Daniella Devine | How to Analyze Commercial Real Estate Beyond the Property

Most people are taught to analyze commercial real estate by looking at the property itself, the rents, the numbers, and the cap rate. But what if some of the biggest opportunities and the biggest risks sit outside of the property? In today's episode, we're talking about a commercial real estate framework that looks at zoning, at city planning, at the highest and best use, and at everything that can go wrong before a deal is ever done. It is a refreshing way to think about analyzing opportunity and risk, and honestly, it may change how you look at commercial investing. Let's get into it.

Welcome to the Real Estate InvestHer Podcast, a top 1% show helping women achieve financial freedom by investing in real estate. And now your hosts, Liz Faircloth and Andresa Guidelli.

So Daniela, you have lost $70,000 during your first deal. Tell us about that story, but most important, the skill sets and the changes that you had to make moving on as you acquire new deals in your own journey.

Absolutely. So I actually think back at this fondly, which is strange, but I do. I cut my teeth in real estate and creative finance. So I've learned how to purchase property without banks, credit, your own cash nationwide. And I, I founded a transaction management company because I was so risk averse to this. I didn't understand how you're supposed to do that legally across 50 states. And so I broke all of the initial investment rules. I saw a really sexy deal in Bend, Oregon, and I'm in California. And in California it takes an arm and a leg and a handbasket to get into a deal. And it does too in Oregon and in especially little resort £100,000. I bought something that I didn't understand, and I bought something in a market I didn't understand, and I trusted somebody who said they knew their market. So I basically was like, you know how it is, red flags everywhere. And because the numbers seemed so good, I did it anyways. And it really was a midterm rental play. It had an HOA, it was a condominium, that sort of thing. But it was beautifully designed. Everything was new. It was in the middle of a multimillion dollar neighborhood right next next to a university. I'm going, what can go wrong? What can go wrong? Well, turns out a lot can go wrong. You know, the fun about midterm rentals is that you have to pay all of the things no matter what, because you never know when you're going to get a guest. Same thing as short-term, right? Utilities stay on, everything stays on. And I could not rent this thing out to save my life. I mean, you think about like all of the marketing strategies that people talk about online, all of the YouTubes. I did everything and I couldn't get it rented out for more than 4 weeks. And I started just hemorrhaging every month, hemorrhaging the mortgage, the bills, the this, the that, HOA, cut your weeds, or whatever, whatever was next. It was something that was next. And at the end of it all, I was trying to offload it to an investor pretty much at what I paid. I was just so done. I was probably leaking $6,000 a month. And even that, for somebody in the Bay Area doing, you know, high-income earner. That's just, it's ridiculous. And I found out this investor knew her market and she did the thing I never did. I learned so much from this. She sat and she parked on the street for 2 days and she called me and she said, did you know that you're 2 doors down from a halfway house for juveniles that just got out of juvenile prison? And I said, I'm sorry, I'm sorry, what? And she goes, this is a facility for kids that had drug problems that were in juvenile hall that came out. And she goes, I was sitting there and I noticed a young girl in her shorts and a tank top chain smoking in the snow. And I thought, how strange. And then I saw what looked like a hotel cart, a cleaning cart going door to door. And she goes, this is weird. Maybe some luxury student housing situation. And then she looked up the site and I, at the time, this is so embarrassing, but I was a planning commissioner. I know how to look up sites and parcels and permits and development, and I didn't even think to do this. And so she asked me some pointed questions and I will never ever forget this. She goes, this is a multimillion dollar neighborhood and this is on a court and it's a tight court. If you were an elderly person, would you want to live next to a facility like this? If you were a mom like you are with 3 young kids, would you want to live next to a facility like this? If you were anybody, would you want to live next to a facility like this? And those are just such awfully hard questions because the truth is, if you had your druthers and you had the economic choice, you simply would not. And that's when I knew I had to dump it. I was like, okay, this is it. And you know, it took money and time to dump it. And so I think from that just came this incredible MBA. You know, I, I've always been really big into education. I'm the first in my family to go to college. I'm the first in my family to get a master's degree. I really wanted to get a PhD. And it was like, golly, I could never have paid for this. I did, I broke the golden rules, but I also did all of the things to try and, and hedge against the mistakes I made, and it still didn't matter because there was an environmental circumstance that I couldn't get around. So that made me feel not crazy, which was great because I was punishing myself for months for making these mistakes, right? How could I be so stupid? And then it made me realize, oh, if I can survive this, I'm totally going to do this again. And I was very lucky because that money that I lost was a K-1. From a business that I earned. I did not go into debt losing that money. And that is the message. Oh my God, the second I found this out, I thought, thank God.

