Category: Jewels of Wisdom Newsletter

The True Value of Commercial Real Estate – The Net Operating Income

In the world of investing, assets are valued on a spectrum between pure emotion and pure math. On one end, you have assets like fine art or classic cars, where value is almost entirely subjective. On the other, you have commercial real estate (CRE).

While a “trophy” property might have some emotional pull, the true value of an income-producing property like a retail center or industrial warehouse is driven by one thing: its Net Operating Income (NOI). The NOI is the engine of the property. It is the total income generated (rents, etc.) minus all operating expenses (taxes, insurance, maintenance). This simple number dictates what an investor is willing to pay.

Income vs. Emotion: A Valuation Breakdown

Not all assets are valued equally. The driving force behind the price tag changes dramatically depending on the asset class.

Single-Family Residential:

Value Weighting (Approx): 60% Emotion / 40% Income

Value is driven significantly by emotion. A buyer is purchasing a home, not just a cash flow stream. They factor in school districts, kitchen finishes, and the “feel” of the neighborhood. I ABSOLUTELY LOVE buying, renovating, & selling houses for this exact reason. You have a chance to sell to an emotional buyer on the exit.

Stocks (Publicly Traded): 

Value Weighting (Approx): 50% Emotion / 50% Income

This is the ultimate hybrid. A stock’s value should be driven by its fundamentals—earnings, dividends (income), and future growth potential. However, the market is also a massive voting machine driven by daily news, fear, and hype. A stock with zero income can skyrocket based purely on market sentiment. If you can get on the right side of the buy-recognizing the potential for emotional expansion-you can win big.  Think Tesla stock  bought in 2020 or Netflix stock bought 2 years ago. Ah, but there is also the skill/luck necessary to “HODL”….

Commercial (Retail/Industrial): 

Value Weighting (Approx): 95% Income / 5% Emotion

Value is driven by mathematics. A buyer is purchasing a business asset. The only questions that matter are “How much does it pay?” and “For how long?”

This fundamental difference is why NOI is the king of all metrics in commercial real estate. The entire valuation is an expression of the perceived risk and durability of that income stream.

Why Retail & Industrial Leases are Different
In the retail and industrial sectors, the lease agreement itself & the durable income stream it provides is the most valuable asset—even more so than the physical building. The remaining lease term is critical; a 10-year lease with a national corporation provides a bond-like, predictable return that investors will pay a premium for. A building with only one year left on its lease is a speculation, not a stable investment. In fact, it is viewed as completely vacant by buyers & their lenders. Impossible to get a loan=lower purchase price is needed.

Tenant Options Restrict Value

Furthermore, in strong markets, a lack of tenant options to extend the lease gives landlords significant leverage. If an industrial tenant has only one or two other buildings in the submarket that meet their needs, the landlord has immense pricing power at renewal. Properties with many extensions create challenges to unlocking the full value of the property by bringing rents to the true market price.

Releasing is EXPENSIVE!!

However, on the other hand, when a lease does expire, the costs to “re-tenant” the space are substantial. An owner must often budget for 6-18 months of vacancy-paying mtg, taxes, & insurance- hefty leasing commissions, and often tens or hundreds of thousands of dollars in tenant build-out costs to attract a new user. Obtaining that durable income stream-that tenant-often costs as much as 20%-50% of the value of the building once that lease is signed.

The best time to sell is when you have a fresh lease with long term.

When the NOI Fails: Understanding Tenant RiskThe subject of any email about CRE should be: “How durable is the income stream?” Because when the NOI falters, the property’s value collapses. This failure typically comes in two forms:

The “Credit Tenant” Bankruptcy: Many investors bank on the security of a large, national, publicly-traded company. However, as we’ve seen with recent large-scale bankruptcies (Rite Aid, Big Lots, Ruby Tuesday-to name a few), this “guaranteed” income can vanish overnight. When an anchor tenant goes dark, it can trigger co-tenancy clauses, allowing smaller tenants to break their leases, causing a catastrophic domino effect on the property’s NOI.

The Fragile Local Tenant: On the other end of the spectrum is the small, local “mom-and-pop” tenant. While they may be the heart of the community, their income stream is often fragile. They are highly susceptible to local economic downturns, new competition, or even personal health issues. A two-month dip in sales could be the end of their business—and your rent check.

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We Buy Value Add Commercial & a Boat Load of Houses throughout the U.S.

