How Interest Rates Can Impact the Bottom Line

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Anyone who reads The Wall Street Journal, Yahoo Finance, or Bloomberg may hear a lot about interest rates. Domestic events, job numbers, and spending bills can all affect rates by a few tenths of a percentage point, but what does this really mean? If you’re investing in a commercial or residential property, why should you pay attention to 3% vs. 3.5% vs. 4%? These are small numbers – they can’t make that much of a difference, right? Well, it turns out they can and do. Today we will discuss why it’s important to lock-in and get a good interest rate, and how much delaying or relying on a floating rate can negatively impact a return.

Some Money is Inexpensive

You may have heard the phrase “Money is inexpensive” since the 2007/2008 financial crisis. It’s an odd phrase, and left alone, doesn’t really make sense. It almost sounds like something a philosopher would say – so what does it mean? The phrase is referring to interest rates and the cost of debt compared to equity. In the 1980s, 1990s, and early 2000s, interest rates on a commercial loan or mortgage would cost the borrower far more than it would today. The LIBOR is what our analysts look at when calculating an investment. LIBOR is the London Interbank Offered Rate, and below is a historical chart of rates, dating back to 1988. Rates peaked in 1989, hitting double digits, and because of this, the economy slowed – it was expensive to borrow money. Now, the LIBOR stands at 1.88, which means a standard commercial loan will have roughly 4.88% interest (we get that number by adding a 3 point spread to the LIBOR) – generally more expensive than over the last decade, however, still relatively cheap when compared historically.

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Comparing Rates

Let’s dig down, and look at the specifics. Let’s assume we’re buying a building, and getting a $100,000,000 loan. We’re assuming the property is already pre-leased, and the tenants are paying $500,000 per month for rent. Below are two charts – one showing a Fixed Interest Rate of 4.84%, and another showing a Floating Interest Rate, which begins at 4.84%. When running an analysis on floating rates, you should always assume that rates will increase given the historically low cost of debt - at this time to be conservative, we’ll start at 4.84%, and steadily increase between .04-.06% per month, while maxing out at 5.47% (the floating rate projection is an actual forward LIBOR projection increase from Chatham Financial). Although just a prediction, this means that floating rates will eventually be a full point above our fixed rate.

What this graph ends up showing, is that if you’re able to lock in a Fixed Rate of 4.84% as opposed to the Floating Rate – your Internal Rate of Return is more than 3 percentage points higher! Roughly a 27% annualized IRR for the floating rate, versus about 30% annualized IRR for the fixed rate. Meaning, if you invested $10,000,000 in this deal, then A) not only should you celebrate, but B) you make approximately $300,000 more on your investment with the fixed rate in one year. Specifically, follow the Floating Interest Rate section, and look at the “Interest Rate” and “Investor Profit” rows – as interest rates continue to climb, investor profit steadily decreases. After reading this, don’t you wish you could have locked in the fixed rate?

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What does this mean?

This is a very simplistic view when it comes to interest rates, however it is telling. Long story, short – interest rates matter. Whether you’re purchasing a home, or investing in a commercial property, you should always pay attention to rates. A one-point percentage rate difference might not sound like much, however in the end, it impacts the bottom line quite a bit.

This post was written by Northstar's Director of Equity, Danny Mulcahy. If you have any questions, or would like to speak with Danny, please email him at 

Posted on April 24, 2018 .

Why Invest in Self-Storage?

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Let’s be honest – self-storage investing doesn’t exactly have the most attractive ring to it. It doesn’t have the panache that senior living, retail, or office has, but what it does seem to have is consistent performance. In today’s post, we’ll discuss a couple of reasons why self-storage offers great potential.

Attractive in all types of economies

Self-storage has the unique ability to perform consistently in both up and down economies, which is a rarity.  If the economy starts tanking, businesses are forced to downsize and need space for their equipment, inventory, and files, while individuals need space for their furniture, tools, houseware, and cars. Likewise, in a bustling economy, businesses and individuals need additional space for the same. The National Association of REITs (NAREIT) reported that during the 2008 financial crisis, self-storage was the only REIT sector to post a positive total return (5%, including dividends). This is a pretty incredible statistic when you think about the thousands of businesses that went bankrupt during that same time frame.

Dynamic pricing

Self-storage is one of the more unique real estate investments that can adjust their pricing in near real-time depending on market demand. Because most leases are month to month, the operator has the ability to raise and lower rates multiple times in a given year as opposed to other real estate asset classes that are typically locked in for 3-10 year lease terms.


When it comes to real estate, brokers love the phrase “Location, location, location!” – self-storage takes a vastly different approach.  Whereas, retail, office, and multifamily uses desire cool, hip areas, self-storage facilities simply need convenient and quick access to high density and/or recreation areas. Self-storage can use land that not many other asset types want to use, but a hidden and often overlooked benefit of self-storage is that it’s a great way to cheaply generate income and act as a land bank in areas expected to grow or gentrify.

Low construction and operating cost

All things being relative, self-storage is relatively inexpensive to build and operate.  Whether it is a single-story metal building with thin walls and roll-up doors, to a “fancy” multi-story air-conditioned facility they have very limited plumbing, no fancy flooring, little to no glass, very little parking, and so on. The interior build-outs are simple with the same doors, walls, and lighting. Modern self-storage facilities do not even need full time managers, as everything can be done online and with electronic access codes. All they really need is someone to regularly clean and repair.

Self-storage is a growing part of the Northstar portfolio, and one of our latest opportunities southwest of Denver, Colorado is a prime example. This investment is projecting a 33% IRR to investors. Before putting your money into self-storage investing, be sure to run your own due diligence on the company, self-storage operator, location, and any prior track record that you can get your hands on.