Right.

I earned that lesson, you know?

I wanna dissect this in so many directions, but one that I really wanna point it out, we are about almost 600 episodes. And what I really love about your answer, Daniela, that is different from, I'm not gonna say all of them, but majority of women that we talked about when we ask about the mistakes that they have made and the lessons that have learned is that there's, is a very solitude and isolation. They learn on their own. And what you are pointing out on this situation that I think it's more and more eminent is that you are relying on somebody else that is saw what you didn't see. Despite your experience, despite your background, I think a lot of women that have the experience, they are going through deals, partnerships, and like, what can go wrong? I already check all the marks over here. And women that are listening, this is such a beautiful example, and I will not forget that example ever. If I, I see you, whatever. I see you like the NBA example. This is the NBA example. I think we need to lean in on more of those core relationships with people and double down, I believe, versus, well, I have the experience. I don't need to rely on anybody here, but I'm not missing anything and just go for it without stress testing. So I'm curious moving forward, What did you do different?

Oh my gosh, what didn't I do different? Seriously, it completely changed my perspective. And what I did was, one, I realized I'm never doing residential again. Like, I cannot believe I lost this much money for something that was worth this much. And yeah, I'm going, all right, I'm a commercial girly. We're done. We're done with blowing this popsicle stand. This is not for me. Because if I'm ever going to lose this money, this much money again, it's going to be for a serious facility bringing in something serious. And I grew up in flex industrial warehouses. So I knew how to run a facility like that, how to manage that asset as a business owner. And so I thought, you know what, if I'm going to do commercial though, I'm going to be me. I'm a total— I don't know if you've ever heard this word, but I'm an ethnographer. So that basically means when you want to learn something, you become like obsessive about it. You've got to learn everything, however advantageous or disadvantageous that is. It becomes like, I need to know every nook and cranny of this. And I'm risk-averse, especially after that experience. So I decided to become a commercial broker. I'm going, I got to do deals for other people. I got to understand structure. I got to understand when to bring in creative finance, when to bring in DSCR, all the different debt products. Like I want to be underwriting for other people and hear from other investors. Why doesn't this strip center work? Why doesn't this pad site work? Why doesn't this work for McDonald's when Burger King is right here? Like I wanted to learn how to not do one play on a parcel. I never even think about the asset class anymore. No more one play on a parcel. I need 3 plays on a parcel regardless of the asset class. And I needed to think about that like a broker. And so that's what I started. That's how I started to do things differently. All right.

Tell us more about that. Walk us through that thinking, 'cause that's a mindset.

Not common. The brokers that I talk to, it's, they see one line, one line, one option.

This is it. God bless. Good luck to you.

Well, and at what stage are you thinking that? So walk us through that a little bit, that thinking. And also at what, you know, point do you have the listing? What does that look like in terms of? Stage?

