A fun and detailed discussion with Nathan Rylander on commercial real estate! We talk about some of the specifics related to how to secure office space in a commercial lease. We also discussed in detail some of the challenges, things to consider, and future possibilities of commercial real estate in our new COVID environment. Fascinating discussion you’ll enjoy.
Shout out to episode sponsor R.D. Adair PLLC (https://adair.law)


Aaron Spatz  00:05

You’re listening to America’s entrepreneur, the podcast designed to educate, entertain, and inspire you in your personal professional journey. I’m your host, Aaron Spatz. And on the podcast, I interview entrepreneurs, industry experts, and other high achievers that detail their personal and professional journeys in business. My goal is to glean their experiences into actionable insights that you can apply to your own journey. If you’re new to the show, we’ve spoken with successful entrepreneurs, Grammy Award winning artists, best selling authors, chief executives, and other fascinating minds with unique experiences. We’ve covered topics such as how to achieve breakthrough and business, growing startups, effective leadership techniques, and much more. If you strive for continual self improvement, and enjoy fascinating and insightful conversation, hit the subscribe button. You’ll love it here at America’s entrepreneur we’ve got Nathan Rhinelander. Nathan is a well he was he was active duty US Marine he’s now in the reserves commanding officer of fifth battalion 14th Marines, but when he’s when he’s not doing that by night by day, he’s a he works in the commercial real estate space. So I just want to just want to welcome you, Nathan, thank you so much for for being part of the show today.

Nathan Rylander  01:22

Good morning, Aaron. Thanks for having me.

Aaron Spatz  01:24

You got it. So let’s let’s go back. And I always love to start off the show with with this question is are you at DFW native? And if not, where are you from?

Nathan Rylander  01:36

Pretty darn close. Okay, actually, I was born in California, but my mom is from Dallas, and my parents actually moved back to Dallas three weeks after I was born. So I just I just missed, just missed it.

Aaron Spatz  01:49

Dang parents come on guys. But they should have known better. They should have known better, but you know that they they made it back though. So that mean that’s all it counts? Right? So absolutely. Absolutely. Wow. Okay, so three. So three weeks later, you’re here and you spent the rest of your childhood here.

Nathan Rylander  02:05

No, I, my dad went to Dallas Theological Seminary. So we were here for about five years while he was doing that. And then I grew up predominantly in the Pacific Northwest and Oregon, Washington and been one dies school in Oregon then moved back to Texas to go to college and attended LeTourneau university and in Longview in East Texas, and, but the Dallas area has always been home, my grandparents were still here, and I’d come back and visit growing up and throughout college. And so this is, this is just where I belong. Yeah. You

Aaron Spatz  02:41

know, I’ve noticed that wherever grandparents are, and, you know, obviously not everyone’s blessed enough to have, you know, a ton of grandparents hanging around. But my, you know, I’ve noticed that, wherever they are, everybody kind of tends to congregate and kind of be around it does make it feel feel more like home, which is, which is always fun. You know? So

Nathan Rylander  03:01

absolutely. It’s a blessing for sure.

Aaron Spatz  03:03

For sure. Well, take me then through your journey of your career. So were you getting into real estate prior to your your Marine Corps career? Or was it the opposite?

Nathan Rylander  03:16

It was the opposite. So I spend my lieutenant days in Hawaii with first battalion 12th Marines and everybody says, oh, Hawaii, but but we were gone about 50% of the time. And in then my next assignment, I was sent to Fort Sill, Oklahoma to be an instructor at the artillery school there. And when I showed up there, I was single I had extra time and extra money now married. I don’t have either one. And mostly, I think due to kids, not not the married part,

Aaron Spatz  03:56

yeah, right. It’s man.

Nathan Rylander  03:59

But I, I started flipping houses on the side and felt like a kind of crack that nut and did eight houses over about a three year period. And, and when I finished my time at Fort Sill, I was married and we had just had our first child so so I wanted, I wanted to learn how to invest in commercial properties. And I figured, well, the best way to do that is to get into brokerage and understand the market and understand what constitutes a good deal and what constitutes a bad deal. And, and, and cherry pick one here in there.

Aaron Spatz  04:35

Okay. And there. From what I’ve heard at, right, you’re the expert in this in this space, but from what I’ve heard, you know, residential and commercial are like, I mean, they’re not even close. Like they’re very different worlds. Is that true?

Nathan Rylander  04:50

That is absolutely true. When I bought a house, I used a residential real estate agent because I didn’t know the market and and while we have the same license It’s, it’s just a totally different animal. And periodically, I’ll run into a residential real estate agent that’s trying to run a commercial deal. Because legally they can. Okay, but they just they don’t understand what they’re doing. For the most part, and and if the commercial person in that transaction really winds up doing about 90% of the work

Aaron Spatz  05:22

thing. Wow. Well, back up just a quick second. So you had you had done some, some housekeeping. So what he comes curious, because what, because we had a pretty crazy real estate market not too too long ago, but what what years did all that go down with your house flipping,

Nathan Rylander  05:39

I was a, I was an instructor at Fort Sill from April of Oh, four to May of Oh, seven. And, and so that was when money was easy to get. Yeah. And so at the time, I could, I could buy a house, or I could go find something that needed work. And I could buy that house, and do the repairs, generally for almost no money out of pocket, because the bank would lend me up to 80% of the finished product value. Now, the appraiser was doing a conservative underwriting on what that finished value is going to be. But they would loan me up to 80% of that finished product value. And oftentimes, that meant Zero out of pocket to do that. And so I’d wind up making, you know, 1520 $25,000 per house. Wow, Mitch, Lawton, Oklahoma is a totally different market than Dallas, Fort Worth, certainly, but But times have changed and lending lending standards are different than they were 15 years ago.

