How to Get Into Commercial Real Estate Development: 7 Tips to Turn Pro

Commercial real estate is a cornerstone of the US economy. The CRE industry valued nearly 44% of the market capitalization of all US publicly traded companies in 2023 and brought in a whopping USD 2.5T – representing 10% of the US GDP, think tank The Real Estate Roundtable estimates. 

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Source: The Real Estate Roundtable

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Whoever can capitalize on opportunities in the CRE market can earn serious money. But how to get into commercial real estate successfully if you aren’t yet earning big in CRE?

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Many real estate career paths exist to get involved in commercial property, from brokerage and appraisal to property management, but commercial real estate developers and investors reap the biggest rewards. 

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Developers and investors identify risks and opportunities in the market and turn undervalued real estate into profit – which takes a lot more than owning a real estate license and throwing capital at commercial real estate deals.

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Becoming successful in today’s market requires smart strategies and intimate knowledge of the current CRE market trends. 

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Beginning commercial real estate developers who lack either risk:

• Overlooking new opportunities in a changing CRE market
• Underestimating capital needs for property development
• Uncertainty navigating complex regulations and strict zoning laws

But don’t despair: these are commercial real estate challenges that smart commercial real estate professionals know how to mitigate and turn in their favor.  

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Learn how to get into commercial real estate development successfully. We share seven strategies for you to become a better commercial real estate developer or investor. These strategies include tips on adapting to current market conditions, ways to diversify your portfolio, and great value-add opportunities.

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Ready to build a winning portfolio? Read on to discover how to get into commercial real estate investing successfully.

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[Want to move fast on a great CRE opportunity but do you have limited liquidity? Duckfund’s soft deposit financing lets you secure CRE property without dipping into your capital.] 

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7 strategies to become a better commercial real estate developer and investor

Assuming you already know your way around the commercial real estate market, the question isn’t so much about how to get into commercial real estate as how to build a more profitable portfolio.

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Let’s assume you’re a small CRE developer or investor with the proper certifications and already:

• Define your investment goals and strategies, including determining your risk tolerance and financial objectives. Do you seek short-term gains through property flipping or long-term appreciation through rental income?
  
  
• Conduct thorough due diligence on CRE properties and broader market conditions, from assessing the physical conditions of a property and evaluating potential returns to analyzing market trends that affect your investment.
  
  
• Effectively do property management. Whether self-managing or outsourcing, you know how to manage your investments and tenants properly and stay on top of financial reporting.
   
• Secure appropriate financing and have a good grasp of the terms, interest rates, and loan-to-value ratio of the different financing options available – like commercial mortgages, SBA loans, joint ventures, and private money lenders.
  
  
• Built a network of real estate investors, real estate firms, commercial realtors, potential clients, and other industry professionals. You can rely on this network for partnerships, private equity, and mentorship.
  
  
• Started small to build experience. You had your share of smaller, straightforward projects like single-family rentals or small multifamily properties to start your CRE career path, aiming for lower-risk investments to gain experience. 
  
  

Having gone through the ropes and being fluent in the above is a solid base for a profitable CRE career but doesn’t guarantee success in today’s tough market. These 8 strategies help you increase your commercial real estate portfolio’s profitability:

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1. Adapt to changing macroeconomics

This should go without saying, but any commercial real estate investor should study the commercial real estate market obsessively. That means keeping informed about macroeconomics and their effects on CRE market trends.

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Here’s an obvious example: interest rates. Higher-for-longer interest rates have been affecting real estate in two major ways: tight capital markets and a looming debt maturity wall. What does that mean for investors and developers?

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Debt maturity and commercial real estate deals

With USD 950 billion in mortgages maturing in 2024 and peaking at USD 1.25 trillion in 2027, as analysts from financial corporation S&P Global estimate, defaults on loans could add downward pressure on CRE prices.

Source: S&P Global Market Intelligence

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Interest rates are finally decreasing, with the Fed recently lowering the federal funds rate by 25 basis points in Q3 of 2024. Nonetheless, investors should prepare for distressed asset opportunities by freeing up cash while capital markets remain expensive for property owners seeking to refinance.