Yeah, so I think for me, you know, the commercial brokerage industry is full of a lot of not nice people. And I grew up in a business with all older men, and I, you know, it was always challenging. And so I wasn't, it wasn't so much the gatekeeping or the condescension that bothered me, it was access. Because in order for a commercial broker to be successful, we trade information, we trade data, right? And so my examination of a parcel begins at the very beginning. I won't even— like, somebody calls me and goes, hey, look, I need to lease my space, I need to sell my space, I want to buy something. I go, perfect, where are you? The first thing I do is pull up CREXi. I prefer CREXi over CoStar personally. And I really start to dig into zoning because I'm a— I'm an ex-planning commissioner, right? Everything is limited by zoning. What can we do here? You wanna rent out to a gym concept? You can't have gyms in this zoning district, right? And people think they can get variances so easily, but I've seen so many people go broke thinking they can get a variance after the fact, whether it's a lease, a purchase, whatever it is, right? So it's at the very beginning, Liz, at the very freaking beginning. I am sitting there because one, I'm going, I have to differentiate myself between other brokers and I have to give this person options because this person is me. I am this person. They're an investor, they're a business owner. They're trying to hedge against risk. They're trying to find something, whether it's at value-add into stabilization or something that's totally stabilized. So I have to know my proverbial shit, right? And I've got to give them all the options. And I don't know if it's, you know, brokers have a tendency to really, really specialize, like the really killer brokers out there, like most investors, right? You niche down in your submarket. What you do.

Especially commercial, I find.

The thing is, I feel that they are like ice cream shops.

Vanilla, chocolate.

That's it.

That's all you've got. It's so true.

It is true.

And they sell, they sell, listen, vanilla is awesome. Go ahead, purchase it, and then you can get a variance. I've seen it, it happens, and then you go for it.

It's horrific. So after I look at the parcel, Liz, I actually, I use Claude and I conduct a voids analysis. And I go, hey, I wanna know every void in this market. I don't care if it's an industrial park, if it's an office park.

Void, void, the word void analysis.

Yes. You are trying to find the void in the market, right? Because if I'm trying to rent out a space or if I'm trying to place a concept or a bu— help a business owner, one, I need to know what the zoning limits, and then I need to know who's gonna survive there and who needs to thrive there. Right? And so I go, who— it's monopoly, but it's the best monopoly ever in the world. 'Cause then you start to really think as a planning commissioner, I wanted so badly to affect change in retail corridors in my city. That's how much I was able to accomplish except for policy. But as a broker, you are able to bring in concepts that change the entire fabric of a community. I brought in a Sephora, I brought in a, a tutoring center for autistic children. I brought in this,. But you only can do that if you're able to think about the parcel beyond the building and you're able to think about uses. So as an investor, I didn't just wanna buy a car wash on a main drag. I wanted to buy a car wash on a retail corridor that was on a hard corner that had drive-through access that I knew I could ground lease or that I could do multiple other things with. So how did I go from that losing the $70K to here? A lot of grit, resilience, dedication to losing money. I didn't make a lot, I didn't make money for a long time. Brokers do not make money for a long time. Yeah. Especially commercial. If you have, if you can stay in it, you know, the sales cycle is 9 months to a year. And so you have to sort of have that ability to commit.

Let me just summarize based on my Brazilian interpretation, my brain, right? What I'm hearing from you is that When real estate investors come and they're analyzing a deal or a property to purchase, sometimes they are, they have tunnel vision. They are only analyzing the asset itself versus let me go one step further or 3 or 4 step further and say, okay, what type of business would be ideal here? Is it ideal? And zoning allows for that to happen. And would they even want to come over here? So it's a much more complex planning than simply doing the math. If the cash flow of the rent is gonna make, pay the mortgage or allowed for that investment to have any sort of return on investment. Did I get that right?

Yes. For me, the cap rate is just the gatekeeper. It means it is just a very, it's the first thing and it's like out of the way. This is insignificant. I look at the price per square foot and I look at the void because at the end of the day, your investment will never, ever, ever be stabilized if you can't backfill it. If you can't backfill it and hold the rent, your asset means nothing.

But Daniela, tell me, this is not common conversation that we have out there. Liz, share your experience. But yeah, what I hear is that brokers are selling it, the asset. What you do with it, good luck to you.

Well, they're not very good at their jobs then. I mean, would you want to buy something that someone just said, Hey, hope it works out.

To be honest with you, I didn't know that, that you existed or that that's available, that to go even further. I thought that that was my only, my, my job to figure all the shit down the road or analyze it and think about. I didn't see as like we together as a broker and, and an investor, we are putting this plan to make it work.

