FAQ

The main types of commercial real estate include:

1. 1. Office Buildings: These are buildings that are primarily used for office space and are occupied by businesses or organizations.
   2. Retail Properties: These are properties that are primarily used for the sale of goods and services, such as shopping centers, malls, and standalone stores.
   3. Industrial Properties: These are properties that are primarily used for the production, distribution, or storage of goods, such as warehouses, factories, and distribution centers.
   4. Multifamily Properties: These are properties that have more than one dwelling unit and are used for rental housing, such as apartments, condos, and townhouses.
   5. Hospitality Properties: These are properties that are primarily used for the accommodation of travelers, such as hotels, resorts, and motels.
   6. Special-Purpose Properties: These are properties that are used for specific purposes, such as self-storage facilities, medical offices, and educational facilities.

These are the most common types of commercial real estate, but there are also other types such as land, agricultural, and special-use properties. Commercial real estate can also be classified by its stage of development like raw land, developed land, new construction, and existing properties.

Commercial Real Estate Classes are a way of categorizing properties based on their quality, age, and intended use. The most common classes of commercial real estate include:

1. 1. Class A: These are the highest-quality properties, typically new or recently constructed, with modern amenities and excellent condition. They are generally located in prime locations and are considered desirable for high-paying tenants.
   2. Class B: These are properties that are older or less well-maintained than Class A properties, but still have good quality and are considered desirable for tenants. They may require some renovations or upgrades.
   3. Class C: These are properties that are older and in need of significant repairs or renovations. They are generally located in less desirable locations and are considered less desirable for tenants.

It’s worth noting that the classification of a commercial property can change over time, as properties age or are renovated, and their value and desirability can change accordingly.

There are several different types of commercial real estate leases, each with their own unique terms and conditions. Some of the most common types include:

1. 1. Gross lease: In a gross lease, the tenant pays a fixed rent, and the landlord is responsible for all operating expenses, including property taxes, insurance, and maintenance.
   2. Net lease: In a net lease, the tenant pays a base rent plus a portion of the operating expenses. There are several variations of net leases, including single net, double net, and triple net leases. In a single net lease, the tenant pays base rent plus property taxes; in a double net lease, the tenant pays base rent plus property taxes and insurance; and in a triple net lease, the tenant pays base rent plus property taxes, insurance, and maintenance.
   3. Modified gross lease: A modified gross lease is a combination of a gross and net lease, where the tenant pays a base rent plus a portion of the operating expenses.
   4. Percentage lease: A percentage lease is a type of lease where the tenant pays a base rent plus a percentage of their gross sales.
   5. Absolute net lease: In an absolute net lease, the tenant is responsible for all expenses associated with the property, including taxes, insurance, and maintenance.

Ultimately the terms of the lease will depend on the specific agreement between the landlord and tenant and the type of commercial property.

The benefits of a net lease for a landlord include:

1. 1. Cost recovery: With a net lease, the landlord can pass on some or all of the operating expenses to the tenant, such as property taxes, insurance, and maintenance costs. This helps the landlord recover some of the costs associated with owning the property.
   2. Predictable income: With a net lease, the landlord can anticipate the amount of income they will receive each month, which can make budgeting and forecasting easier.
   3. Risk transfer: With a net lease, the tenant takes on more of the risk associated with the property, such as the risk of increased operating expenses.
   4. Tax advantage: Net leases may provide tax benefits for landlords, as the expenses can be written off for tax purposes.

There are five primary benefits to investing in commercial real estate.

1. 1. Potential for high returns: Commercial real estate investments can provide higher returns than traditional investments such as stocks or bonds. This is because commercial properties can generate income through rent and appreciation and can also be used as collateral for loans. Additionally, investors can use leverage to increase their returns on investment.
   2. Cash flow: Many commercial properties generate regular rental income, which can provide a steady cash flow for investors. This can be especially beneficial for investors looking for a stable source of passive income. Additionally, commercial properties often have longer-term leases than residential properties, which can provide more predictable cash flow.
   3. Tax benefits: There are various tax benefits associated with commercial real estate investing, such as depreciation and the ability to write off certain expenses. Depreciation allows investors to deduct the cost of the property over a period of time, which can reduce their overall tax liability. Additionally, commercial real estate investors can write off expenses such as mortgage interest, insurance, and repairs, which can further reduce their tax burden.
   4. Diversification: Investing in commercial real estate can diversify an investment portfolio, reducing the overall risk. This is because commercial real estate investments are not directly correlated to the stock market and can perform differently under different market conditions. Additionally, investing in different commercial property types (e.g., office buildings, retail centers, warehouses) or different geographic locations can further diversify an investment portfolio.
   5. Appreciation: Commercial properties can appreciate over time, providing the potential for capital gains when the property is sold. This appreciation can be driven by a variety of factors, such as population growth, economic development, and changes in real estate market conditions. This potential appreciation can also serve as a natural hedge against inflation. Additionally, commercial properties can be improved or repositioned to increase their value, which can further increase the potential for appreciation.