Today's post was written by Danny Mulcahy, the Director of Equity at Northstar Commercial Partners. If you'd like to discuss self-storage investing, or other potential opportunities, please contact Danny at

Posted on April 19, 2018 .

Are Rising Interest Rates Good for Commercial Real Estate Investments?

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Even if you are not a finance person, it would be hard to miss the news about interest rates rising, whether it’s from pundits on news broadcasts to advertisements for home loans - it seems to be one of the hottest talking points of the day.  For real estate investors, rising rates beg the question: “What should I expect from my investments?”

To answer this question, one must first understand why interest rates rise. The Federal Reserve has a dual mandate of encouraging growth and limiting inflation. When the Fed lowers rates, it makes access to capital cheaper to spur growth, and as this growth gains traction, the Fed raises rates to keep inflation in check. Herein lies the problem with assessing the effects of interest rates on real estate values.

Overall, commercial real estate values are resilient in a rising rate environment because ostensibly, the economy is growing, which creates demand for commercial real estate. As demand increases, prices rise. In addition, this means inflation is on the rise which also means the replacement cost of the asset rises as land, materials, and labor are also rising.  Furthermore, commercial real estate also has a built-in hedge against inflation, as it often has rent escalations tied to inflation, which ideally allows the asset to maintain its cash flow value spread over the risk-free return.

Where rising interest rates hurt commercial real estate investors, is in the refinancing of assets.  If aggressive leverage is currently in place and the property is already at market rents, then in the short term the value will go down but the real property, less the cash flow, should technically still be rising.

Even though long-term trends show a 70% correlation between cap rates and interest rates, it is important to differentiate between causation and correlation. There does not seem to be any direct connection between the two - the primary driver of cap rate compression is based on real estate fundamentals such as vacancy rates, lease rates, geographic market conditions, etc… All else being equal, it would appear, having low interest rates could pose a more likely problem as it could enable too much new supply which would then lower demand and lease rates.

From my perspective, a rising interest rate environment could have a short term detrimental effects on values if the asset isn’t positioned correctly, but overall when rates are rising, the underlying factors causing the rising rates are accretive to asset values.

This post was written by Danny Mulcahy, the Director of Equity at Northstar Commercial Partners. If you'd like to reach out to Danny, you may contact him at

Posted on April 9, 2018 .

Real Estate: Direct Investments vs. Fund Investing – What’s right for you?

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Every investor knows that putting money into any type of investment – whether the stock market, options trading, real estate, or startups – comes with a certain amount of risk. The key is to find the sweet spot of risk/reward that you’re comfortable with. Of course, everyone would love to put money in the next Facebook, Twitter, or Salesforce, however for each one of those, there are 10 Yik Yaks, Lilys, and Beepis (yes, those are real companies… well, were real companies). From Northstar’s perspective, real estate offers the best risk/reward profile. It probably won't ever result in a 10X return, but historically it has provided 1X-4X returns consistently. Real estate is one of the oldest forms of investing, and while memories of 2008 are still entrenched in our mind, it’s important to remember that it was a once-in-a-generation event. Today I’ll focus on investing in individual properties versus investing in a real estate fund – specifically weighing the pros and cons. Even in real estate you have countless types of buildings or properties to invest in, and with that, you still have the option to pick your risk appetite.

Real Estate Types

Prior to weighing the pros and cons of funds and individual properties, it’s important to note there are four standard investment types when it comes to real estate investing. For the sake of brevity, below are a few bullet points (though you can read more on these development types by reading our last blog “Are Core Real Estate Assets Worth The Risk?”).

1) Core – these are your trophy buildings where it’s not uncommon to have them valued at hundreds of millions of dollars. They have strong credit tenants, but offer investors very little upside. Expect 7-10 year holds, with 5%-11% annualized returns.

2) Core Plus – Similar to Core properties, but offer a bit more upside, along with slightly higher risk – many investors purchase these if vacancy rates are higher in order to fill up the building for a better return. Expect 7-10 year holds with 8%-12% annualized returns.

3) Value Added – these types of properties give investors high flexibility, albeit at a cost. Think of it as older buildings which can be flipped and redesigned into newer office spaces; or perhaps a poorly managed building that’s in need of a major update. Expect 2-7 year holds with 12%-20% annualized returns.

4) Opportunistic – these are primarily new construction developments, or highly distressed assets. They need a significant amount of work, which comes with inherent risk, but with major potential upside. Expect 1-5 year holds with 18%+ annualized returns.

Individual Investment Pros and Cons

Many investors typically pick investing in individual properties simply because the potential return is much higher than a real estate fund. It’s not uncommon to see projected annualized returns of 20-25% per year. Northstar typically focuses on value add and opportunistic plays, and just looking over our last three funded projects, our average project return has been 24% per year! Another pro when it comes to investing in individual properties, is information provided on the potential projects. At a minimum, companies should provide detailed financial statements, projected outlooks, Executive Investment Summaries, and a pro-forma. This information at a minimum should give investors a good idea as to what the investment offers, as well as potential setbacks.

While the upside may potentially be great for individual project investments, there are some reasons why it might not be for you. Depending on how many investments you own, putting capital towards one project might be considered “putting all of your eggs into one basket.” The less investments you have, the less diversified you are. Additionally, if you invest in a real estate project, you have very little flexibility if you’re in a crunch for money. While private securities can be transferred, there really isn’t a market or exchange to sell them, and if you are able to sell to another investor, the chances are you will be taking a loss. Finally, when it comes to investing in a single property, you have to understand that it is possible for you to lose your entire investment. You aren’t hedging your risk, and if a significant downturn occurs, then you should be prepared to take a hit.