Let me ask a quick question from a clarification perspective on, on that lane, right? Because most of the commercial brokers I've personally dealt with have been more specialized in multifamily, right? So that's one specialty, if you will. Then like you're saying, in terms of retail, warehouse, flex space, all other kind of niches within commercial, I understand what you're saying with those niches. My experiences with multifamily have been different from what you're saying because it is— that is the use, that is the focus unless you're gonna create a lot of value. It's not like this unless you have a broker.

But nobody tells you about the— no broker about the, the use of cell phone towers when they are evaluated. Did they tell you about that on multifamily?

No, brokers will not.

Right.

I see.

But I learned that from another, another investor that I work with. And then on his multifamily, he also had income from storage and cell phone towers. On top of it.

Yeah, I hear you. So the question, Danielle, for you is, do you see that what you're saying and the strategy that you're employing is relevant to all commercial, including multifamily, and how and why would be an interesting way to discuss this?

Absolutely. And so, you know, this is the thing.

I'm going to fire all the brokers I've ever worked with now. They're like, oh, like the bar is here. Clearly I've been accepting the bar. Thank you, Danielle. I've only been at this for 20 years. She didn't answer the question he asked.

You were like, I'm firing them. She said yes, all fired.

The hell?

I will, I, I will say, I will say this, right? Is that my job is not to sell you one time. If you are an investor, you are trading paper. I've got buy and hold guys, and I've got guys, the majority of my people, every 5 to 7 years they're retrading that asset, right? Right. And so if I cannot project every way to help them retrade your multifamily. For a perfect example, I have a Rite Aid right now. It's been vacant. It's in Pasadena on the main drag in Pasadena, beautiful Southern California town. I've gotten jillions of phone calls on it. It's right next to a vacant parking lot. Rite Aid was renting both. They were renting it for way over market value. So the landlord already has completely distorted about his ability to recover that kind of rent, right? And it's just unreasonable for most concepts to go there without the parking lot as well, which makes it completely uneconomical. The numbers just don't shake. Well, I have other brokers, another brokerage team that's representing the parking lot. I'm representing the parcel with the Rite Aid, and they're, they're telling me this is a multifamily play. Maybe.. But as a planning commissioner, I know about the setbacks. I know about the parking restrictions. I know about the retail obligations. And I'm going, maybe. How's that gonna pencil for you though? That's definitely not affordable housing. And so when I think about multifamily and I think about this, I go, somebody actually said this at a planning commission meeting, the mayor once, and I'll, I'll just share this very, very briefly. Somebody was just in arms that the parcel next to theirs was being built on and all of a sudden they were looking through their kitchen window at a house rather than, than the trees. And the mayor said, if you buy a parcel in a residential neighborhood, you only own that parcel. You should have every expectation for every single parcel around you to be built. Same thing goes with your multifamily. You have no idea what's gonna happen to the parcels around your multifamily, what's gonna devalue that economy, what's going to— and you're not following it. You more than likely are not having Claude set up CoWork to go into that local planning commissioner meeting hub and download those meeting minutes every freaking meeting and do an analysis any project that's coming close to you. Like, that is how you hedge against value in your asset. If you know that 3 years from now a UPS facility is going to be built next to you, you're probably gonna offload that thing, probably gonna go, you know? And so yes, this concept, you should think through a kaleidoscope. It doesn't matter the asset class. And I will not sit there in front of any other broker or, or specialized investor and go, I'm the best multifamily, I'm I'm the best self-storage, I'm the best retail, cuz I'm not. My job is to figure out the highest and best use of the parcel and look in my Rolodex for my killer self-storage, my killer retail, my killer dev, my killer multifamily, and go, hey, let's work together on this project. Let's crow broker this thing because you know the multifamily market and I know what can be done on this parcel and I'm bringing you a client.

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What I want really everyone listening is that we often talk about the highest and best use of the property, right? And I think you're going one step further about the parcel because it isn't just the property, it's the, it's the land at which it sits on. And there are different restrictions, right? So it's really, and then one step beyond that of what's happening in that kind of close proximity as well as the void analysis as you're discussing, right?

Yeah.