Commercial real estate investing and the stock market are two different types of investments with their own unique characteristics and risks.

One of the main differences between the two is the potential for returns. Commercial real estate investments can provide higher potential returns than the stock market, especially when leveraged, but also the risks are higher. Additionally, commercial real estate investments tend to be less liquid than stock market investments, and they also tend to require more time, effort and money to manage.

Another difference between commercial real estate investing and the stock market is the type of income generated. The stock market generates returns primarily through capital appreciation, while commercial real estate investments generate income through rental income and appreciation. Rental income can provide a steady cash flow for investors, while appreciation can provide a potential for capital gains when the property is sold.

In terms of diversification, commercial real estate can be a good way to diversify a portfolio, as it is not directly correlated to the stock market and can perform differently under different market conditions. Additionally, investing in different commercial property types or geographic locations can further diversify an investment portfolio.

Investing in commercial real estate provides for several advantages that are not available through the stock market, as referenced in the “Benefits of CRE Investing” topic.

Overall, commercial real estate and the stock market are different types of investments, each with their own unique characteristics and risks. It’s important to consider your investment goals, risk tolerance, and investment horizon before deciding which type of investment is right for you.

The potential for returns can vary depending on various factors such as the type of property, location, and the overall economy. Historically, commercial real estate has been known to generate higher returns than the stock market over the long-term, but it also comes with higher risk. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), the average annual return for commercial real estate for the period from 1978 to 2018 was around 10.5%. On the other hand, the stock market has generated an average annual return of around 10% over the long-term.

However, it’s important to note that these are historical averages and past performance is not indicative of future performance. Additionally, returns can vary greatly depending on the type of property, location, and the overall economy.

It’s also worth noting that commercial real estate investments tend to be more illiquid than stock market investments, meaning that it can take longer to buy and sell properties. Additionally, commercial real estate investments tend to require more time, effort, and money to manage than stock market investments.

Overall, both commercial real estate and the stock market can provide the potential for high returns, but each come with their own unique risks and characteristics. It’s important to consider your investment goals, risk tolerance, and investment horizon before deciding which type of investment is right for you.

The type of commercial real estate that has generated the highest returns over the past 30 years can vary depending on the source of data, but generally speaking, certain sectors have tended to perform better than others. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), the property sectors that have historically generated the highest returns over the past 30 years are:

1. 1. Industrial properties: This sector includes warehouses, distribution centers, and manufacturing facilities, and has generated an average annual return of around 11.2% over the past 30 years.
   2. Office properties: This sector includes office buildings and has generated an average annual return of around 10.8% over the past 30 years.
   3. Apartment properties: This sector includes multi-family residential properties and has generated an average annual return of around 10.6% over the past 30 years.
   4. Retail properties: This sector includes shopping centers, malls, and stand-alone stores, and has generated an average annual return of around 9.9% over the past 30 years.

It’s worth noting that these are historical averages and past performance is not indicative of future performance. Additionally, these returns can vary greatly depending on the specific properties and locations within each sector.

Also, it’s important to remember that investing in commercial real estate is not without risk, and the specific property, location, and market conditions will also play a role in determining the potential return on investment.