Shifting from a cautious investment climate

In an economically uncertain CRE climate with low commercial property valuations – prices seemed to have bottomed this year, according to asset manager FS Investments –  investors keep cautious. Lower transaction volumes throughout the year reflect this sentiment. 

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Source: FS Investments

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Things could look different going into next year, however, if the Feds keep lowering interest rates. With the ingredients necessary for a durable CRE rebound now in place, developers and investors should keep a close eye on commercial real estate market indicators and adapt their strategies accordingly.

2. Diversify your commercial real estate investments

Diversifying your portfolio isn’t just a strategy for a robust and resilient portfolio – it’s absolutely crucial in an uncertain market. Commercial real estate professionals can diversify in three ways:

Diversifying across types of commercial real estate

Diversifying across different types of commercial real estate is a key strategy to mitigate risk and increase profitability. Rather than doubling down on your trusted CRE specialization, choose a mix of property types that could include: 

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• Multifamily continues to perform well in 2024, with demand for residential real estate booming and rent growth improving, according to data from commercial real estate brokerage firm Cushman & Wakefield.

Source: Cushman & Wakefield

• Industrial property remained a desirable asset class during the market downturn, according to commercial real estate investment firm CBRE. Long-term prospects for industrial real estate remain robust due to structural shifts in supply chains and ongoing demand for logistics facilities.
  
  
• The retail sector is ripe for new development. The national vacancy rate in shopping malls near a historic low of 5.4%, wth prospective tenants remaining challenged with finding available space, Cushman & Wakefield reports. 

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Geographic diversification 

Investing in or developing commercial properties across different regions or markets helps mitigate risks of local economic downturns and capitalize on local CRE booms.

The top three markets set to outgrow the CRE market in 2025, according to consultancy PWC’s yearly real estate trend report, are:

1. Dallas-Fort Worth
   The US’ fourth fastest growing city, Dallas-Fort Worth has a strong  and diverse economic base while remaining an affordable city. This combination of affordability, growth, and economic diversity should continue to attract new residents and businesses to DFW.
   
   
2. Miami
   Ongoing demand from international arrivals and wealthy buyers alike has driven explosive growth in Miami’s housing market. Home prices have risen 80 percent since the onset of the pandemic. The city is likely to remain an attractive place to live and work.
   
   
3. Houston
   Designated as “The Energy Capital of the World,” Houston is expanding rapidly—both in population and industry, including green energy, health care, technology, and aerospace. Houston’s lack of formal zoning laws make it a particularly development-friendly environment. 

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These metropolitan areas present an opportunity to diversify and increase your portfolio’s performance.

Source: PWC

Investment structure diversification

Diversifying across different investment structures can also help optimize your CRE portfolio. Different investment structures all provide unique (cash flow) benefits and risk profiles. 

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Direct real estate investments, while potentially offering higher returns, often require substantial capital and specialized expertise – especially in highly specialized markets. 

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REITs and real estate mutual funds can give you exposure to diverse property holdings, including specialized sectors like data centers and healthcare facilities, without the need for direct investments.

3. Focus on value-add opportunities

Value-add strategies are a creative way of taking undervalued and/or underperforming assets and improving those to increase returns, whether through rental, leasing, or investment sales. 

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Value-add strategies offer potentially big returns on discounted property – if executed successfully. How to get into commercial real estate value-add opportunities? 

1. Identify an underperforming asset, like property with below-average occupancy rates or that is not managed well. 
2. Develop a strategy to increase performance: occupancy, rental rates, or productivity affect profitability. 
3. Plan for cost-effective renovations and upgrades that increase property value and longevity. Think of technological integration and ESG compliance.
4. Implement operational improvements, whether through property management systems, conducting energy audits, or by reducing expenses in some other way.
   
   

You can also consider repositioning strategies, where you convert an asset to a different property type.

Value-add and the case of office spaces

Since seeing major vacancies in the pandemic and sustained underuse throughout the economic downturn, office vacancies have been hovering around a record-setting 20% in 2024, according to data from analyst Moody’s CRE.

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The structural underutilization of office buildings puts major pressure on the CRE market as a whole – but also presents value-add opportunities in the form or repositioning strategies.