Aaron Spatz  06:48

So are you telling me like the the deals that you were able to get back then in terms in terms of like the financial terms? You don’t you don’t think you get those same terms today?

Nathan Rylander  06:59

I don’t think I could get those same financial terms today. But even if I could, I wouldn’t know. Because I don’t deal in residential anymore. Right? Yeah. And so it’s just not something that that I’ve done. I do think it’s, I still think there’s a market for it. Anytime you can find something at a discount to the market that needs work. There’s there’s probably some money to be made, both residential and commercial. But I just I haven’t pursued that. I think it would be said My daughters are 13 and 11. Now, and I do think it would be interesting at some point before the older one graduates from high school to try to flip a house and just expose them to that process.

Aaron Spatz  07:44

Yeah, that’d be cool. Yeah, the reason we’re parked? I mean, because well, well, obviously, we’ll get to the commercial stuff here soon. But I haven’t talked to a ton of people that have done residential flipping it was it was really hot right back back before the whole, the whole housing bubble took took it sold downturn, but maybe it perhaps there’s a little bit of insulation, when you’re when you’re around a military basement, maybe maybe, but just curious about how that works. So like when you when you’re going to, to go execute when these projects, you’re kind of what you said a minute ago, you’re you’re looking for a home that is that is undervalued, in terms of costs, you know, that after X amount of dollars and repair, it’s after repair value is going to be x and so you know, there’s a pretty, pretty nice Delta there, it’s just the the risk associated with pulling that off, making sure you’ve got a buyer that will pick it up on the back end. And then to get into financing for because I think for a lot of people, I’ve spoken to a few people not that many that that does like real estate investing, but you’ve got to have like a pretty fat down payment, right to get that to get that whole process kicked off. Is that right?

Nathan Rylander  08:54

Potentially, especially on the residential thing, you it’s generally about 20%. So they don’t, they’re not looking so much at the finished product value. They’re looking at loan to cost. And so if you’re buying $100,000 house, even if that could ultimately be worth $200,000, you still got to put $20,000 down the for the for the loan to cost

Aaron Spatz  09:19

I gotcha. And then and then after that, if everything works out, then the rest of it, you don’t really would have to come out of pocket or at least not not a tremendous amount of money out of pocket then. And then and then that’s when you’re executing the actual flip. Right?

Nathan Rylander  09:33

Yeah, that’s right. Cool. So

Aaron Spatz  09:36

then so then shifting gears into commercial what has that journey been like? Because that’s that’s a whole nother world. I’d love to spend a lot more time on that. Like what does that whole world like?

Nathan Rylander  09:50

Similar but but different. It’s similar in the same in the vein that all these all those things basic, basic Things we just discussed apply to commercial investment but, but just they’re more zeros attached typically. But I’d say it is, it is the commercial market is is different in the sense that you’re not business consumer, you’re generally business to business, you’re working with business owners, or investors who who are making less of an emotional decision and much more of a business decision. That’s not to say, especially some of the small businesses still very personal, but, but the, the numbers make a big, big difference for these folks bottom line, because, you know, whether they’re leasing and paying, you know, $20 per square foot per year for office space, or 18, that extra $2, a square foot comes right out of the bottom line, and right out of their pockets as the small business owner, or if they they’re getting industrial space on a 10,000 square foot space, you know, that extra extra 50 cents a square foot or dollar square foot is coming right out of their pockets coming right off the bottom line.

Aaron Spatz  11:13

And so there’s all these things they got to consider with that, right. I mean, it’s like, not just the cost, but then the location and, you know, all the finished out process, right?

Nathan Rylander  11:23

Yes, yeah. The? Well, yes, so So every deal is different. And that’s one of the interesting things about commercial real estate is every single deal is different. And, and generally, when I’m doing when I’m representing a tenant looking for space, or a buyer, for that matter, but especially a tenant, the closer that we can, the the idea of finding something that is close to what they need as possible. minimizes the build out time minimizes the amount of money that the landlord has to spend tailoring the space for them and, and ultimately yields the best lease rate for them, or the most free read for them, or the most flexible terms for them.