Real Estate Funds Risks and Rewards

Real estate funds are a fantastic choice if you’re looking for 8%-12% returns a year, along with potential monthly or quarterly dividends. Depending on the fund size, fund managers traditionally spread their risk across a variety of different projects. A traditional spread could be 10% Core, 20% Opportunistic, 45% Value Added, and 25% Core Plus. Of course, this is a simple example, but it gives you a good idea as to how fund managers are able to hedge their risk. Funds are generally a good idea if you don’t want to have excess money sitting in a money market account that returns 1% per year, and your risk appetite isn’t prepared to directly jump into individual assets. Additionally, funds are much more liquid. Depending on the fund, you have more access to your initial investment. While it may take 90 or 180 days to exit the fund (which of course depends on the company running it), it is much easier to receive your initial investment when compared to individual projects. In the end, Funds are a good idea if you’re looking for monthly, quarterly, or annual dividends, alongside a bit more liquidity.

The main reason certain investors stay away from funds, is return potential, typically due to the heavy fees that some funds charge, and the fact they can’t select which asset they want to invest in. Good years may still have an 11% or 12% ceiling, whereas bad years might only net you 2-3%. When compared to individual properties, a great opportunistic investments may return 30% or 40% per year, whereas even a substandard one can still return 15% annualized IRR. Another reason why investors avoid funds, is the fact that property investments are solely reliant on either the fund manager or investment committee. You won’t have a say as to where the fund puts its money. While the committees and managers are subject-matter experts, your hands are not on the wheel when making a decision – something many investors do not like.

The good news is, prior data shows that real estate investing is a great hedge against inflation, and the market itself typically doesn’t sway nearly as much as the stock market. While hold periods can vary for both individual investments and real estate funds, home and commercial prices typically go up. In our 18-year history, Northstar’s average hold period for our properties is roughly 2.7 years, and we’ve been able to average historical, annualized returns of 26%+. With over 120 deals completed in our history, we aren’t weighted by outliers – we’ve shown a great track record, and we feel incredibly confident in both our individual deals, as well as our real estate funds. If you have any questions, then please reach out to and we’re here to help.

This post was written by Northstar's Director of Equity, Danny Mulcahy. If you would like to learn more about Northstar, available investments, or current assets, then please contact him at 

Posted on February 12, 2018 .

Why Invest in Commercial Real Estate?

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Why Commercial Real Estate?

It’s a question that we receive every day. Why should I invest in commercial real estate? There are hundreds of other opportunities where an investor can put their money. Stocks, bonds, startups, crowdfunding, options, cryptocurrency, lending – you get the picture. But why should you invest in commercial real estate? Even if you don’t know much about the industry, you probably know more than you think. In today’s post, we’ll outline the reasons why investing in real estate is seen as a smart, reasonably safe, investment.

A Physical Investment

If you bought $50,000 into the latest startup that focuses on IT cloud development, could you see your investment? Sure, maybe a website with a few glitzy features, but where can you see your money being put to work? If you buy one Bitcoin worth $10,000 (but probably $8,000 by the time you finished reading this post), do you know what exactly you’re buying? You can’t hold a Bitcoin. It’s not something you can feel or even see.

Commercial real estate is different. To date, Northstar has completed over 120 deals across the United States. One of our latest projects is a retail development just west of Denver, called Gateway. Every month you can see the progress on the development of the property that’s located in Golden, Colorado. You can physically see the progress from month to month. Your money is helping provide construction workers with jobs. Your money is helping walls literally get built. Your money has an impact from start to finish. Few investments are like this – commercial real estate is something you can touch and feel – it’s a tangible asset. It won’t evaporate into thin air, like a number of stocks. Not only is having a physical building good from an investment perspective, but it also gives investors peace of mind. If a building or structure is delayed, then investors can actually see what’s happening. Consequently, if you can see once-barren land turning into physical structures – then you’ll feel pretty good about where your money is going.

A Hedge Against Inflation

Inflation is one of those words that will take you back to your Economics 101 class in college, that maybe you forgot about. In short, inflation is a rise in the price of goods or services, while the purchasing power or currency is falling. The good news is, real estate is able to be a hedge against inflation. The value of your asset – whether it’s a residential building or commercial building – tends to increase over time. This is very rare, because the value of many major goods tends to not increase over time. Sure, the value of baseball cards, wine or art may increase, but think of other goods like clothing, computers, or cars. The second you drive your car off a dealer’s lot, you’ve lost 20% of your money, and you’re probably not getting that back. However, real estate is different.

A house you paid $100,000 for in 2008, could be worth 50%, 80%, or 100% more! There are a couple of few reasons for this – limited land in desirable locations, the sheer amount of effort and time it takes to build a new asset, wealthy people or investors moving to new cities, and neighborhood enhancements by state and local governments and the cost of the materials increasing due to inflation. Whatever the reason may be, real estate’s value tends to increase over time, and even with stock market corrections in 2000, or deep recessions like 2008, the price of a property will usually continue increasing.

Additionally, if you own a property, annual rental rates tend to increase each and every year. Nearly all rental contracts have a clause that allows for annual increases which are in line with the Consumer Price Index (CPI) or some other metric. This again is another way that real estate is able to adjust for inflation.  

Short Term and Long Term Holds

At Northstar, we’re very pleased that the average hold period for our commercial real estate investments is 2.7 years – by industry standards, it’s a pretty quick turnaround on your investment. However, different investors have different investment styles. What I mean by that is, some people prefer flipping a new property and making a quick buck, whereas others like to invest capital in a long-term fund that distributes dividends every month.

The beauty of commercial real estate, is that no matter your risk preference, there are always options for you. If you want to have a long-term hold of 10 or 20 years with monthly, quarterly, or annual dividends, then look into investing in Real Estate Funds, or Core assets. These two options give investors relative safety (of course this always depends on the market), not a huge amount of upside, but also, not tons of risk. Think maybe, of an 8-10% annualized return.

