WIN Ep165. How to Understand Commercial Sectors and Market Trajectories with Caleb David

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Trent Werner: Welcome back to another episode of the deal deep dive segment on the Westside Investors Network podcast. I'm your host, Trent Warner. In this segment, our future guests will share their unique stories on a specific deal they've invested in. We will dive deep into finding the deal, financing the deal, writing an offer, and the due diligence. Do us a solid and smash that subscribe button, leave us a rating, and share this episode.

And now let's dive deep. Welcome back to the Westside Investors Network podcast. I'm your host, Trent Werner. On today's episode, we are joined by Caleb David. Caleb is the principal at David Commercial Real Estate in Colorado Springs.

We're gonna hear about Caleb's twelve year commercial real estate career and some of the stories he's sharing about tenant and property owner representation. We're also gonna dive deep into Caleb's personal investment in a commercial flex space property in a part of town that was just getting ready to pop when he and his partners bought this deal. Now let's welcome Caleb David. Caleb David joining the Westside Investors Network podcast. Caleb, thanks so much for calling in from Colorado.

Caleb David: Thank you. Thanks for having us.

Trent Werner: So Caleb, this is our first time meeting, obviously, and I'm excited for our conversation. For people that have not met you prior, like myself, who is Caleb David?

Caleb David: You know, I'm a dad. I am a broker. I think very often we say who we are is by what we do. And I've learned over the last ten years that I am who I am outside of brokerage, outside of being a dad, but those are the things that I'm most proud of. And my background is actually in the nonprofit sector.

And so I took all that I've learned from the nonprofit sector and how to serve people as well as possible with dignity and respect and bring that to the table in real estate.

Trent Werner: And going from nonprofit sector to brokerage, what ignited that transition?

Caleb David: Yeah, no, honestly, so we did a lot of work that was very social justice driven. So a lot of really hard things. We served on the board for organization that reunified kids who had been trafficked. We worked with Syrian refugees on the border. And it can be very fulfilling, but also incredibly draining.

And you don't really make a living doing those things. And so I was in a place of burnout and a friend of mine about a little ten, twelve years ago came to me and he said, Have you ever thought about real estate? And I was like, Yeah, sure, I could sell some houses, guess. And he's like, No, this is commercial. And fell into a position with a small boutique firm and fell in love with the industry.

I haven't looked I

Trent Werner: love that. So a as I mean, sounds like you were doing some work in situations that could be emotionally taxing, very difficult to, you know, be in encompassed with. Yeah. How has that transitioned into your brokerage life?

Caleb David: Yeah, that's a really good question. Honestly, I hadn't thought about that before. So I appreciate the insight. I do think that there is when you're in really high pressure situations, I mean, whether you're crossing the border between Israel and Palestine, that's a stressful moment, right? And you get pulled aside because I look Palestinian.

And so I get pulled aside and all this stuff. And so you have to keep your cool and realize that what's happening in this moment is not forever. And that it you know, this moment is going to pass, but how do I stay as grounded as possible and be as present as possible, so that I can make the wisest decision in front of me.

Trent Werner: Yeah, well, brokerage, there's always curveballs thrown at you, Whether it's, you know, an inspection that went awry or negotiations just aren't, you know, as easy as you thought they were gonna be. And so I'm assuming that being able to keep her cool in the situation like you just mentioned, helps with some of the brokerage things that may pop up during the pandemic.

Caleb David: Think you have to keep your cool as much as possible because you realize that there's a bigger picture at play here. And I think very often in brokerage, it's very easy for our egos to get in the way and be like, well, I said this and I did that and I'm right. You know, at some point, those things don't matter as much. It's like, what is the big picture? It's not the reactivity, it's the how do we be proactive and see things for what they really are, not just how they make us feel.

Trent Werner: And being able to marry the emotional and logical thinking together to create a good situation for everyone involved.

Caleb David: Absolutely. Absolutely.

Trent Werner: So Caleb, as a broker, what are you primarily focused on? I know you said you're not selling houses per se, but what kind of brokerage and deals are you working on as a broker?