There are several investment metrics that are commonly used to calculate returns in commercial real estate, including:

1. 1. Capitalization Rate (Cap Rate): The cap rate is the ratio of the property’s net operating income (NOI) to its current market value. It is used to measure the rate of return on an investment and is expressed as a percentage. A higher cap rate generally indicates a higher return on investment.
   2. Internal Rate of Return (IRR): The IRR is the rate at which the net present value of an investment equals zero. It is used to measure the profitability of an investment over a certain period of time and is expressed as a percentage. A higher IRR generally indicates a higher return on investment.
   3. Multiple on Invested Capital (MOIC): MOIC is a ratio that compares the final sale price of a property to the original amount of capital invested.
   4. MOIC is calculated by dividing the final sale price of the property by the original amount of capital invested. For example, if an investor purchases a property for $1,000,000 and sells it for $1,500,000, the MOIC is 1.5x. This metric is used to measure the return on investment in terms of how many times the initial investment has been made. A higher MOIC indicates a higher return on investment, and a lower MOIC indicates a lower return on investment.
   5. Cash-on-Cash Return (CoC): The CoC return is the ratio of the annual cash flow from a property to the amount of cash invested in the property. It is used to measure the cash flow generated by an investment and is expressed as a percentage. A higher CoC return generally indicates a higher return on investment.
   6. Gross Rent Multiplier (GRM): The GRM is the ratio of a property’s sale price to its annual gross rental income. It is used to measure the potential return on an investment and is expressed as a number. A lower GRM generally indicates a higher return on investment.
   7. Debt Coverage Ratio (DCR): The DCR is the ratio of a property’s net operating income (NOI) to its annual mortgage payments. It is used to measure a property’s ability to cover its debt payments and is expressed as a number. A higher DCR generally indicates a lower risk of default.

It’s important to note that all of these metrics can also be used in combination with each other to provide a more comprehensive view of the investment’s potential performance.

An active real estate investor is someone who actively buys, manages, and sells properties for the purpose of making a profit. This type of investor typically takes a hands-on approach to managing their properties, and may be involved in finding and purchasing properties, managing tenants, making repairs and renovations, and overseeing the day-to-day operations of the properties. Active investors tend to be experienced in real estate and have the time and resources to manage their properties.

On the other hand, a passive real estate investor is someone who provides capital to be invested in real estate projects but does not take an active role in managing the property. They usually invest in a real estate venture through a real estate investment trust (REIT), a syndication, or a real estate crowdfunding platform. Passive investors usually make their money through the income generated by the property, such as rental income and any appreciation in value. They typically rely on the expertise and knowledge of the sponsor or the management team to manage the property and make the investment decisions. Passive investors are also called “silent partners” as they don’t have an active role in the day-to-day operations of the property.

Commercial real estate syndications are a way for investors to pool their money together to purchase and manage commercial properties. They are a popular way for small investors to gain access to larger and more profitable commercial real estate investments that they may not be able to afford on their own. Syndications allow investors to diversify their portfolios and take advantage of the potential for higher returns that commercial real estate can provide.

A commercial real estate syndication is typically led by a sponsor or general partner who is responsible for finding and acquiring the property, as well as managing and overseeing the day-to-day operations. The sponsor also typically contributes a portion of the equity required to purchase the property and raises the remaining funds from a group of investors, known as limited partners. The sponsor is usually an experienced real estate professional who has a track record of successfully managing and investing in commercial properties.

The limited partners, also known as the syndicate, invest in the syndication and own a percentage of the property, typically in the form of shares. The syndicate may also be responsible for providing additional capital for the property’s operation and maintenance and will receive a share of the income generated by the property, such as rental income and any appreciation in value.

One of the benefits of investing in commercial real estate syndications is that it allows for a higher level of diversification. By investing in multiple properties and multiple markets, investors can spread out their risk and reduce their exposure to any one particular market or property. Additionally, commercial real estate syndications allow for professional management, which can be a significant advantage for investors who may not have the time or expertise to manage a property on their own.

Another benefit of commercial real estate syndications is that it allows for investors to invest in larger and more expensive properties that they may not be able to afford on their own. This can provide a higher potential for returns, as larger and more expensive properties tend to generate more income and have more potential for appreciation.

However, it’s important to note that commercial real estate syndications also come with certain risks. One of the main risks is the potential for a lack of control over the property and its management. Investors are also exposed to the risk of the sponsor’s performance, as the sponsor is responsible for finding and managing the property. Additionally, commercial real estate syndications are typically illiquid investments, meaning that it may be difficult to sell your shares in the property.

In conclusion, commercial real estate syndications can be an attractive option for small investors looking to gain access to larger and more profitable commercial real estate investments. It’s important for investors to understand the different types of syndications available and the risks and rewards associated with each. By diversifying and spreading out their risk, investors can take advantage of the potential for higher returns while minimizing their exposure to any one particular market or property. However, it’s important to carefully consider the risks and do proper due diligence before making an investment.