Aaron Spatz  12:12

Okay, so let’s so let’s just back up for a quick second. So there’s, there’s probably there’s people here listening that one, there’s a lot of us are working from home right now. But let’s pretend for just a second that that, you know, I was going to go get a 1500 square foot or a 3000 square foot office space somewhere, maybe I’m going to rent out a single office in some building. Like, what what, what in that negotiation process is different from residential? Because I’ve seen just just in just basic research of the stuff, I’ve seen all sorts of different terms and like you’re responsible for, like, because there’s some that are just completely unfinished, right? You come in and just studs, and you got other ones that somebody was there previously, there’s there’s a certain amount of things that you can do, and I’ve even seen stuff, stated that, you know, the, the owner, the property owner will help fund portions of that sometimes not, not in all cases. So what what does that journey look like for people when they’re wanting to go do that?

Nathan Rylander  13:12

So what I would, what I would tell you is, most of us are some, especially small business owners are reticent to go hire a commercial real estate person. But at the end of the day, especially Well, regardless, on the tenant representation side, it’s essentially a free service to the tenant, because like a residential real estate agent makes a commission when they bring a buyer to a property, a tenant representative makes a commission when they bring a tenant to a property, the landlord pays the commission, it winds up being a free service to the tenant, and you get market intelligence that you wouldn’t otherwise know it now, there like a lot of other businesses, there’s nothing that that I provide that somebody can’t provide for themselves if they’re willing to go spend 40 hours a week or 50 hours a week for the next couple years learning so so it’s fine don’t mean if you want to represent yourself, go for it. But but if it’s essentially a free service, and and somebody can help you do it and relieve that, that burden of the 10 off the from the tenant and allow them to focus on growing and building their business then then that’s only that’s only better for them, right? Absolutely. So so what that process looks like is hire a commercial real estate broker. Give them your criteria for location for number of private offices. If it’s industrial amount of warehouse space, the ceiling height of the warehouse If it’s office space, you know, how big is your conference room need to be? How many people? Do you need to seat? Do you need off? Do you need restrooms in your space? Or are you okay with common area restrooms and like an office tower, you know, just essentially give them your parameters, and they’ll coach you through that anyway. And then they go out, they find options that that meet 80%, you know, ideally 80% or more of, of your, your criteria, and, and then you tour those options, and then make a decision on which two or three to focus on and, and then and then the commercial broker will get proposals from each of those landlords, and essentially deal terms, and you can negotiate those deal terms and, and, and negotiate a, an occupancy date, and the landlord will build out that space for you, typically, but and then and then you get a certificate of occupancy and move in. And so it’s not complicated, but it takes time. And the the biggest, I’d say, offenders, from a time standpoint, are the small businesses, the folks who need 1200 feet, or 1500 feet, or 2000 feet of office space, or maybe 5000 feet of office warehouse, you know, they don’t, they’re they’re thinking 30 days or 60 days out, they’re not thinking they’re not thinking six months out. And and so the problem that they run into is, they just wind up having to take what’s available, instead of looking around for the best options, because they just aren’t thinking far enough ahead. So if there’s anything I would encourage people to do, is think six months out. Because landlords situations change, new deals come available all the time, new opportunities come available all the time. And, and because landlords situations change their motivations for deal terms change. So if a landlord has a big building, and they lose a big tenant, they’re going to be extra motivated to replace that income by by offering more attractive terms to, to to new tenants.

Aaron Spatz  17:23

And what I’m sensing just in you explaining a lot of this is a lot of this stuff is it’s very negotiable in turn. And so like we’re whereas what I what I kind of sense in the residential side, it’s a lot more cut and dry. There’s not a whole lot of room for that much negotiation. But since I can commercial between between the the rate or foot or the lease terms or or any other number of items, that seems like there’s a lot more wiggle room there. Is that right?

Nathan Rylander  17:53

That’s right, I think he really wanted up looking at it from a bucket standpoint. And if you know from a monetary from a monetary point of view, if you’re going to if you want to a to really negotiate the lease rate hard, you may not get as much money for tenant improvements to the space, if you want a lot of money for tenant improvements, there’s going to be less flexibility on the lease rate or the amount of free rent. Some tenants need an above standard amount of parking, because they’re going to be fairly dense in their space. And so that that means the landlord may require them to pay for extra parking or is there going to have to work with other tenants to make sure other tenants don’t exceed don’t have above standard parking, because their building might not be able to accommodate two tenants with that need. And so yes, the short answer your question is yes, everything is negotiable in commercial real estate. Especially if you find the right landlord because as I mentioned, certain people’s situations change and certain there are certain motivators that that may cause them to be more aggressive or less aggressive on deal terms.

Aaron Spatz  19:17

I gotcha. Yeah, no like when you’re when you’re explaining that I was just thinking about the whole the whole trade and sequences of buying a car right it’s like okay, they may be the dealership may be a lot more flexible price if you basically take what they give you on the trade and or vice versa you know, you negotiate a really really good price on on your trade but then there’s not as much flexibility on the sticker price of the vehicle so it’s kind of like so that’s why what you you go buy the car they’re like Oh, and by the way, I’ve got a trade

Nathan Rylander  19:49

right right. Yeah. Anyway, I just went I went through that exact scenario just a month or so ago seriously? Yeah, and and ended up selling my video. myself rather than trade it in, because I just want I was gonna get so much more value for it.