Caleb David: Yes, as a broker right now, we're seeing the market slowly coming back from the last two years of high interest rates and not a whole lot of activity. So right now we're seeing a lot of activity in the industrial sector, we're seeing activity in the retail sector, but we also do a lot of work in office land. Land has been taking a long, long time. Of course they don't make it anymore, So prices are staying pretty steady, but at the same time, people are not pulling the trigger as quickly on those particular things. So done some multifamily, a little bit that we're not a huge market, but I'm one of those people that does not like to get bored.

And so, I'm not just a strict office guy. I think a lot of times when you get into commercial real estate, people say you've got to specialize. And I think it depends on your market and depends upon the firm that you're with. Because I personally believe, especially post COVID, what happened with the retail market affected the industrial market. Everybody started going to warehouses, right?

And they went to smaller imprints on retail. And so to me, I think each each of the different markets informs the other in some way, shape or form. So I think to have a well balanced understanding of all of those sectors is really important.

Trent Werner: Absolutely. And and Colorado Springs, I mean, what is the biggest sector of commercial real estate that you guys have there?

Caleb David: You know, there's a lot of retail because we are very tourism driven. The city, we've got a lot of military and we also have a lot of defense contractors and that sort of thing. So we've got a pretty balanced I think retail and industrial are probably the highest activity currently. And again, post COVID, people made changes to their office situations and how they're going to handle things. So we actually did not get hit like Denver got hit with office market.

Go downtown Denver and you've got entire buildings that are vacant. Just saw a post today, a building that sold in 2019, I think for about 40,000,000 just sold for 20,000,000. So Denver's taken some significant hits and I do work up there, but it's important to understand the dynamics of the two different markets, how they work together, and then how Colorado Springs for the most part has been sheltered from the disaster that Denver was hit with.

Trent Werner: Absolutely. And Caleb, you've done tons of deals on the brokerage side. I wanna ask you about your deal that you when you were a landlord. It was a commercial real estate deal in Colorado Springs.

Caleb David: Yeah.

Trent Werner: Tell me about this deal when you were first of all, what what kind of property was it? And second of all, how did you find it? And what made you want to ultimately pull the trigger on that deal?

Caleb David: Yeah. So you know, when I got into commercial real estate, the boutique firm that I worked with, the owners were also developers and property owners. The end all was not just transactions. So from the very beginning, I was trained to look for a good deal. You know, what are you looking for?

How do you capitalize on it? Is this good for your client? Is this something that you should consider yourself? And so I made a goal when I first got into the industry that by the time I was five years in, I wanted to be a building owner. And it was right around year three, we came across this property that just popped up on the market.

Another broker in town that we knew really well and worked well with had brought it to market. It's a little rundown in an area that really wasn't honestly that desirable. But we had been paying attention to what's going on around the city, where are the pockets, where are things popping up. And so we knew that coming up within the next three to five years of having that property, that area would be completely redeveloped. And so we took a look at it and it was a property was two, I think it was like $230,000 really not a huge property, but it was a kind of a retail industrial flex mix because it was in the middle of a retail, right in between retail and industrial sectors.

So we just thought this is really interesting because we noticed that the tenants that we were representing were looking for smaller spaces at the time. And it was a time when a lot of people were starting to do renovations on their homes, the market had picked back up, people were feeling a little bit more confident. And so we took a look at it, we said, okay, how can we do this? And so we knew it wasn't an ideal location, we knew it was a little bit rundown. So we're like, we can probably add some value here and find a tenant that will lease a space that will cover our mortgage.

And the other thing that we really looked at too, is we were like, Alright, we're brokers. So we're not necessarily bringing cash to the table. But what we can do is we can put our commissions in as cash at the closing table, and use that as a unique way being licensed to not come out of pocket a whole lot of money and use the capital we did have to make a few upgrades and fixes to the property.

Trent Werner: Absolutely. And so tell me more about this space. You said it was a retail industrial flex. Does that mean, you know, is retail, back is a warehouse or tell me about that?