(I Need a $3M-$9M purchase to close by year end.)

• Industrial & Commercial Property, 10K sq. ft. – 250K sq. ft.
• Mobile Home Communities (50 pad minimum)
• Well located Retail Development Sites
• Residential MFR & SFR
• Ideally long term rented asset with below market rents

Recent Portfolio Exit Volume

• 2021 $54,615,000
• 2022 $54,547,000
• 2023 $57,489,000
• 2024 $52,164,000
• 2025 YTD $48,497,000

Are Diamonds Discovered? Or Built?

As real estate investors & developers, we are always on the hunt for that next “diamond in the rough.”  But what if the most valuable diamonds aren’t found? What if they’re made?

That’s the difference between a standard investor and an investor with a developer’s vision.

An investor with “Developer’s Vision” creates the Best Deal Possible.

It’s the ability to look at an empty lot, an outdated motel, or an underperforming property and see not just what is, but what could be. It’s a strategic foresight that goes far beyond blueprints and budgets; it’s about identifying an unmet need in the market and having the courage to build the solution.

This vision is the engine that creates value from the ground up. It’s how an investor moves from competing over the same scarce deals to creating an entirely new, high-demand asset class.

From Vision to a Niche Asset: The Large-Group STR

We explored this very concept in a recent episode of the REI Diamonds podcast with Andrew Llewellyn on the topic of Large-Group Short-Term Rental Investments.

This is a masterclass in developer’s vision.

Andrew doesn’t just buy a big house and hope a large group rents it. He dives deep into a specific market gap: the need for properties designed from the ground up to host large groups like family reunions, corporate retreats, and milestone celebrations.

This vision dictates every decision:

• Acquisition: Finding land or properties that can be legally and physically transformed.
• Design: Creating layouts with ample bedrooms, massive common areas, and unique, “wow-factor” amenities that groups can’t get anywhere else.
• Operations: Building a management system that can handle the unique challenges and logistics of large-group turnovers.

By developing a product for a specific, underserved customer, Andrew’s vision allows him to create an asset that commands premium rates and faces far less competition than a standard 3-bed, 2-bath vacation rental. He isn’t just in the real estate business; he’s in the experience business.

Listen to the Full Episode

To get the full blueprint on how Andrew Llewellyn identifies these opportunities and executes his developer’s vision in the short-term rental market, you won’t want to miss this conversation.

Listen Now: Large Group Short-Term Rental Investment with Andrew Llewellyn

The key takeaway is this: A true “REI Diamond” isn’t just a property; it’s a well-executed strategy.

What unmet need do you see in your market? What could you build that everyone else is overlooking?

Cultivate your developer’s vision to spot value where others do not.

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Have anything like this for sale? I am Buying: 

(I Need a $3M-$9M purchase to close by year end.)

• Industrial & Commercial Property, 10K sq. ft. – 250K sq. ft.
• Mobile Home Communities (50 pad minimum)
• Well located Retail Development Sites
• Residential MFR & SFR
• Located anywhere in the U.S.
• Value Add Required-There MUST be a path to push the value
• Ideally long term rented asset with below market rents

Recent Portfolio Exit Volume

• 2021 $54,615,000
• 2022 $54,547,000
• 2023 $57,489,000
• 2024 $52,164,000
• 2025 YTD $48,034,000

Why I’m Doubling Down on Chicago

While national headlines focus on volatile coastal markets and Sun Belt cities with inventory surpluses, the smartest money is quietly looking at a market with resilience, affordability, and a powerful, multi-layered growth story: Chicago. I’m deploying capital here.  Have a deal for sale?

The Residential Reawakening: More Than Just a Pretty Skyline
While other major U.S. cities grapple with affordability crises, Chicago remains a bastion of value. But don’t mistake value for weakness. The city’s residential market is demonstrating remarkable strength, outpacing the nation in price growth. In May, home prices in Chicago proper shot up an impressive 8% year-over-year, well above the national average of 1.8%.  

What’s driving this?

A Population Influx: After a decade of decline, Chicago is growing again. The region is experiencing a renewed wave of migration, including the seventh-largest population gain among all U.S. cities from mid-2023 to mid-2024. This influx is creating real demand, tightening a housing supply that is already at a historically low two months of inventory.