If an investor is searching for a hold period of less than 4 years, and is willing to accept a decent or substantial amount of risk, then investors should look to Value-Add and Opportunistic developments. These types of assets might be vacant lots that will soon house an office park, or a dilapidated structure that’s in need of a huge make-over. Major financial institutions tend to avoid these assets because it’s not worth their time. However, smaller and mid-size developers tend to lick their chops at these opportunities. Building a new asset in a relatively young market gives developers and investors the opportunity to achieve returns as high as 25% or 30% annualized, with a 2-4 year hold period. Once the asset is stabilized and cash-flowing, the original developer typically has the opportunity to sell the building to another owner – hopefully for a strong profit. But again, it’s important to note – these types of properties tend to have more risk than funds or core assets.

Commercial real estate is all about learning the industry, and understanding your risk profile. By directly investing in commercial properties, you need to take the information on the development and run your own due diligence. Don’t be afraid to ask or over-ask questions. This is your money, and you have a right to know where it’s going. Ideally you will find a development, asset, Fund, or REIT that is a good fit for you.

This post was written by Northstar's Director of Equity, Danny Mulcahy. If you would like to learn more about Northstar, available investments, or current assets, then please contact him at 

Posted on February 7, 2018 .

Executive Spotlight: Interview with Northstar CEO, Brian Watson

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Each month we'll bring you interviews from executives around the country who are given the chance to talk about their background, and business impact. Today we thought there was no better way to start, than with Northstar Commercial Partners CEO, Brian Watson.

Q: Tell us a bit about your background – both personally, as well as the reason behind starting Northstar Commercial Partners.

BW: I come from a background of hard-working family of humble means, some of which were entrepreneurs. The idea of starting my own business really resonated with me. I grew up on the western slope of Colorado, and graduated from The University of Colorado at Boulder where I got a degree in real estate. After graduating, I took a job as a broker with Cushman and Wakefield in Colorado. By design 80% of my work was landlord representation where I represented some of the largest landlords in the world. The remaining 20% was tenant representation where I got to see how corporations viewed commercial real estate, and that really prepared me to start Northstar. It was tough work which involved 7 years of working many hours as a broker. But because of that, I was fortunate enough to start Northstar Commercial Partners 17 years ago. 80% of what we buy are vacant or distressed assets with sub 30 or 40 percent replacement cost values, and trying to provide a 25%-plus annualized return, pre-tax where we enjoy cash flow as we lease them up, and then sell them at some point. Our average hold period is about 2.7 years in our 17-year history. The other 20% of what we do is to work with corporations to help build or buy facilities across the U.S. They’ll give us a 10-20 year lease, and we’ll build assets and hold them –  and they’re risk-adjusted returns where we try to hit a high-teens, low-20s return.

Q: Why don’t you buy core assets?

BW: Our philosophy is, you make money on the buy. Real estate by nature is an inflexible animal – you can’t pick up a building and move it across town. It is where it is. The best way to create flexibility is by having a low basis. If I have a lower basis than the competition, and I’m below 30 or 40% of what it costs to replace, then I can be patient, creative, and flexible.

In the Core space, there’s so much capital chasing so few deals. This is because many buyers have a mandate for large amounts of capital deployment, as well as perceived safety and cash flow. Ultimately, they pay dearly for that perceived safety and often buy trophy assets because it’s their only option. They’re bloodying their knuckles over price. They have to get capital out the door. The only time to buy core is when a market is struggling or when you see value. When a market or asset is fully stabilized, the pressure on the asset is too much. You’re not going to garner the long-term type of return that we’d like.

Q: Why real estate as opposed to startups or individual stocks?

BW: If you take a look at wealth creation in the United States, as well as the world for that matter – investing in real estate has been a large component. I like real estate because it is a solid, tangible asset that I can see, touch, and feel. Unlike a company where you have to move the dial of EBITDA based on income, and sales, employees and marketing, and a host of other things where the stars have to align – I can go in and buy a vacant or distressed piece of real estate and increase the value multi-fold in a short amount of time with a lot less risk. Additionally, you then add on the benefits of leverage or things like tax write-offs – Real estate is a phenomenal vehicle for wealth and value creation in America.

Q: The 2008 financial crisis put a bad taste in peoples’ mouths when it comes to investing – what was your personal experience with it?

BW:  We got hit, just like everyone else. We had a few assets on one hand that were in some very tough markets, but the vast majority of our assets still did very well. We made it through 2008 and outperformed the S&P and NAREIT Index. During that time period we were actually able to do some of our best deals – some of the best that we may ever do. At the same time, we had some legacy assets that we had to deal with – we lost some money like everyone else.

 I always tell people, “If someone tells you that they didn’t lose money in 2008, they were either A). Not invested at all. They had their money buried in the sand. Or B). they are lying to you.” Everybody was impacted by the financial crisis at the end of the day. It was a very painful period for us all.

The reason we weathered the 2008 financial crisis so well was because our model was buying vacant or distressed assets from corporations. When the crisis hit – 80% of the market value fell through the floor. Because our average hold period was so short – 2.7 years – even including our long assets, we’re usually in and out in 12-24 months. Because of this, we mitigate our exposure to fluctuations in the market. The question is, what did you do with it? We were able to show that we could vastly still outperform the markets.

Q: 100% of Northstar’s Assets are based domestically – do you see that continuing, or would you like to potentially go international?

BW: We have stayed focused on the U.S. for a few reasons. As an investor, I have a fiduciary responsibility to our investors to make sure I know what I’m doing and that I understand the market. I’ve been working in the U.S. for a very long time and given the amount of opportunity and fiduciary responsibility – we’ll be staying in the U.S. In addition, the USA is still the biggest real estate market in the world, we have a stable legal system and political system, as well as property rights that many other countries do not have. When you add in the diversity, the size, the tax treatments – it’s a superior place to invest. I spend some time traveling abroad and speaking with foreign investors who are looking for US real estate investments because they see the same strengths as I do in the US market.