Caleb David: Yep, exactly. So the front was retail and not ideal, it wasn't on a main road. I mean, was just off one of the main arterials, but we just knew, okay, listen, this would be great for some sort of service company, you know, whether it be HVAC, plumber, somebody like that, that is a small business looking to kind of grow out of their home and into something a little bit larger, so they can expand their business. And that's always been huge is that we want, whether I'm a landlord or broker, I want what's best for the client or the tenant, because I want to come back in two or three years and be like, all right, they're still there, they're growing or they need to move. And so that's the mindset that I go with.

Was never one of the Always frustrated when you have a landlord that doesn't care about the property, lets it get run down. And so we just wanted to be their present and self manage the property. And so that's what we ended up doing. Yeah, retail in the front had a few offices in there for admin, and then the rest was warehouse and had a small fenced in yard, which in our market is really hard to find. And so we started seeing the trends of where it was going.

And so we thought let's snatch it up. And it was a great decision.

Trent Werner: And what kind of upgrades did you make? I know you mentioned there was some value add that could have been done there. Upgrades did you end up doing?

Caleb David: We replaced the front door. I mean, was just it got really stuck and it was really awkward. We did had it professionally cleaned, we had some paint touch up, cleaned the carpets, but we knew going into this that as soon as we got it under contract, we're gonna go try to find a tenant right away while it's under contract. And so we started doing that and we started just kind of talking to people and just kind of feeling it out. And out of the blue, we had an HVAC company that came to us that said, we need to move, we need to grow and showed the property.

And after the details that we I mentioned earlier, what the minor things that we did, space worked for them. And we had a signed lease on the same day as closing. So we didn't have a single day that that building was not was was sitting empty once we owned it.

Trent Werner: That's a pretty good setup if you ask me.

Caleb David: Yeah, yeah, I mean, it took a little extra work, right? Because we're not we're marketing a property that's not technically on the market for lease. But relationships are so important. And I think when it comes to stuff like this, even when it came to our lender, it was all personal relationships and professional relations that we pulled on to be able to work on this together to pull it off.

Trent Werner: Right, and so now talk to me, you closed on it, you got the tenant moving in, what happens next?

Caleb David: So we just, I mean, we hardly hear from the tenant. We go check-in every once in a while. Eventually they ended up going out of business. This is after I exited the investment myself, but they just started growing and growing and growing. And, know, we had a great working relationship with our tenant and, you know, husband and wife team, and they just offered a great service to the community.

And they did really, really well for a good season. And so we really didn't have a whole lot of major issues. We didn't have any roof leaks, we didn't have any HVAC. We did replace the HVAC for them at one point, but other than that, I mean, they were great tenants and quiet tenants are great ones. As long as there's communication and touching in and paying their rent.

Trent Werner: What kind of lease was it on? Was it triple net?

Caleb David: It was actually because it was a single tenant building. We did do a triple net lease and then they did all of their own utilities directly with the utility company. And so, yeah, we signed a, I believe it was a three year lease to start off and then they did a renewal and we built in annual escalations for every single year.

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How long were you involved in the in the investment?

Caleb David: I was involved in the investment probably for about, I would say about five years. And we really did see, mean, I think the importance of understanding the market, or having a broker, if you're an investor that understands the heartbeat and what's happening on the ground. I mean, you go by there now. And I mean, there 's brand new Whataburger, there's brand new convenience stores on every corner, you know, and so having that foresight and just understanding of this is where it's going. And I think that's when you make your best investment is when you take that risk and say, you know, I believe this is where it's going.

Because if you're waiting right here now for the best deal, you're not necessarily gonna get it, you know. So I think it's something about understanding the trajectory of of the market and and and the behavior of people and tenants.

Trent Werner: And Kale, what made you want to pull out of that investment when you did? Was there any one reason?

Caleb David: There was. I was starting my own firm, and I was leaving the partnership that I was in which we owned our own real estate firm together. And so when I was going, I just didn't, I wanted there just be a clean break. And so just so there wasn't any you know, leftover anything. So we ended up walking away with way more than I put in, you know.

And so it was a great time. Was also going through a divorce at the time. So finances were important. And so and then I was launching my new company. So being able to take that money, that seed money and put it into what I've built now is what I did with that.

Trent Werner: And what did you learn from taking this leap and investing in an area that was coming up, but wasn't there by any means yet? And what did you learn from being on the landlord side after you'd already been in the brokerage business for a few years?