Relative Affordability: Chicago offers a world-class city lifestyle at a fraction of the cost of its coastal peers. The median home price is less than half of what you’d pay in New York City and about a third of the price in Los Angeles. This value proposition is attracting millennials and Gen Z, who are increasingly returning to the city.

The Climate Haven Thesis: As climate-related risks intensify, long-term investors and homebuyers are seeking locations insulated from disasters like hurricanes and rising sea levels. Chicago’s inland location and proactive infrastructure investments are positioning it as a climate-safe haven, attracting a new cohort of buyers focused on long-term stability.

Commercial Chaos Creates Opportunity: The Office-to-Multifamily Conversion Play

It’s no secret that Chicago’s downtown office market is under pressure, with vacancy rates hovering near 27%. Many see this as a liability. I see it as the single greatest value-creation opportunity in the city.

This isn’t a cyclical downturn; it’s a structural shift. Obsolete office towers are now being sold at massive discounts—some as high as 83% less than their previous sales prices. This distress is the catalyst for a brilliant redevelopment play: converting empty office buildings into desperately needed residential units.

This strategy perfectly aligns with the city’s robust multifamily market, which boasts the second-highest rent growth among the top 50 U.S. markets and has the lowest incoming supply of any major city for the foreseeable future. The city is actively encouraging this transformation through initiatives like the “LaSalle Street Reimagined” program, which is helping create over 1,700 new apartments from former office space. This is where true value is being unlocked—acquiring distressed assets at land value and repositioning them to meet overwhelming residential demand.

Industrial: The Unquestionable Powerhouse

If the commercial market is a story of strategic repositioning, Chicago’s industrial sector is a story of pure, unadulterated strength. As the nation’s premier transportation and logistics hub, its industrial real estate is in a class of its own.

“Fortress” Submarkets: Corridors like O’Hare and Elk Grove are effectively landlocked, with vacancy rates below 2%. With supply permanently constrained and the $8.5 billion O’Hare 21 modernization project driving long-term demand, these assets are blue-chip investments.

Pro-Growth Corridors: In submarkets like Lake County, pro-growth municipalities are attracting billions in investment by streamlining approvals, creating a haven for developers and tenants seeking an alternative to the high-priced O’Hare market.

Healthy Fundamentals: Across the metro area, the industrial market is thriving. The overall vacancy rate is a healthy 4.7%, and rent growth is a strong 4.3%—well ahead of the national average. Leasing activity remains robust, positioning Chicago as a critical hub for logistics, e-commerce, and manufacturing firms.

Why Buy Chicago?

Chicago’s real estate market in 2025 is a tale of three distinct but interconnected opportunities. The residential market is firing on all cylinders, driven by affordability and demographic tailwinds. The distress in the office sector is fueling a creative and profitable redevelopment boom. And the industrial market remains one of the most stable and sought-after asset classes in the country.

While others are distracted by outdated narratives, we see a city with a diverse economy, strengthening fundamentals, and multiple avenues for intelligent investment. Now is the time to look closer at Chicago. You can view a few Chicago deals we have for sale here.

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Have anything like this for sale? I am Buying: 

(I Need a $4M-$8M purchase to close by year end.)

• Industrial & Commercial Property, 10K sq. ft. – 250K sq. ft.
• Mobile Home Communities (50 pad minimum)
• Well located Retail Development Sites
• Residential MFR & SFR
• Located anywhere in the U.S.
• Value Add Required-There MUST be a path to push the value
• Ideally long term rented asset with below market rents

Recent Portfolio Exit Volume

• 2021 $54,615,000
• 2022 $54,547,000
• 2023 $57,489,000
• 2024 $52,164,000
• 2025 YTD $45,132,000

4 Reasons Why I Write this Jewels of Wisdom Newsletter:

1. Sell Profitable Real Estate Deals (38 For Sale Here)
2. Invite New Partners
3. Invite Capital Partners
4. Invite Real Estate Deals 

 

1. Sell Profitable Real Estate Deals – This needs no further detail. Buy our deals!!
2. Invite New Partners – Our Acquisition Managers are PARTNERS on every deal they create, structure, & see through to a profitable closing.

Diamond Equity Support: Leads aren’t cheap, experiences makes good deals even better, and capital to close deals isn’t always easy to come by.