Q: Politics aside, President Trump is a real estate developer – can you see how that will potentially impact the industry?

BW: What I say to people is – whether you agree or disagree with President Trump – this is the first time in American history that we have a commercial real estate investor as the president of the United States. President Trump signed up for a four-year job, and he might get eight years but he’s here for at least four. I believe all of his policies are geared towards benefiting U.S. assets and real estate. After he leaves office, all of his family’s net worth and business interest around his children, are still tied up in real estate. So, all of his policies, the energy industry or controlling inflation, are geared towards generating value. We believe that bodes very well for the future.

Q: Can you talk about the philanthropic side of Northstar? Is this something as an aside, or is it tied into your business?

BW: We believe in doing well by doing good. We have this form of real estate and we ask, “How can we benefit the community at large?” We believe we have a social responsibility to our community – we can do something when we buy vacant buildings and empower Americans with jobs and opportunity – not to mention the construction jobs that are created in the repositioning of these assets. We can take something with low utility, and turn it into a highly productive environment that has a social impact. High tides raise all boats – if we can do well by doing good and give returns back to our investors and prove an asset and help achieve dreams in the community – then that’s a life well lived.

Are there any specific projects you’re proud of?

In terms of specific projects, we don’t have a mentality that we only want to impact one thing. We’re very open and thoughtful about what we pursue in our community. Some of the neat things we’ve seen at Northstar are buying vacant buildings to build schools to provide education for kids. Right now, education is a civil rights issue in America. Literally, our society depends on it. So, if we can buy a vacant building and empower our students – that’s what we want to see. We’ve empowered immigrant communities and business incubators – these are people who have left everything in pursuit of the American dream. We believe the American dream is alive and well, so if we can help facilitate an incubator, then that’s very exciting. Right now, we’re building a hospital for a company called Clinica. Clinica helps serve individuals who don’t have healthcare access. With all that’s going on right now, there’s a segment of society that doesn’t have health care. We’re honored to build the facility so we can empower people in the community, in order to help provide them with jobs.

Q: Do you see Northstar ever go the more crowdfunding group – focus on smaller investors? Or do you want to go the institutional route? Do you see a middle ground?

BW: Every deal that we do, we always allow outside investors. We never cherry-pick deals, and only offer it to ourselves or certain people. As for crowdfunding, the term “crowdfunding” has been hijacked a bit, but we have been syndicating investments with groups of individual and institutional investors for more than 17 years and will continue to do so in the years to come. The nature of our strategy, too big for most sponsors to do on their own or with friends and family and too small for most institutional investors, lends itself well to having a mix of individual and institutional investors. In addition, a large part of our success is owed to the individual investor, and we’re honored to have people trust us and want to continue to build relationships with these people. We always welcome different levels of investors. As we grow we may work with more institutions or international investors, but we will always accept individual investors.

Q: You’ve talked about co-investing alongside Northstar before, as opposed to simply putting investors into the company’s deals. That means you have your own capital at stake – can you speak a bit more about that?

BW: Correct – we’re not here to sell anything. We consider opening an investment to investors as an opportunity for them to create wealth as opposed to a sales opportunity for us; after all, we don’t make our money buying assets, we make our money by getting assets to perform and selling them thereafter. My money is the first dollar in – from the moment we put the first dollar in, to the time we close and exit, the investors come in alongside us. Our incentive is most often based on getting a share of the profits after we have given the investors a preferred annual return and their initial capital back. People invest with us because they appreciate and value having an investment manager with expertise and years of experience.

Q: A number of investors right now might think “Prices are too high right now – the sky is sure to fall soon! It’s just like 2008!” – What are your thoughts on the market right now?

BW: We come from an opportunity-rich mindset – you can make a good or bad investment in a hot or down economy. After almost two decades, we can source and execute deals in strong markets like everyone, but we’ve shown that we can do an amazing job in distressed markets. Our goal is to look at the entire landscape and scoop cream from the top and only do the best deals. In the end, we are primarily value-add and opportunistic investors.

Why Colorado? Do you see yourself leaving here?

BW: We’ll always be headquartered here. I love the quality life and mindset of Colorado. We attract a great talent pool – I’d stack up people in Colorado to anyone in the world. Most people here have such a positive mindset and healthy standard of living. We want to build a world class organization to compete head to head with anyone. Right now, we do have satellite offices in Los Angeles and New York, and down the road we may go international. But we’ll always be headquartered in Colorado – the minds match the mountains of Colorado.

Q: While no two real estate deals are the same, are there certain aspects you look at? Maybe two or three in particular?

BW: Well for starters, the old real estate adage of “Location! Location! Location!” is true. Clearly location is important. Two, good buildings with good bones. Through some creativity, we can make these buildings become something even better. Three, cost basis. We are cost basis investors. We believe the lower the cost basis, the more flexibility, patience, and creativity we can employ. This helps us implement our strategy. Finally, we want to look for a reasonable population base. When combining all of these together, alongside a great team, we can return amazing results.

Q: Outside of work – what do you like to do for fun?

BW: I’m a big family guy. I’ve been married almost 20 years here in September, and I have 3 kids – so anything involving them. I also love most anything in the outdoors – hiking, fishing, golfing, boating, horses – just spending time out there. I’m an avid reader and I love learning new things.

Q: What’re you reading now?

BW: Chasing the Scream – it’s about drug policy in the United States and how we’re handling the war on drugs. Another book, Just Mercy which is about the prison system in the U.S. – how it’s been unfair to certain minorities.