Caleb David: Yeah, couple of things. So the first being, it was important for me to trust myself, because I knew that there was something here. And so that was one of the biggest things because I think it's very easy for us to doubt ourselves, especially if you're doing it for the first time. And so I think it taught me that, you know what, trust your instincts. And on the other side, what it taught me is it gave me compassion for my landlords who have tenants that are struggling to be able to go when I go to a listing appointment and say, Hey, listen, you know, Mr.

Asset Manager, you know, why should you hire me? Because I understand what it's like to be in your shoes. I understand what it's like to self manage a property. I know the different challenges that come up. So when I bring a tenant to you, for your building, I'm going to treat it like it's mine.

And I'm not going to ask you to do a deal that I would not put into my own building. And I found that goes a long way with building owners. Because a lot of times in our industry, people are just doing transactions, they're not necessarily or they're investing and they're just kind of doing their own thing. But for me, it became a tool in my toolbox to be able to go to owners and say, here's why you should hire me. We're gonna look at financials, I'm not going to sit here and ask you to sign a lease so I can get a commission paycheck, if it's not something I believe in.

And so I think those are a couple of things that I really learned and took away from that experience.

Trent Werner: And when it comes to, you know, bringing a tenant to an owner or an asset manager, for example, what are some things that you're looking at, whether it was from your own investment or from other deals that you've done? What are things that you're looking at in the tenant to feel confident to tell the owner that they're going to be a good fit?

Caleb David: Yeah, obviously, can look at financials, You can look at a business plan, you can see how long they've been in business. Always go and check the Secretary of State website to make sure they're in good standing. If they're not, that's a little bit of a red flag for me. And so I think there's little tools like that that you can do, but also if they have a reference from a previous landlord, that's important to take a look at. But some of it is just gut, you know, and we're always gonna look at financials though.

We're always gonna look at history. I look at Google reviews, because do I want a tenant in my building that's getting trashed left and right and it's gonna end up leaving my building empty because they just can't keep up with all the bad press. So those are some things I look at. And I also work really closely with our local SBDC, the Small Business Development Corporation. And whether it's a tenant I'm representing or someone that's coming to a building that I represent, if they're not ready, they don't have a business plan, they don't have the right resources, then I'm going to set them somewhere where they can get that so that they can with confidence, come back when the time is right and be a great tenant.

Trent Werner: And I'm assuming so I'm I'm a residential small multifamily broker. I'm, you know, I'm definitely not a commercial broker by any means. But there's got to be some difference between a smaller company or startup company, for example, versus, you know, a national brand or international brand, for example. What are the biggest differences when you're doing a tenant rep deal that you're seeing aside from just finances and brand awareness? Are there, you know, is there more emotion with a startup and mom and pop versus the big box?

Caleb David: I mean, it depends on the person, right? I think, you know, I just got a lease signed this morning up in Golden, Colorado with a client who we've been working on trying to find a space for six months. It's her first time going into business for herself. However, she's managed these kickboxing gyms for the last eight years, and she's got a business degree, and she read the lease line by line. And so that is somebody that I'm like, all right, yes, I have full confidence that she's going to be incredibly successful.

The other call I got today was someone whose restaurant, they got evicted from the restaurant that they had because of all of these different hail issues that happened over the last year. And now she's like, this is my passion, but I've lost, I don't have any money. We're about to lose our house and my in laws are about to lose their house. And so two complete different minds is where she's like, I want to do this. And me as a broker, I want to help.

And I feel that her business has been stolen from her because of how the landlord handled the damage in the property. But I can't go to a landlord and say, Oh yeah, it's going be fine. Everything's going to be fine. It has to be, No, here's the story. And I think that's important in commercial real estate is to tell the story for your tenant and see if that story lines up between the landlord and the tenant.

So that's very different, financing is very different, it takes longer to get financing, but there's also more resources available, whether it be if it's a women's owned business, there could be some grants available. If you're a minority owned business, there could be grants available. So for me as a broker, I feel like my job is not to just be like, hey, let's go find you something. It's like, no, let's find the best opportunity and let's get you connected with all of the right people that can help you financially get to the place where in three years when I come to visit you, you're still smiling.