You're reminding me that I did go to Philadelphia planning course, whatever they call, years ago, and they gave me a binder. I'm gonna find it today that talks about 2035. I am finding that thing. It was very thick and it was wonderful and we were very excited, but I forgot what's happening. I forgot. I need to, I need to have a pulse on it. And I, I think, Sometimes we, we are just looking at what is now, where versus what it will be. So we are planning ahead. So I'm pulling that binder today.

Daniela, think about this, right? It's so hard when you learn about this and you start to get involved in this world. It is so hard to learn how, and then it's so hard to find the deal. And then you have the next set of problems, which is the capital and the, the loan pro— the debt product. And then you have the next problem, which is the transition, acquisition, the, you know, and then you have the next, it's, you graduate to different sets of problems and you forget, you become complacent. And please, dear Lord, do not find that binder. I know. Go on the website.

I'm gonna text you later on my phone.

Download the 10-year plan, drop it into Claude. Drop it into Claude. Do not read the binder.

Yeah, that's right. I'm downloading it, throwing in Claude and say, summarize it for me. What is available? Forget about, about the binder. Back in the day, you didn't have day off.

What's preferable? Right, right. But now it's, now time, time has always been money, but now time is money.

Danielle, take it on, on the investor side, right? You have women listening that have invested in different markets, different asset classes, and they're hearing this, they're going, it's very interesting. It's a, it's a another way to approach it. They're looking at the land in their communities. Should I purchase it? Should I not? So what are some of those, initial questions as they're considering commercial, piece of land, et cetera, that they should start to kind of ask themselves so they can start to do this void analysis? What are some key questions so they can even see, is this something I even wanna pursue or not pursue? Right?

Absolutely. So, you know, that's, it's gonna sound woo, so don't crucify me, but you really need to ask yourself the question, how do I want my life to feel? What am I trying to accomplish in investing? What am I trying to do? Do I have a really high-income full-time job that I'm not trying to disrupt? Because that determines the kind of asset class you are going to either try to put on that parcel, develop, or resuscitate. People, they, they see the end result and they refuse to understand what it takes to get there. And that's why with women especially that might be mothers, I mean, I have 3 super young kids. I had two babies back to back when I started doing this during the pandemic, and I had no idea what it was gonna take away from my life, what it was gonna— like, this is huge— what it's gonna take away from my life in order to create this. I would start with that. I would start with how you see yourself in this market, what you're interested in. Are you really— and this is gonna take some time. Investing takes time and it's iterative. This is a fluid commitment. You're gonna try something, it's gonna taste great, and then halfway through the cup, it's gonna get sour and you're gonna and go, nope, this one isn't for me. So I just go, we're told so much to commit, pick a market, pick an asset class, pick a lane. And it's like, yes, and give grace. This takes time or you will walk yourself into losing $70 grand, you know? Like, so look at the land, look at the submarket, decide how you want to be a part of this market, what you want your life to feel like, what you're willing you need to let go of in your life to accomplish this? I'm not huge on just go find a partner. Partnerships take time and they're very, it can be very dangerous. So what I would say is find a group of people that love doing what you think you're gonna wanna do in your community. There's so many professional associations and hang out. Ask them the brutal questions, right? How did it go with the planning committee when you, when you tried to do this? How did this go? And while you're getting to know people in that market that are going to help you, trust me, they are going to help you. You are going to start examining land, figuring out what needs to be there, looking at the numbers. This is a really other big hot tip. I don't know why I spent years investing and had no idea this existed. This drove me nuts when I found this out. Easiest way to track the per square foot rents, vacancies, everything in the market are quarterly reports. That exist for every state, every city, and every submarket by JLL, Colliers, and Cushman. You can just Google them and you could Google them over 10 years so you can see how that market has changed. So when you're talking to a broker and they're trying to tell you a thing or two about a thing or two, you are going to pull up those reports and go, well, actually in this submarket, this is what I'm seeing. So the pro forma is just that, a pro forma.