If you'd like to participate in Northstar's "Executive Spotlight" section, please contact

Posted on July 14, 2017 .

A Layperson’s Explanation of IRR (Internal Rate of Return)

Investing can be intimidating, especially if one is not comfortable with finance.  Even though we may not understand how different metrics are calculated, or worse, how they correlate, most of us key-in on a couple of metrics to use for comparing investments.

In the public markets, the most common comparisons the average investor uses are the simple rate of return (ROR- gain or loss in stock price over a period), or the P/E ratio. In real estate, the most common metric used is called Internal Rate of Return (IRR), but unfortunately this metric is often confusing and misleading and should not be used alone in comparing investment options.

With stocks, you buy at one price and hold it until you sell, so it is easy to calculate the rate of return, but because real estate investments often take in equity over irregular time periods, and pay out cash over irregular periods of time and in irregular amounts, a more complicated formula is needed.

Many people make the mistake of assuming IRR is the same as compounded rate of return, it is not. A common definition is: The Internal rate of return (IRR) for an investment is the percentage rate earned on each dollar invested for each period it is invested.

The biggest problem with using IRR by itself for comparing investments, is accounting for the periods of time, return of principal, and return on investment. Two investments, each with an IRR of 10%, can produce a materially different return on investment.  Unless you know when and how much both investments are going to pay out, IRR is not a prudent metric to use for comparing investments. 

It may be easiest to understand by looking at a side by side comparison of two investments that each have a 10% IRR; one where the return is paid entirely at the end of 5 years and one where the return occurs each year over 5 years.

The first example assumes the 10% annual return is reinvested and will compound, but the second assumes any amount paid above a 10% annualized will be considered a return of equity, thereby reducing the principal amount invested for subsequent years.  

IRR Chart 102317.png

In conclusion, as demonstrated in the example above, it is not prudent to simply use IRR as the only metric for comparing real estate investments. IRR is a good starting point, but understanding the time periods and amounts distributed is integral for an accurate comparison.  Using the additional metrics of ROR, Annualized return, and Multiple will ensure a more accurate comparison.

This post was written by Danny Mulcahy, Director of Equity at Northstar Commercial Partners. If you have any questions, feel free to comment below, or contact him at

Posted on May 31, 2017 .

Investor Tip- Are Core Real Estate Assets Worth The Risk?

Are you looking to make modest investment gains, play it safe, or create wealth? All investments come with risk, but ideally the return is a direct reflection of the risk.  I submit that Core real estate investments, despite their perceived safety, present similar risk as other real estate asset classes; and maybe even more in the current investment cycle, but their modest returns do not reflect their risk.

In the world of commercial real estate investing there are a multitude of product types and asset classes, but for the newly initiated, there are four primary asset classes to consider:

  • Core- There are nuances, but it is it easiest to think of Core assets as being Class A office buildings or trophy buildings usually located in core urban markets, with very low vacancy, high rents, low tenant turn-over, and with national credit tenants.  These are often considered the safest real estate assets to invest in because they are typically in good condition, easily marketable, usually in demand, cash flowing and provide steady distributions to investors.  Core investors are typically seeking regular income distributions and expect a holding period of 7-10 years and 5% to 11% annualized returns.
  • Core Plus - Core Plus assets are very similar to Core, except there may be opportunity to increase the value through modest additional investment, or because it is being purchased with more vacancy which allows the new owners to fill the vacancy with new leases ideally at higher rents. Core Plus investors are typically seeking regular income distributions and expect a holding of period of 7-10 years and 8% to 12% annualized returns.
  • Value Added- Think of valued added as assets that may be past their prime, have poor management, high vacancy, or their current use is not the highest and best use. This gives the new owners the opportunity to invest in remodeling, putting stronger management in place, sign new leases, or re-position/ convert the asset to a different use i.e.… turning a single tenant office building into a multi-tenant office or a warehouse into a self-storage facility. Value Added investors typically do not expect much, if any, cash flow the first few years and only expect to hold the property for 2-7 years and hopefully achieve 12%-20% annualized returns.
  • Opportunistic- The most common way to think of opportunistic is as new construction, highly distressed, an asset in foreclosure, with financial or ownership issues, or in challenging locations.  Except for new construction, the investment strategy for opportunistic is very similar to value added.  With new construction investors get the chance for significant returns because they are creating the income from scratch. These are typically considered higher risk, speculative investments and use leverage, but often the risk can be mitigated with pre construction sales and leases. Opportunistic investors do not expect cash flow and recognize a majority of their return will come from the back-end sale of the property, only expect to hold the investment for 1-5 years, and are seeking 18%+ annualized returns.

    At Northstar Commercial Partners we have provided institutional and self-directed accredited investors with annualized returns of over 43% over the last 17 years and that is largely due to staying away from Core asset investments and staying true to a disciplined and methodical investment strategy.

    If you think about it, there are only two things that can happen with Core assets: they can chug along and barely beat actual inflation, or they can fail to keep pace with inflation.  Core assets do not have many options to remain competitive in a changing market without reducing the return to investors. If things go awry, such as increased competition from new building’s coming on the market, then there is an increased chance the national credit tenants will jump to the newer shinier property. The only option for the landlord is to provide rental incentives to keep them; meaning lower rents, free rent, or dollars to improve the tenant’s space. When a tenant does vacate, it is likely the landlord will forego rent for short period but also has to spend money for leasing commissions and possibly redesigning and/or refurbishing the space. The landlord was probably already charging the highest rent the market could support, so with each turnover the properties investment performance suffers.

    If you are looking for relative safety and modest income, then a Core Asset may be a good decision, but if you are looking for growth and/or income beyond just trying to stay ahead of actual inflation, then you may want to consider the other asset classes defined above.