Aaron Spatz  20:05

Well, I quit because you know the book value of the car. I’m just making up numbers right now. But like the book bad car like nine grand and the dealerships gonna offer you three. You’re like, Come on dude. Really?

Nathan Rylander  20:18

Right? Yeah, I gotta make money somehow.

Aaron Spatz  20:21

Yeah, for sure. No, I mean I get it but I’ve been I’ve been to that exact same process before too. So sometimes, sometimes you’re just you’re just not going to get anywhere near what you should be getting. And so going through the pain of doing a private sale sometimes actually is a little bit better. But obviously it takes a little bit longer and takes time to win. A lot of us don’t have a lot of,

Nathan Rylander  20:43

you know, absolutely. Yeah. If you were to ask me today, if I were going to go through that process again, I might choose to just trade it in. I got more money, I got more money. But I don’t know that the juice is worth the squeeze.

Aaron Spatz  20:57

Right. Right. Well, well, great. Well, when we get back from break, I would love to ask a question that I’m sure you’re anticipating. And I think a lot of people are wondering the same thing. But I would love to hear more about the impact that COVID has had on commercial real estate. Absolutely. What have you seen now? And where do you think the industry is headed. So I’d love to dive into that and more as soon as we get back. So we’re incredibly honored to to be able to want to be able to have sponsorships for this program. So one, if you or somebody you know is looking for great sponsorship opportunities is a part to be a foundational member of a staple business podcast in the DFW area is a great time to get in now, as I would encourage you if that’s something you’re thinking about, reach out again, you can email me podcast at Bold media.us. We’d love to discuss sponsorship options. But on that note, I want to give a huge thank you. And a huge shout out to our episode sponsor today is rd Adair, law PLLC. So Ryan and his team do all elements of business law. So if your company needs what I like to call some solid legal help, so whether it is Business Law, with disputes, litigation, commercial real estate, probably, to business formations and transactions, and all the other messy stuff that goes in between all that you’d be very well served, to reach out to Ryan and his team, very, very professional, very capable, very honest. Just just solid people, you’ll you’ll you’ll understand what I say what I’m getting at when you pick up the phone and actually sit down and talk with them explain your situation. And you’ll you’ll be very glad that you did. And so I’m I’m very glad to be connected to them and incredibly grateful for their sponsorship to the show. So getting getting right back into it, Nathan. So, you know, it’s, it’s it’s the million dollar or billion dollar question. You know, real estate specific commercial real estate, no doubt is being challenged right now in a very unique way. Because rather than go into an office, I’ve transformed the fourth bedroom in my home, or people taken over the library or the study or the game room of their house or their kitchen table. And so a lot, a lot of things have changed. And so I’d love to spend a significant amount of time talking about that. So what what have you seen, and we’ll and we’ll just start there.

Nathan Rylander  23:18

So, you know, it’s interesting, you say that, what I I’ve got, I’ve got friends that own small businesses, and I have friends that that are executives at big companies. And I was talking with a friend a couple of months ago, the CFO of a pretty good size company, and and they need about 100,000 square feet of office space. And he said, Well, we’re thinking about cutting our requirement in half and just having a lot of folks work from home going forward. And so maybe we need 40 50,000 square feet. And I think that maybe that’s sustainable. But I it sort of depends. I believe that it’s really, really hard to grow a business when a lot of your employees are working from home. And I think that you can sustain a business for a while while you have a lot of employees working from home. But it’s kind of a glide path, right? So so you can glide for a while. But over time you’re losing altitude. And I don’t know that it’s long term sustainable. I think it’s short term sustainable. And so does that mean one more year? Or does that mean two more years? Or does that mean two more months? And and so what I’m seeing is the folks that are shedding commercial space right now are the big corporations. Okay. And there’s a lot of sublease space available but it’s big space, you know, they’re trying to sublease. 100,000 square feet or 200,000 square feet. There’s not a lot of small space available. For sublease, where some of these small businesses that have 2000 square feet of office or you know, 10,000 square feet of office warehouse are trying to sublease their space to someone else. Because those people need their folks in, in the office, building the business fulfilling orders, you know, whatever the case may be, and where they can work together as a team. It’s the big corporations that are really shedding what what is thought to be excess face. And it may take a little while for that access face to be to be absorbed. But I think in the long term, especially here in the Dallas, Fort Worth area, we’re going to be fine. I think, well, this is a blip.

Aaron Spatz  25:43

Okay, well, it fascinating perspective. So I’m, I’m gonna challenge you just ask you why you believe what you do, because I don’t think I’ve heard it articulated the way that you that you explained it, which was you believe that companies can’t grow with without physical office space, and that it puts them on a glide path? That’s a fascinating position. And it really like, it’s a fascinating discussion. So what were like where is that coming from? Is that is that is that a hunch? Is that what you’ve seen just over your, your career.