The Diamond Equity Standard: Being an Acquisition Manager, a Deal Maker, is NOT an easy, cushy path in life-it is a LIFESTYLE. Making & operating deals through to closing is a 50+ hour per week requirement. And partners don’t earn salary, the earn PROFIT SHARE. This can be tough, even unacceptable for most people. However, for some, this is the vehicle to create generational wealth.

Earlier this year one of our Acquisition Managers received $340,235.41 AS HIS PROFIT SHARE for the deal they assembled & closed. The total profit was about 4 times that amount. Not bad – especially since we provided the lead, the underwriting guidance, & the capital to get that deal closed. Talk about a “no money down” deal – it was for him!!

I’m not trying to brag here, instead to  illustrate the dream that I work toward every day, 365 days per year, to fulfill for every member of the Diamond Equity team – Create huge opportunities for those I work with. The Diamond Equity standard is HIGH, and so is our support system.

3. Invite Capital Partners – You loan me the money and I pay 10% annual interest & 2 points origination – personally guaranteed by me. I have a $500,000 offering coming up this month to buy a 37,000 sq. ft. warehouse, complete some renovation, and lease up or resell for a profit. If you’re interested in funding this deal, please reply to this email. Must be one investor making this loan, no partial funding allowed. If you’re interested in receiving emails when deals like this become available, register at www.FundRehabDeals.com
4. Invite Real Estate Deals – We buy profitable real estate deals-usually value add where we buy, invest in capex, & push the value by leasing at market (larger assets) or selling turn-key to an owner user (smaller assets, such as 5,000 sq. ft. industrial). We also invest capital alongside quality operators who are sourcing, developing, & operating their own deals. Have a deal like this which projects a $1M profit or more? Please email me directly and let’s get to closing!!

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Current Portfolio & Ideal Acquisitions Include:

• Industrial & Commercial Property, 10K sq. ft. – 250K sq. ft.
• Farmland, 40 Acres or More Tillable & Producing Crops
• Mobile Home Communities (50 pad minimum)
• Well located Retail Development Sites
• Residential MFR & SFR
• Located anywhere in the U.S.

Recent Portfolio Exit Volume

• 2021 $54,615,000
• 2022 $54,547,000
• 2023 $57,489,000
• 2024 $52,164,000
• 2025 YTD $37,535,000

3 Key Take Aways from the Commercial Mastermind

1. Where The BEST Deals are Hidden – The best deals in real estate are often found in the follow up. The property comes to market, you make your offer, and it is not accepted. After a time, and maybe a dead deal or two for that seller, they come back around much more willing to do YOUR deal. This requires discipline to walk away at first and persistence to follow up in the face of rejection.
2. Risk Precedes Reward – While at the Diamond Inner Circle mastermind event, the largest deal of my career closed at a price of more than $16,000,000 – the reward is here. The risk was taken in 2022 when I wired away about 60% of net worth and 90% of my free cash to buy this deal. Waiting those first uncomfortable 18 months during construction was a lesson in risk taking. The cash flow in the past 18 months and now the exit are the lesson in reward-reaping the harvest!
3. Multi Family is in a State of “Reset” – The distress found in office has made it’s way into multi-family. Many markets have no rent growth & projects have debt coming due. This scenario is forcing undercapitalized operators to sell at a loss-often wiping the investors equity completely. Another lesson in risk.

2 Benefits of attending this Diamond Inner Circle commercial mastermind:

1. Finding Quality Operators – I invest alongside operators with experience & track records. I also get to underwrite their performance & thinking at these events because they present details on deals I own on stage. We do deals here. This is where I find many of my deals.
2. Deal Making Mindset – Being in the room with Deal Makers who’ve amassed $100M-$500M portfolios is refreshing. I know of no other place where I can participate in this level of concentrated commercial real estate operators. Maybe ICSC, but you’re usually meeting brokers at those events. Plus, any operators you meet are hesitant to share their trade secrets with you.

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Podcast Episodes with Commercial Academy Mastermind Members

• Danny Newberry on Commercial Real Estate Investing
• Jarred Elmar on Commercial Real Estate Investing
• Rafik Moore on Redeveloping Dying Malls
• Saul Zenkevicius on Redeveloping Dying Malls Part 2
• Jeremiah Boucher on Self Storage Development

Recent Portfolio Exit Volume (Excludes JV & Syndication Deals)

• 2021 $54,615,000
• 2022 $54,547,000
• 2023 $57,489,000
• 2024 $52,164,000
• 2025 YTD $35,552,000