    This post was written by Brian Watson, Founder and CEO at Northstar Commercial Partners. If you have any questions, feel free to comment below, or contact him at

Posted on May 8, 2017 .

Northstar Commercial Partners Facilitates Grease Monkey Expansion In Atlanta

Six Assets Purchased by Northstar will Create Jobs and Add Productivity to the Market

Denver Business Journal

DENVER, March 31, 2015 /PRNewswire/ -- Northstar Commercial Partners announced today another major acquisition for Grease Monkey International, with a six property expansion in the Atlanta, Georgia area.

Grease Monkey, one of the nation's largest franchisors of automotive preventative maintenance centers with over 290 locations, will utilize its partnership with Northstar to engage its business growth and further invest in local Atlanta communities.

"It is truly exciting to see continued, successful involvement with our friends at Grease Monkey," Northstar Founder and CEO, Brian Watson, said. "Every one of our past experiences in assisting Grease Monkey across the nation, has brought with it positive results for their business as well as lasting change for the areas where these properties are located. I am fully confident our Atlanta partnership will continue this trend."

The Atlanta-based acquisition is another time Northstar has successfully met real estate needs for Grease Monkey. In 2013, 11 properties were purchased by Northstar to help grow the company by 10%. Just last month, an additional two facilities were secured by Northstar for new Grease Monkey locations in Illinois and Wisconsin. This latest acquisition brings the total to 19 assets.  

For years, Northstar has been a leader in acquiring vacant and distressed commercial real estate, as well as purchasing real estate for and from national corporations. This has built strong trust and ushered in a host of new clients and partnerships. Northstar is always expanding their efforts to serve individual corporations nationwide with beneficial real estate opportunities that provide real estate expertise and value participation for companies, without the hassle of owning or tying up their capital in facilities.

Watson emphasized the strong impact Grease Monkey's increased presence in Atlanta will have: "This is more than just another real estate acquisition. At Northstar, we seek to build long-term relationships with those who seek to bring good to local communities."

"This latest opportunity with Grease Monkey in Atlanta will repurpose and reestablish foreclosed properties and make them productive once again," Watson concluded. "This will create local jobs, build infrastructure, and open up exciting prospects for local residents and neighborhoods where these facilities are located."

Founded in 2000 by Brian Watson, Northstar Commercial Partners is a privately held commercial real estate investment company headquartered in Denver, Colorado. Northstar acquires and operates attractive commercial real estate opportunities throughout the United States and orchestrates all aspects of the investment from initial concept through to completion.

Northstar has purchased assets from a multitude of Fortune 500 companies including: Shell Oil Co., GE, Columbia House, Ball Corporation, Loomis, Cargill and a national portfolio of real estate from Benjamin Moore Paint Co., in addition to many individual assets from other owners, lenders and companies.

To learn more about Northstar's positive community impacts, or to contact Northstar to build a strategic partnership for real estate, please visit or

Contact: Kyle Forti
(719) 377-0646

Posted on March 31, 2015 .

Academy 360, Denver's Health and Wellness Charter School, finds new home in Northstar Commercial Partner's Building

DENVER, March 3, 2015 -- Academy 360 Charter School, approved by Denver Public School District to serve students in the "Far Northeast" region of the District, has found a permanent home in a building purchased for the school by Northstar Commercial Partners. The building located at 12000 E. 47th Street, Denver, Colorado, provides the space for Academy 360 to build out their full cradle-to-career program in the Montbello neighborhood. Sally Sorte, who founded Academy 360, has teaching and business experience through her tenure with Teach for America and Google. Ms. Sorte believes every child should have the choice to attend a 4-year college and is committed to providing the wrap around services students need to assure they are prepared for a successful future.

Academy 360 offers unique programming and currently serves students in preschool through third grade as a "Health and Wellness" school. The school is committed to developing the whole child: mind, body and character, as healthy students learn better. At Academy 360, health and wellness is a key lever to propel students' academic achievement. By using proven practices adopted from Namaste Charter School, a comprehensive health and wellness school in Chicago, and other schools integrating aspects of health and wellness into their curricula, Academy 360 is on the cutting edge of whole child development through its design, culture, and instruction.

Academy 360 currently shares space with The New Life Christian Center at 12505 Elmendorf Place in Denver, but lacks the space to grow and provide the services critical to the program's success. When Northstar's Founder and CEO, Brian Watson, heard the school was having a difficult time securing a permanent location, he offered to help.

For over 15 years, Northstar has had a strong track record of buying vacant and distressed assets from lenders, corporations, and other owners throughout the United States, improving these assets and placing them back into productivity to create jobs, opportunities, and empowerment for people in their local communities. When Brian Watson heard Academy 360 was looking for a new home, he put his team to work on a facility that would meet Academy 360's needs and be financially viable for a charter school. After lengthy negotiation efforts, Northstar was able to acquire a 29% occupied 56,610 square foot building at 12000 E. 47th Street, located just off of I-70 and Peoria, on January 20, 2015. This will allow the school to continue to grow by a grade level each year until they serve Early Childhood Education through fifth grade students.

Watson stated: "We are passionate about creating opportunity for all citizens of Colorado and the United States, as we work to enhance the business and educational environments in each community.  We are honored to help Academy 360 secure a new home, and know that this investment in the Montbello Community will make a positive impact, empowering the Academy 360 students and their parents so they can pursue their dreams."

Brian Watson is so committed to creating equitable educational opportunities for students that he has started the Education Opportunity Fund to raise $100 Million to acquire properties for charter schools.

"We plan to buy and improve buildings for schools throughout Colorado," said Watson. "Public and other forms of quality education create a foundation for our children that allows them to succeed. As enrollment grows in Colorado, there is a growing need for adequate facilities. We will continue to use our real estate and investment expertise to help provide lasting benefits for schools that will have a positive impact on current and future generations."