Nathan Rylander  26:15

So so it’s not that it can’t be done, because I am working with a title company right now. And they have a very small footprint, and that it’s a new title company, and they open their doors about 13 months ago with two people and now they’ve got about 30. And they’re just they’re using executive suites, for the most part, currently, at some point, they’re going to need to consolidate some folks for back office operations, but they’re growing their company rapidly, which is, which is fine, but they do still have physical space, even though it’s executive suites, because they have to have enough space for people to come and do closings, right, they have to have a place to meet. And so it can be done, you can you can grow a company, short term with that, but at some point, you’ve got to, you’ve got to pull folks in and build that corporate culture. And it’s, it’s tough if your workforce is totally disparate, and all work from home, what kind of corporate culture are you? Are you fostering? Right? So, and culture, culture is the biggest factor in employees remaining with the company. It’s so anyway, it just, that’s, that’s my, that’s my basic reasoning behind it. But it’s, it’s also based on talking to an awful lot of business owners that just can’t sustain their business, their small business with with their folks working from home.

Aaron Spatz  27:56

It’s a fascinating perspective. And I honestly, I tend to agree with that. I just, I just like pushing the button, man, just to see what you know. Yeah. Yeah, because you raise a great point when it comes to company culture. So, you know, there’s, you’re not gonna feel a company culture in my studio office right now. Like, it’s like, it’s gonna be hard to feel a company culture at your home office. That’s, it’s very, it’s very different. And so what you are, what you’re really getting at is, there’s a human element to this that you cannot replace, by doing virtual meat. I mean, like, I mean, I could put a big like 90 inch screen TV on my on one of my walls and throw everybody up on the screen. And you’re still going to miss out on that is, is the point like what you’re what you’re saying. And and again, I agree with this, is there’s an element of team, there’s an element of just, there’s something special, when you’ve got people around each other in you can collaborate in a real time setting and it is there it is different even, even in zoom meetings and teams, meetings and everything else. It is definitely changed the way that we do business. But I will be interested to see the impact on company culture and what that does, and how do you measure that? I mean, like, how do you measure the effectiveness of company culture? I mean, you mentioned like turnover is that do you think that’s gonna be an indicator of company culture decline?

Nathan Rylander  29:25

I think it’s always a measure of company culture decline, but what I don’t know is how rapidly that transpires you know, how rapidly does a culture decline? how rapidly do people turn over in the because part of it is also the environment. And so fear becomes a part of that equation, in the sense that while the job market here and especially in Dallas, Fort Worth, I think is still relatively strong. You know, our people are reticent to leave their present job, even the cold even though the culture has declined, because they’re afraid they won’t be able to find the next one. Right away. And, and so, but I think as soon as the economy picks up, those people that have experienced that cultural decline and are unhappy with the way things have gone at their present company, will will start shuffling around pretty quickly.

Aaron Spatz  30:24

Interesting. Yeah. So, so really, the, there’s a highly motivated reason, then for companies to really pick it up, step it up in terms of their, you know, their connectedness with their, with their employee base. Because, you know, again, it’s a it’s a fascinating thing to think about, because now that you’ve got a lot of people that are that are sticking out, or they just barely were able to land another job through the pandemic’s. Maybe they got laid off, and then everybody’s kind of waiting for you know, okay, we can actually go back to the office now we can actually do these things again. It’ll be it will be actually it’d be very fascinating to see okay, are all those companies that started selling off off especially be like, crap, man, we need we need office space. And then to or is there gonna be a high employee is like the DFW job market is gonna just overnight slide up on fire, and everyone’s gonna be jumping around, it’s gonna be fascinating to see.

Nathan Rylander  31:21

It will be I’m curious, you know, as and as far as the rest of the commercial real estate market goes, I mean, really, it’s, it’s that big office space that’s taken a little bit of a hit, and retails taken a bit of a hit, the industrial markets never been stronger. While and a lot of that is just the huge uptick in the amount of E commerce that’s been done over the last 12 months. People that were formerly reticent to buy all their stuff online, have now been buying all their stuff online. And in so we, the, the shift toward e Commerce has has been tremendous. But as a result, all these ecommerce companies, new companies have popped up big companies have grown and take in more and more space. And in its the industrial markets never been healthier in the Dallas Fort Worth area than it is right now. And so, those industrial spaces are at a premium, whereas the multi in the multi storey office spaces are Herten. But the single storey office spaces where people have their own lobby, their own restrooms, their own hallways, no no common areas that they have to share with other companies that they have no control over. Those spaces are are fairly well occupied now to these companies have shifted out of these office towers, where they have to share the lobby, the elevators, the hallways, in the restrooms, with other companies, those companies have have really pushed to relocate to the single storey office spaces where they don’t have to share. Well, and and so those that kind of space is doing particularly well right now, also.

