Commercial real estate investment is a multifaceted domain that attracts a diverse range of investors. Owner-occupant commercial investors and third-party commercial investors represent two distinct approaches to navigating the complex landscape of commercial properties. Reliant Partners has learned firsthand that understanding the differences between these two types of investors is crucial for anyone seeking to delve into the world of commercial real estate.

Owner-Occupant Commercial Investors:

1. Primary Purpose:

• Owner-occupant commercial investors, like Reliant Partners, are typically businesses or entrepreneurs who purchase commercial properties with the intention of using them for their own operations. This may include office spaces (like 59th & College or the current 146th Street office), retail outlets, or manufacturing facilities.
• The primary purpose of such investments is to provide a physical space for the investor’s business operations (e.g., 5594 E. 146th Street), to ensure greater control over the property and to have the ability to tailor it to specific needs.

2. Financial Motivations:

• While financial returns are a consideration for owner-occupant investors, their primary focus is often on the operational benefits of owning the property, such as cost stability, control over the space, and long-term strategic advantages (including wealth accumulation).

3. Decision-Making Factors:

• Decision-making for owner-occupant investors is heavily influenced by operational requirements. Factors such as location, space configuration, and suitability for business activities take precedence over traditional investment metrics like capitalization rates, which was the case for the Reliant Partners office building on 146th.

4. Tax Implications:

• Owner-occupant investors may benefit from tax advantages, including potential deductions for mortgage interest and property depreciation. Tax considerations are often intertwined with the overall financial strategy of the business along with long-term wealth creation.

Third-Party Commercial Investors:

1. Primary Purpose:

• Third-party commercial investors (like 59th & College LLC), on the other hand, are individuals or entities whose primary goal is generating profit through property appreciation, rental income, or a combination of both. Their investments are not tied to personal use but focused on the financial performance of the property, which is the case for Reliant Partners’ first development project at 5915 N. College Avenue.

2. Financial Motivations:

• The key driver for third-party commercial investors is financial gain. They analyze potential returns based on factors like rental yield, property appreciation, and market trends. Profitability is the central consideration in their decision-making process and can be measured from cash flow and/or upon a sale of the property.

3. Decision-Making Factors:

• Traditional investment metrics, such as return on investment (ROI), capitalization rates, and market demand, heavily influence the decision-making process for third-party commercial investors. They prioritize properties with high potential for appreciation and steady rental income.

4. Tax Implications:

• Tax strategies for third-party investors are centered around maximizing returns and minimizing liabilities. Deductions for property management expenses, mortgage interest, and depreciation are crucial elements of their tax planning, which is Reliant Partners’ role as the property and asset manager of 5594 E. 146th Street.

In summary, the divide between owner-occupant commercial investors and third-party commercial investors lies in their primary objectives and decision-making criteria. While owner-occupants focus on operational needs and long-term strategic advantages, third-party investors prioritize financial returns and adhere to traditional investment metrics. Reliant deals with both perspectives as we are an owner-occupant in our 146th Street building with investment partners and participate as a third-party investor in other commercial properties.

Both approaches have their merits and drawbacks, and understanding these differences is essential for anyone navigating the intricate landscape of commercial real estate investment. Feel free to reach out to arrange a meeting and/or tour of any of our CRE investments to further discuss how Reliant Partners may be a resource to achieve your investment goals.