Northstar Commercial Partners will invest additional capital in the property to meet the needs of Academy 360. The school's staff will move in this summer and the new building will welcome students when school starts in August 2015. 

To learn more about Academy 360, please visit To learn more about the Education Opportunity Fund, visit To learn more about Northstar Commercial Partners, Brian Watson, and/or their various community initiatives, visit or

Media Contact: Jaime Jones

MarketWatch by Dow Jones:

Posted on March 3, 2015 .

Northstar Commercial Partners Sets Milestone with Latest Acquisition for Grease Monkey International

With another beneficial real estate opportunity for two new Grease Monkey locations in Illinois and Wisconsin, Northstar continues its effort to serve corporations nationwide.

DENVER, Feb. 26, 2015 -- Northstar Commercial Partners announced today another acquisition for Grease Monkey International, one of the nation's largest franchisors of automotive preventative maintenance centers. With over 290 locations throughout the world, the purchase of the two buildings in Illinois and Wisconsin facilitates further expansion for Grease Monkey and adds to Northstar's national presence.

"We are always looking for creative ways to innovate as we grow and build relationships," Founder and CEO, Brian Watson, said. "This latest strategic partnership confirms our investment and continued ability to meet the real estate needs of individual corporations like our friends at Grease Monkey."

Northstar already has a record of proven success with Grease Monkey. In 2013, eleven properties were purchased by Northstar to help grow the company by 10%. This latest acquisition consists of two oil/lube facilities which were purchased on February 18, 2015. Each location will be re-branded to the Grease Monkey concept, including new building paint, signage, and interior finishes to match their colors, branding and image. The properties are located in excellent, high-identity areas in Janesville, WI and Bolingbrook, IL.

For years, Northstar has been a leader in acquiring vacant and distressed commercial real estate, as well as purchasing property for and from national corporations. This has built strong trust and ushered in a host of new clients and partnerships. Northstar is always expanding their efforts to serve individual corporations nationwide with beneficial real estate opportunities that provide real estate expertise and profit participation for companies, without the hassle of owning or tying up their capital in facilities.

Watson emphasized his confidence in the acquisition coupled with optimism for the future: "Our goal is unchanging - In all our transactions, we strive to build community, create jobs, and empower people," Watson said. "Real estate just happens to be the platform that we use to make a positive impact in society. Fostering this particular relationship will continue to uphold our vision here at Northstar, while bringing lasting benefit to Grease Monkey as they grow their business model."

About Northstar Commercial Partners: Founded in 2000 by Brian Watson, Northstar is a privately held commercial real estate investment company headquartered in Denver, Colorado. Northstar acquires and operates attractive commercial real estate opportunities throughout the nation and orchestrates all aspects of the investment from initial concept through to completion.

Northstar has purchased assets from a multitude of Fortune 500 companies including, but not limited to: Shell Oil Co., GE, Columbia House, Ball Corporation, Loomis, Cargill and a national portfolio of real estate from The Benjamin Moore Paint Co., plus many individual assets from other owners, lenders and companies.

To learn more about Northstar's positive community impacts, or to contact them to build a strategic partnership for real estate, please visit or

Kyle Forti, (719) 377-0646,

Yahoo Finance:

Posted on March 2, 2015 .

Northstar Commercial Partners Launches $100 Million School Facility Fund

Denver-based real estate investment company Northstar Commercial Partnershas launched a $100 million fund to benefit charter schools across the state through assistance with real estate needs.

The Education Opportunity Fund is a real estate investment fund that will be used to find and purchase vacant schools, or to find other properties that can be converted into schools, said Brian Watson, founder of Northstar. Watson's money, as well as capital from other private investors will make up the fund.

The properties will then be leased to charter schools, which will have the option to buy the property from Northstar whenever they want, Watson said.

This method will save charter schools the hassle of finding properties, completing due diligence and other elements of the real estate buying process.

Northstar and the Education Opportunity Fund are currently working with 10 different charter schools, Watson said. Northstar has under contract a 60,000-square-foot property for use by a charter school in the Montbello area of Denver.

Vacant school properties are difficult to find, Watson said, coming along less than 10 percent of the time one is sought, so the company will also take into consideration vacant office and retail buildings for conversion into a space that is appropriate for a school.

The fund will operate statewide.

Original Denver Business Journal Article:

Posted on February 26, 2015 .

Northstar Commercial Partners Supports Aurora Police Department Training

Jan 13, 2015 Aurora, CO – Late last year on a cold, snowy morning Aurora Police Department cadets staged an active shooter exercise at 830 Potomac in Aurora, a 113,000 square foot Northstar Commercial Partners property that is for sale or lease, giving the cadets’ invaluable training and experience in keeping us safe.

Northstar Commercial Partners has a long history of helping many causes, and a particularly strong belief in supporting local police efforts. Last year’s exercise is just the first, as there is already one more scheduled for next month as Northstar is happy to provide access to vacant properties to help with such training.

“Given the Aurora theatre shooting and everything going on today throughout America, we thought it was especially important at this time to step forward and support the Aurora Police Department” said Brian Watson, Founder and CEO of Northstar Commercial Partners. “The work that local police do to protect the public is incredibly important, and we want to do what we can to support their efforts. Providing this building for the training exercise while it’s on the market, was an easy decision for us.”

Dozens of cadets participated in the exercise, which lasted for several hours. While they were not able to comment specifically on the details of the exercise, the officer in charge of the training did note that without the donation of the space the cadets would not have been able to receive such useful, life-like, live action training.

Northstar Commercial Partners and its Founder and CEO Brian Watson are deeply committed to the community. You can learn more about their efforts at or at

Media Contact: Ben Gelt

Posted on February 26, 2015 .