• • Core: A core real estate strategy is an investment approach that focuses on the acquisition of high-quality, well-located properties that are considered “core” assets. These properties are considered to be low-risk and are expected to generate stable cash flow and hold their value over the long-term. Core properties are typically in prime locations, well-maintained, and have a strong tenant base. The goal of a core real estate strategy is to generate consistent, stable cash flow through rental income and any appreciation in value over time. This strategy is characterized by a relatively low-risk and a long-term investment horizon.

• • Value-Add: This strategy involves buying underperforming properties, such as distressed or under-rented properties, and then making improvements to increase their value, such as through renovations or re-tenanting. The goal is to increase the property’s value and generate higher returns for the investors. This strategy typically has a higher risk-reward ratio, as the potential for higher returns is balanced by the potential for higher costs and longer holding periods.

• • Opportunistic: Opportunistic real estate strategy is an investment approach that involves taking advantage of market inefficiencies and mispriced assets to generate above-market returns. This strategy is characterized by a high degree of flexibility and a willingness to invest in a wide range of assets and markets, including land and ground-up development. Opportunistic investors often take a more aggressive approach to investing, such as buying properties at a discount during a market downturn and then holding them until the market recovers, or investing in real estate markets that are not well-established. They tend to be willing to take on more risk in order to achieve higher returns.

Sentinel employs a hybrid approach to capitalize on evolving market conditions. Below are our customized investment strategies:

• • Core credit-rated-These commercial properties already have profitable, long-term, credit-rated tenants with net leases scheduled to last 6 to 10 more years. We anticipate a cash-on-cash return in the high single digits/low double digits for up to a decade with the potential for higher earnings later, after the disposition of the property.

• • Opportunistic credit-related: Stable and profitable tenants in these properties typically have six or fewer years remaining on their leases. Since disposition of the lease will take place sooner, this classification of properties has more potential for growth in the shorter term.                                                                               

• • Value-added core: These assets have tenants nearing the end of their net leases, offering an opportunity for higher returns in the near future. Often, these assets will get capital improvements to enhance their ability to command higher rents and thus, produce greater yields upon disposition. By their nature, these properties have more risk potential, but our selection process mitigates this potential as much as possible.

Sentinel invests in stabilized and value add opportunities in the office, retail, industrial, and the automotive sectors.

Sentinel invests in the top 100 metro areas across the United States with a focus on value-oriented Midwest and Southeast. We currently have holdings in 11 states – please visit our Portfolio page for more details.

Sentinel’s target returns vary by strategy:

• • Core-Credit- 15%-17% net IRR
  • Opportunistic Institutional- 18%-22% net IRR
  • Core Value-Add: 25% net IRR

No, commercial real estate investments of any type do not come with any guarantee of returns. The returns on commercial real estate investments are subject to several factors outside of the control of the investment manager.

Investing in commercial real estate can be a great way to generate returns, but it’s important to understand that there is always a degree of risk involved. The performance of the investment can be affected by economic conditions, changes in interest rates, and the performance of the tenants. Additionally, the value of the property can fluctuate and can be affected by market conditions, natural disasters, or other unforeseen events.

To mitigate risk and maximize returns, investors should conduct thorough due diligence on the property and the market, as well as have a well-diversified portfolio and a long-term investment horizon. Additionally, it’s important for investors to have a clear understanding of their own risk tolerance, and to invest accordingly.

Generally, Sentinel tenants are large, financially stable public and private corporations with annual revenues in excess of $1 billion. These include household names such as Amazon, AT&T, JP Morgan Chase, Tesla, and United Healthcare.

The hold period varies by strategy and the specific asset. Generally speaking, the opportunistic and value-add investments have a projected hold period of 2 to 4 years and the core strategy hold period is 5 to 7 years.

Yes. We use a modest amount (60% to 70% of the total price) of senior debt from banks and credit unions for our acquisitions. These loans are generally highly accretive and potentially improve the cash-on-cash returns of the properties.

We only consider selling assets during ideal market conditions, even if we have already executed our business plan, to maximize potential profitability for our investors.

Sentinel Net Lease executives have over 60 years of commercial real estate experience. Utilizing their deep knowledge of acquisitions, asset management, property management and finance, they are able to source and manage investments that yield outsized risk-adjusted returns.

With a current roster of more than 310 active investors, Sentinel Net Lease has a diverse base of investors ranging from high-net-worth individuals, family offices, private funds, and wealth management firms.