January 2022, which is Before You Buy That Building and then the next book is going to be called Before You Sell That Building. At some point, once I get a few deals under my belt and can speak more eloquently about development, it’ll be Before You Develop That Building will be the next book. It will be a commercial real estate series that talks about all the different concepts of commercial real estate.
What are some tips or some things you would tell anybody that is looking to write a book? I know a lot of us have that on our bucket list.
A multi-location franchise is going to be way better tenant than a one mom-and-pop shop.
You can’t eat an elephant in one bite. My biggest thing was 250 words to 500 words a day. That’s what I stuck to. If you just do the math, let’s say you write 250 words a day, times 200, which is 200 days, that’s 50,000 words. That’s a 200-page book. You have a 200-page book in 7 months. That’s realistic. I’ve gotten to a point now where I have a system in place where I create the book outline and hitting that word count. Realizing that the first book and the way you’re writing is going to suck at first. I’m an engineer. I was not a writer by any stretch of the imagination. English was my most hated subject in school.
Starting out was brutal because I would read these sentences and I’d be like, “This sucks. This is terrible.” You go through that internal battle but after a while, you’ll realize, “I’m going to hit my word count and I can edit later.” That’s where the value comes into play because now you hit your word count, you feel you’ve accomplished something. Two hundred fifty words a day is not that much. It’s like a couple of paragraphs and you’re done. That’s what I would recommend.
Raphael, I’ve certainly enjoyed this. I loved hearing about your journey and what you’re doing. I love the rapid growth approach you’re taking on things without considering the fear that lies behind them. It seems like when you decided to go do something, you go do it and the results speak for themselves. This is awesome.
I look forward to keeping tracking your retail and industrial projects as you guys take your first few down. That looks like lots of fun. You’ve shared with us a lot of great things to learn and understand. A few final questions here for you. If you could help our readers avoid one mistake in real estate, what would it be? How would you avoid it?
You need to surround yourself with people who have experience. It’s one thing to learn things by yourself and that’s very important but also surrounding yourself with others. There’s a book called Who Not How. That was a phenomenal book that one of my buddies recommended to me. I read it and I always knew it in my head. That book reinforced the fact that there are certain things that you are good at and you need to focus on but there are other people out there that their cup is filled when you give them that opportunity. Don’t feel like you have to do everything yourself. If you’re not the best at underwriting then outsource it or at least find someone on your team that can do it for you. That would be my advice.
When it comes to investing in the world, what’s one thing you’re doing now to make the world a better place?
Don’t be driven by money. Money will come when you do add value. Focus on your why and why you’re here on earth. I believe that each and every one of us is here for a purpose. If you are able to align yourself with what that purpose is, life will be much better for you. If you’re coming out and trying to do it for the money, you’re not going to live a life in alignment with who you are and what you’re meant to be.
If our readers want to get in touch with you, learn more about your books, your podcast or anything else you’d like to share, what is the best way to do that?
It’s an honor to be on your show. I do appreciate that you invited me on and speak. It’s been great to speak with you. My name is Raphael Collazo. I am a commercial real estate agent in Louisville. You can check out my website at www.RaphaelCollazo.com or you can find me on Amazon. You can check out my books. We also do have a podcast called The Commercial Real Estate Academy where we talk about commercial real estate topics on a weekly basis. You can check us out on there and feel free to reach out via email and my cell phone number. You can check it out all on my website.
Raphael, thanks so much for your time. I do appreciate it.
Thanks, Sam.
Important Links:
- Millennial Playbook
- Fidelity Development
- Before You Sign That Lease: The Small Business Owner’s Guide To Leasing Commercial Space
- Who Not How
- www.RaphaelCollazo.com
- The Commercial Real Estate Academy
- LinkedIn – Raphael Collazo
- Facebook – Raphael Collazo
About Raphael Collazo
Raphael Collazo is a commercial real estate specialist with the Grisanti Group. He is passionate about helping business owners and investors achieve the American dream.
Transitioning from a career in software, he brings a strong technical background and a love for dissecting complex problems to his client interactions. These characteristics enable him to provide innovative and effective real estate solutions to help his clients get the most out of each transaction.