Aaron Spatz  33:08

Wow, that’s cool. Because you can see like, you can see the shift, right. So like you mentioned warehouse space is now through the roof, which makes sense. I mean, if you weren’t a if you weren’t an E, if you weren’t a believer in E commerce, you’re now because you had no choice. You know, that’s right, you know, that gold plated toilet paper to get to your house? That was the way it was gonna happen, man. The How do you see companies dealing with and there may not be a good answer for this. But how do you see companies dealing with? And I’m talking about the large multi storey multi level setups, like how did those companies deal with the squeeze? Because now I mean, they may have like 10 floors of a building, and now they only need like one. I mean, so what what options do they have? Well,

Nathan Rylander  34:03

so, so well, and so I would say this applies to any company that has basically don’t need whether they’ve got 2000 feet or 10 floors, your options, you basically got two options, you can or three options, you can suddenly try to sublease the space to another company that needs space. And if it’s a soft market, that’s tougher, and so you wind up doing it at a severe discount. Or you work out a deal with the landlord to buy out of the obligation you have for that space. And and so generally that’s at least 50 cents on the dollar at least well, and as you know, so somebody those a million dollars a year on their office space, which when you’re talking 10 floors, that’s probably probably undershooting that number but if they million dollars, they’re going to it for the next five years, well, they’re probably going to have to cut a $3 million check just to walk away from that obligation. And then the other option is just kind of ride it out and see what happens. You know, I, I was wrong Initially, I thought this COVID thing would have gone away, you know, probably by the end of the year, it didn’t. And and some of the other things that I’ve read, say, you know, these pandemics generally last two years, before you get enough of what is thought to, you know, or, or said to be herd immunity, where, where it really begins to tail off, I think. And so maybe we’ve gotten a whole nother year of this in front of us. And so then to those corporations ride it out for that year, and then bring their folks back in? Or, or do they go ahead and suck it up and pay 5060 cents on the dollar and try to get out of that obligation? Or do they try to sublease it and for for 60 cents on the dollar. So they’re only paying 40 cents, they’re only supplementing that 40 cents on the dollar. So those are the those are their options. And then but the other part of that equation is the landlord has to approve all any of these options. And so as a landlord, if I own a building, and somebody wants to pay me 50 cents on the dollar, hey, that’s great. I’m a good, you know, in the case of that example, I may get two and a half or $3 million payout upfront. And so then the question becomes, do I believe that I can backfill that space quickly enough that I come out ahead, or am I going to come out behind if if I can’t backfill that space in the next year and a half, two years. So we can because then I’ve also got to put money into tailoring that space for the next tenant. And so the same applies to a 2000 square foot office user that may not need their space anymore, because they’ve sent all their employees home, they can sublease they can buy out of their remaining obligation. Or they can they can kind of suck it up and stay there and just wait and see what happens. And if the market strengthens again,

Aaron Spatz  37:14

and then just work without, you know, your HVAC system running and turn all the lights off. That’s one option.

Nathan Rylander  37:23

Well, so So especially so for four spaces where they where they have their own electric meter, that’s true. But for these multi storey office buildings, they pay their pro rata share of what the building costs when it comes to electricity. So they would have to have everybody turn theirs off to really see any any safety

Aaron Spatz  37:46

thing. And then the other thing you hit on because this is a, what I see is the difference between commercial and residential. In residential, if I go and rent at for a four bedroom house, I can’t just sublease out one of those bedrooms. Maybe it can, I’ve never heard of that happening. But in but in commercial real estate that that is a that is much more common. And so but what you said a minute ago, though, I mean, all that requires landlord approval, like they all they have to sign off on that. So it’s not like you can sub because what looks what I was gonna say was like, you could sublease it for $1.10 per dollar, you know that right? That’s not gonna happen?

Nathan Rylander  38:25

Well, so. So yes, it, it does happen every once in a while those situations are rare. But you know, let’s say somebody goes and signs a lease right now from a landlord that’s particularly hurting, and they get a $15 per square foot lease rate. And three years from now, the market has dramatically improved, and let’s say they’ve outgrown their space, and they need to go take more space. So hey, let me just sublease the space I’ve got, but the market is much higher, maybe they could suddenly start for 1617 $18 a square foot and and generally though, there’s a provision where in the lease for either the landlord gets any overage, so that really just accrues the landlord’s benefit or that the landlord splits any any overage 5050 with the with the primary tenant. And so there’s they’re really minimizing the incentive for anybody to sublease space at a higher rate because what ultimately what that ends up doing is is competing with the landlords directly space

Aaron Spatz  39:33

that’s a fascinating Well, let’s let’s let’s zoom out here for a second so backing up a little bit what what do you enjoy the most about what you do? I mean, because you’re you get to see a ton of different businesses a ton different deals like what what gets you excited about this?

Nathan Rylander  39:51

I just love working with people and I’ve done some corporate deals and I I enjoy those I really enjoy working with small businesses, I really enjoy hearing people’s stories and how they got from, where they were to where they are. And, and, and then finding them a deal, finding them a deal, finding them something that not only works for them, but really sets them up for future success. And I enjoy that process. And I enjoy the people part of it.

Aaron Spatz  40:25

That’s cool. Yeah, I’d say, especially for those. And I’m, you know, we don’t want to get into like statistics here. But I would be curious, though, to see how many of those people that you’ve helped over the years, you know, how, how did their businesses perform? And did they end up value outgrowing their space, have you, if you had, like, repeat clients were like, Hey, man, like we start off at this office space, I need like 5x the amount of space now because we’re just bursting at the seams.