Trent Werner: Right. And Caleb, how how have, you know, the the behemoths like Amazon and, you know, all the other companies, have those impacted your local market if they have impacted them?

Caleb David: They absolutely have. And when I first started the market, it was the marijuana industry that was the major factor. Every other phone call you got was I need a warehouse I need to grow. That is long since gone and all those guys have all been eaten up by all the big guys. But we work closely with our chamber and EDC.

And so when Amazon came, they're like, hey, we want to build a two, four million square foot location by the airport, we'd see that come through. I didn't work with them specifically on any of those deals, but some of the bigger ones, whether it be a defense contractor, of course, we're huge military as well. We have Space Command in Colorado Springs. So those big guys definitely do play a big part, but typically have people that they've worked with for their expansions throughout the country. And so, and I tell people all the time, doing a lease for 1,000 square feet can be just as much work and hassle as a deal where you get paid $100,000 on a commission.

So it just depends on who you're dealing with and what their personalities are. I would definitely say there's not as much emotion as there would be on the residential side. Because for the most part, people are looking for facts. Does the floor plan work? How much tenant improvements will I be given?

Do the numbers make sense? But then there are situations where I dealt with a zoom call today of a lease I got signed back in the fall, where it's a nonprofit that does really hard work. They didn't have an attorney preview their lease as I suggested. And now there's misunderstanding. And so now there's a lot of emotion happening.

Deal's been done for months, but we're still dealing with the after effects. And we try not to just bail on our clients. You know, we're like the deal's done. Yes, we get it. But let us walk you through to the end.

Trent Werner: Yeah, I mean, it makes perfect sense. Have there been have there been any positive or, I guess, trickle down impacts being in the market where there is big military and defense contracts and Amazon and all these big companies, has there been any positive trickle down effects from that size business or industry being in Colorado Springs for some of your smaller tenants?

Caleb David: Yeah, absolutely. Because we have I actually had a guy who ran a Jimmy John's franchise, but his full time job was as a defense contractor. So I represented him on a couple of deals for his Jimmy John's locations. And we just built a relationship. Then one day he called me and he was like, Oh, we just are getting a new contract.

Can you help us find office space? And so we were able to do that about three years ago. And he's now since come back and said, Hey, we're about to get awarded potentially a massive project and I might need 50,000 to 60,000 square feet. So that hasn't materialized yet. But I think people remember how you treat them, you know, and I think if you remain professional, if you don't know, if I don't know the answer to something, I'm gonna say, you know what, let me find out.

I'm not going to pretend like I've got it all figured out. Defense contractors are not my specialty. But because of that working relationship and trust, we've been able to get at least one five year lease from that one, and potentially another very large one later on this year.

Trent Werner: And that goes to show that doing good business, serving your clients properly is going to pay off for all parties in the future.

Caleb David: It's harder work, but you know what? It's the right thing to do. And I think, you know, it it all comes back around. So, you know, there's been times where I've walked away from chunks of money, because it violated the values that I had. And I was like, yeah, it's not worth it.

Trent Werner: Absolutely. Well, Caleb, where can people hear more from you, connect with you, or if they're looking for space in Colorado Springs, I guess Absolutely. Get in touch with you.

Caleb David: Yeah, so they can go to our website, which is just www.davidcommercial.com or follow me. I do more updates on Instagram than anything else. So it's just instagram.com/calipdavid. Same with LinkedIn. And you can also follow me, I'm newly on TikTok, and I'm not that techie.

But we're trying out this new technology, for me at least, and that is caleb25david. And then go to our website, look around if you guys have questions about whether it be an investment or it's about your lease or you're anywhere in Colorado or you're just somebody curious a broker or someone who wants to get into the industry, I I would love to share any knowledge that I have and see what we can do to be a resource to your listeners.

Trent Werner: Very nice. Thank you so much, Caleb. I appreciate your time and sharing about your personal investment deal in Colorado as well as your brokerage business.

Caleb David: Thank you very much. Great to have you, and thanks for the insights that you brought to my attention.

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