Here's what I wanna bring to you. The women in our community, they wanna have peace of mind. They wanna, they work hard to build a portfolio and they wanna make sure that they are enjoying their lives. Time is not on their side, right? They're having kids and, and wanna spend more quality time with people, more quality of time, quality of relationships, quality of projects. They understand that part. And there is a mindset shift that I would like you to address is the following. Many were taught that, oh, I need to do residential first, or I need to have X amount of doors first so I can quote unquote graduate to commercial. So they still paying their dues like as if it is linear. How do you address that? Is that true, partially true, or throw it out of the window? How do you see it?

Everything that you're learning about residential is replicable in commercial. It's just a different set of sources, a different set of information, and a different set of vocabulary. Do not diminish your intelligence and your ability to be multilateral and to live life through a kaleidoscope. And if you don't want your life to feel stressful because you have 10 houses that are cash flowing $150 to $250 and one roof is going to blast out your profit for the entire year, well, then you probably should graduate to a bigger return asset class. And that is not about experience. That is about education. And it's about getting to know the people in your market that can help you out of a bind. You know, meeting older investors that are willing to do walks with you. Cold calling people, getting coffee, getting to know business owners that have survived in these facilities through different economic cycles. I mean, I have cold called laundromat owners and spent hours on the phone with them just going, tell me everything about your life in laundromats. Never did I, never, not once ask them if they wanted to sell. Just talk to me. And by the end of it, I kind of think I wanna do this. Well then you need to call me and I'll walk every laundromat with you. Like the people out there in your community, they want to help you. So don't make excuses that you have to graduate. You just have to start studying something different. She's a different group of people. That's all.

Yeah. And especially now, if you think about the baby boomers, right? The baby boomers might be the ones owning these, not just buildings, but businesses. And then they're at a point where they're like, I think I'm done. You know? And I'm sure you, I'm sure you're seeing that with sellers and buyers. And how do you leverage that? And some of these folks want to pass on not just the asset but the knowledge. Like they've been at it a long time. They've done certain things well, and maybe there needs to be more of an optimization, I'm sure, or what have you. I'm sure. However, I think that that's a piece of all of this right now in terms of who's selling. Are you finding that at all in terms of some of your projects and the sellers? Is it, is it trending more? The baby boomers just like kind of ready, ready to let that asset go?

Absolutely. I mean, I, I'm dealing with folks that have portfolios where like, I just wanna be with my grandkids.

Yeah.

You know, I just want this, I just want this, like I just wanna get out of this thing. And it's because at the end of the day, none of it's passive. It's all a business. And so when you get parked in your multifamily and you feel comfortable and you're starting to get things stabilized and everything makes sense, the world changes because it does. And that's the part that is exhausting for these folks. Right? And so some of them, most of them don't even think they can sell a business. They just wanna get rid of the asset, you know? And, and I will tell you every single time I just look, I, I go, I just wanna know you. Tell me about your life. Done. Done. These people have lived through decades of incredible challenging things. They wanna share it. And you give them a, give them their soapbox, man. Like people over, they, They call this RV park. Do you want to sell? No.

Hold on, hold on. I don't know you. What's your name? Right? No, I— what you're, what you're saying is so powerful, both for the folks that are listening that are brokers. I think what you're saying could be so incredible for them. Also for the investors, right? The people that are literally going out looking for potential opportunities and just the approach. I think we need to encourage women to think more like a commercial broker. Right, as they're investing. Not that they necessarily need to get their, you know, go, go get their license there if they want to, sure. But it's that thinking, right? And I, I think that's so valuable. Daniela, we can have you on part 2. I'm sure we're gonna have to have you on another part 2 here, but where can everyone listening learn more about you and, and connect with you further?

Sure.

So I'm on Instagram @thedanieladivine and thedanieladivine.com is my website. You can feel free to reach out to me on either modality. I am available and I'm still the woman behind, behind the screen, so.

Awesome. Thank you so much, Daniela, for your time here with us. Thank you. Thank you for listening. I hope you found today's conversation valuable. And don't forget to subscribe so you don't miss any future episodes. And share this with the women in your life that needs to hear it. I'll see you next week.