Nathan Rylander  40:55

So it does that happens more often than you would think one of the probably the Thoreau’s the second or third client that I ever had when I got in the business in 2007. After leaving active duty, was a lady who’s a she’s got a whole kind of a home. Therapy business, but she she has administrative office and, and the therapists come in and occupational therapy and physical therapy and things of that nature. Well, she spent off of a bigger group, she got about 1000 square feet of office, and she was there for three years. And when, when she finished that lease, she took 1800 square feet in a nicer building. And she did that for three years. And when she finished that lease, she took 5000 square feet in a in a nicer building. Oh, and she did that for five years. And then when she when that lease was up, she and her husband bought a 30,000 square foot office building, and they’ve taken about 6000 feet in that building. But now they now they own their own building. Wow. And so you know, there are, that happens all the time, I had another client that bought a small building those about 5000 square feet. And about five years later, he sold that and then went and bought a 27,000 square foot building industrial building, because he needed he needed that space, you wind up seeing that a lot in the industrial space, a little less so in the office space, but but it still occurs.

Aaron Spatz  42:34

Wow, that that’s got to be really cool to see though. I mean, you got to get a front row seat to see in somebody’s business grow.

Nathan Rylander  42:41

You do and it is exciting. And it’s, it’s fun to be part of that process with them. And just to get to see their success and root for their success. I don’t believe that business is a zero sum game, one person for one person to succeed, knows, you know, you don’t have to have somebody else fail. And the same goes for commercial real estate brokerage, you know, I can root for, I’ve got a lot of friends and a lot of different commercial real estate companies and I root for their success, because their success doesn’t mean my failure, and vice versa. It just hey, good on him, I want to see people succeed.

Aaron Spatz  43:19

For sure, well, then, like what are some, you know, kind of kind of kind of flip the table on this one, then that was like, So what are some, like, major pitfalls or things that that you would advise people make? I mean, one I think is very obvious is make sure that you you bring on a realtor like so if you’re wanting to go buy space or leased space. Definitely, definitely have somebody there to represent you. But beyond that, though, like what are some of the biggest pitfalls or or some of the biggest things that you’ve seen hanging up deals or causing completely blow up?

Nathan Rylander  43:54

Lack of lack of understanding or lack of willingness to, to change your mindset to market conditions. Okay, and so, for example, folks who own a building that maybe the value is less than what they think it is, but they’re unwilling to to make the adjustment to where the market presently is. Or maybe it’s you. And I mentioned this earlier, some of the toughest folks to work for the small business owners because everything is still pretty personal to them. And it might be just their first commercial real estate transaction or the second commercial real estate transaction. And so they’re just not real familiar with the process and the tendency to second guess what their broker is telling them. And, and so, you know, I can tell somebody, Hey, this is a really good deal till I’m blue in the face, but until they believe it’s a really good deal. It’s unlikely that that we’re going to actually get something done. And so that winds up being a big pitfall. So, so if somebody lays out their criteria and say, Hey, these are the 10 things I got to have, and I go find them here, here’s your best five options, well, we look at all five of those options in there, they may say, Well, you know, I need to go see more, because I think there’s a better deal out there. So we wind up touring, you know, 15 more options for them to come back and pick one of those original five. You know, it’s that kind of, it’s just the, the, that’s a big pitfall for me, and ultimately, for them, it’s just the amount of time to make a decision. When it’s winds up being unnecessary. And so if you spend your time hiring somebody that you trust, and that is going to give you good advice, and then and then follow their advice is really what I would say, you know, when it comes to do commercial real estate space, though, I would say the tendency is a lot of small business owners want to own their own building. And that’s great, I have no problem with that whatsoever. But they want to own their own building, when they’re when they’re still growing the business tremendously. And so if you’re, if you’re growing your business, and you think you’re going to double in the next five years, don’t buy lease, because all you’re going to do is outgrow the building. And then you’re going to have to sell that and go, you know, go buy or lease a new one, wait until you have hit a point of stability, and then and then buy. And because while real estate is a great investment, it is not a liquid investment, it’s not something that you can, that you can just go sell necessarily at a moment’s notice without a discount. I mean, if you discount something, right now, you’ll you’ll find a buyer for it, because the market is very, very strong. There’s a lot of small businesses out there looking for small business buildings that they can own. But, but if the leasing is going to provide you greater flexibility, especially in near term, especially near term,

Aaron Spatz  47:14

sure. Well, then like and then this would be this be my last last real estate question. But it’s it’s fascinating to see. And I think I have a heavy suspicion, what I think the answer is because I’ve asked the same question to someone on the residential side, and I kind of expected to be similar on the commercial side. But, you know, there’s a lot of people that are in and again, coming from someone who’s a total novice to commercial real estate. So but, you know, there’s a lot of folks that remember, you know, the big the big housing bubble crisis, and all the things that that caused in the in the, in the, the results to some people’s lives. When that all happened? One I don’t remember I don’t read it, I didn’t even study or even consider what that impact was on the commercial side. So there it could have been a zero impact game there. But is there anything that people should be looking for in terms of man, making sure that commercial real estate is not overpriced? And that it’s not we’re not artificially inflating prices? Or do you get really is just a this really is just an outcome of sustained growth within within DFW DFW is growing? So curious on your input on that?