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Only 2% of vacant office buildings were undergoing conversion in 2022, according to the CBRE. Yet 15% of office buildings are suitable for residential conversion, research from the Council of Economic Advisors to The White House showed.

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Successful conversion of office space to residential is no easy feat and requires creative solutions, like dorm-style co-living, and involves risk as demand for new forms of housing is not certain – but it can be done. 

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The approach seems to work in Manhattan, where over 6.5 million square feet of office space has been earmarked for residential conversion in the past four years, including the Flatiron Building.  

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“We’re going to see some very creative approaches over the next few years,” said Micheal Cohen, president of commercial real estate broker Colliers’ tri-state region, when asked about office space conversions. “I wouldn’t be surprised if the total runs into the tens of millions of square feet. This is a very hot topic right now.

4. Explore alternative CRE sectors

Another strategy to get into CRE investing more successfully is to explore alternative sectors in the commercial real estate industry. Consider investing in growing sectors like:

• Data centers are seeing a huge surge in demand due to AI and filling CRE developers pockets – a trend likely to continue if not accelerate. 
• Life sciences facilities cluster in key locations and offer stable cash flows as the US increases funding for the industry.
• Last-mile distribution centers in industrial properties near urban centers show increased demand due to the shift toward e-commerce.

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While these specialized types of commercial real estate promise higher returns than traditional sectors, developing this type of property requires a lot of capital and knowledge. As mentioned earlier, REITs can offer investors exposure to these assets. 

5. Find new ways to look for undervalued property 

How to get into commercial real estate investing and earn a profit? Find undervalued property. We have already briefly discussed looking for distressed property assets, but other ways exist to get your hands on undervalued property.

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Find vacant property using online real estate platforms, leveraging government resources. doing field research, or directly cold-calling property owners or commercial real estate agents. Vacant property can often be bought at a discounted price, especially before they go to market.

6. Run stress tests

Unforeseen events can always impact your commercial properties and portfolio’s performance. That’s why running stress tests is crucial for commercial real estate professionals.

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Stress testing involves simulating how an investment might react to various negative scenarios. Risk tolerance is tested by incorporating several outcomes into a financial model.

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“The key in navigating current market fluctuations is to have strong in-house analytical and financial skills to make sure every investment opportunity is well evaluated”, says Anna Kogan, CEO and founder of soft deposit funding provider Duckfund.

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“Long-term financing options is one vital area: pay attention to upfront fees, early repayment fees, and other hidden commissions, as well as the fix vs float interest rate. Running a stress test with several cost of capital growth options is useful.”

7. Use earnest money to close CRE deals faster.

Securing good commercial real estate deals isn’t just about finding them – it’s also about closing real estate transactions fast. Earnest money can help CRE investors do that. So what is earnest money? 

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Also known as a good-faith deposit, earnest money is an amount paid upfront during CRE negotiations and held in an escrow account by an escrow agent through a title company until the real estate transaction is either completed or terminated, when it is paid to the seller or returned (in part) to the buyer.

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Earnest money deposits, or EMDs, are an important part of negotiations and show sellers your serious interest.

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“It's part of every deal; It's part of every real estate transaction,” says Stash Geleszinski, a managing director at Capstone, the largest privately held multifamily investment sale firm in the US, when asked about the popularity of EMD.

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In competitive markets, whoever can offer the highest EMD the fastest closes the deal. With Duckfund, you don’t have to rely on traditional, slow lending options. Instead,  you have fast access to soft deposit financing specifically targeted toward CRE investors.

How to get into commercial real estate and turn a profit: closing thoughts

As a CRE professional, you should always be looking for ways to add value to your properties and investments – but the old adage of “buy low, sell high” is easier said than done. 

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Turning a profit in today’s dynamic and competitive CRE market requires an adaptable and forward-thinking mindset. 

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That means continuously studying the market and broader macroeconomics to adjust your investment strategies and gain an edge over the competition. Implement the discussed strategies and you’re set up for success.

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[Closing a great commercial real estate deal isn’t about luck – it’s about strategy and fast execution. Duckfund's soft deposit financing helps you quickly secure the funds you need when rare CRE opportunities arise.]