Nathan Rylander  48:25

Yeah. So it’s a it’s a big? You know, that’s a really good question. And I don’t have a crystal ball. But there are there there are, there are a number of factors, right, so So the biggest one being supply and demand supply is constrained and demand is high. And so prices go up. And part of that demand cycle is folks relocating their businesses from other states. I think chief among them is California, I’ve got three, three businesses that are currently located in California, they’re looking to relocate to the Dallas area right now. And we’re actively looking for for buildings for that to occur, or I take that to him or reload ticket back to him or relocation, one of them is really an expansion, they’re going to keep their headquarters in California, at least for the time being, and just take a footprint here in Dallas, but But part of what is driving those price increases that we’re seeing is, is interest rates. So if a building is thought to be or you know, a builder, let’s just say buildings $100 per square foot, well, and the interest rates 5% Well, if interest rates fall to 3%, that $100 a square foot becomes a lot more affordable for somebody and and so the number, the demand goes up, the number of buyers goes up and as a result then because demand goes up, the price goes up and so really it winds up being a zero sum game. And so it Because the affordability factor winds up essentially being the same, the payment winds up being the same whether whether the building was $100 a foot or $120, for whatever, you know, wherever that that math equation makes it out to be just based on the interest rate. And, and so the interest rates play a huge part in, in the in commercial real estate pricing, just like they do in residential pricing. Sure, so, so, so that’s a factor. And then just the supply and demand, supplies slow and demand is high and Prices, prices are high. So one of those two things has to change dramatically for for prices to come back down. And I, I do think that it’s possible, the Fed could raise interest rates a little bit, I don’t see them making a wild move. But if if, you know, we go up 25 basis points a quarter for the next, you know, three quarters, four quarters, five quarters, that will have an impact on demand. But, but it’s not necessarily going to change the relocation demand, the same number of companies may still be moving here. So it really it’s a it’s a very simple answer, but supply and demand. And I don’t see demand waning. You know, about five years ago, I looked at some of the industrial pricing that was was happening and and some of the prices that people were paying for stuff. And I thought, Wow, these guys are idiots, there’s no way I would pay X for that building. It turns out, I was the idiot. Because you know, five years later is worth 3020 30 40% More than the what I considered exorbitant price five years ago. So I, you know, will they continue to go up? I don’t know. Because really what what ends up happening is, you look at new building pricing, and what it costs to build a new building. So the land costs, material costs, labor costs, you know, has it here, older buildings will always trade at a discount to something brand new. But they’re, you know, how big is that is that discount. So if land material and labor costs continue to rise, existing building values will continue to rise, and they’ll track with them. And maybe it’s a 20% discount, maybe it’s a 25% discount, but at the same time, you know, if I have the choice between owning something brand new for $125 a square foot, or, you know, in the case of maybe a larger industrial building, or 100, you know, $100 a square foot for something that’s 3040 50 years old, I’d rather pay a little bit of a premium have something brand new. No. Right?

Aaron Spatz  53:06

It’s, it’s fascinating, and I think kind of what, just to kind of take a higher level view of our conversation and just it seems like one, the depth of Metroplex is growing. There’s tons like, like, like you said a minute ago, tons of relocation, there’s tons of companies moving here on a daily but not we’re talking about just people, the actual companies themselves are moving here. And then beyond that, I mean, we’re just seeing tremendous, tremendous growth. And so it’s, it’s a, it’s a fascinating thing to study. But But no, I mean, as we, as we close out our time here, Nate, I just won what I as a fellow as a fellow US Marine man, one I want to just acknowledge and just thank you for your, your 20 plus years of service, I appreciate that you’re going to continue to carry the guide on forward and appreciate appreciate all that you’re doing. But beyond that, how can people get in touch with you? What’s what’s the best way to get connected to you?

Nathan Rylander  53:57

Well, I work for a company called Rubicon representation. And the easiest way is just calling my cell phone and my number is 972-955-1067. And, you know, I’m happy to have a conversation with anybody anytime about anything. And I think that’s one of the neat things about being a Marine Corps officer, you know, we get exposed to so much, you know, from from a national level and from a defense level, and from a local level. We’re just we’re, you know, as you know, we’re encouraged to read voraciously and and, and I just I enjoy talking to people and so and I enjoy talking about real estate I you know, somebody asked me the other day, if you were going to do something else, what would I what would it be and I don’t have any idea. I enjoy what I’m doing so much. That’s cool.

Aaron Spatz  54:58

That’s really cool. It definitely shows and I again, I just want to want to thank you for your time. Thanks for sharing a lot of these insights and for and just for fun, very fascinating conversation.

Nathan Rylander  55:08

Yeah, absolutely. Thank you, Aaron.

Aaron Spatz  55:14

Thanks for listening to America’s entrepreneur. If you enjoyed the show, please leave a review or comment on your preferred social media platform. share it out with friends, family, coworkers, others in your network. And of course, you can write me directly at Erin at Bold media.us That’s a Ron at Bold media.us Till next time

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