Why this retail entrepreneur invests in commercial real estate
4 minutes read
Philippe Grisé understands the stress an entrepreneur can feel when buying commercial real estate for the first time.
Like many entrepreneurs, he and his partners, Patrick Byarelle and Frédéric Pierre-Antoine, were happy leasing their retail space during their first years of operation of their now fast-growing chain of skateboard, snowboard and surf stores, Empire Sports, until the landlord of one of their key locations decided to sell the property.
That’s when they were faced with a big decision: To buy the building or deal with a new landlord?
While their initial reflex was to continue leasing their location, that changed when they got a look at some of the potential buyers tramping through their store. “We asked ourselves: ‘Do we really want these guys walking in here?’” says Grisé. After all, they had a good relationship with the current owner and wanted to maintain control over their place of business.
Grisé and his partners decided to line up financing, and become owners of the building—a decision that led them down a path of commercial real estate ownership that, today, has them owning four properties, including a 3,700 square-metre (40,000 square-foot) head office and warehouse building on Montreal’s South Shore.
Getting comfortable with financial responsibility
As Grisé and his partners steadily gained experience investing in real estate over the last 10 years, they also became increasingly comfortable with all the financial responsibility that comes with it.
“That first step into real estate was a bigger stress load for us because we had no idea how it worked,” explains Grisé. “Now we have the experience and backing to do it. For us, it’s a no-brainer.”
Founded in 1999, the company now operates 10 stores across Quebec, including an impressive new 1,200 square-metre (13,000 square-foot) location in the heart of Montreal’s downtown. Empire plans to begin expanding outside Quebec in 2018.
While the company leases several stores from large developers, Grisé and his partners buy the properties where they operate whenever possible, as investments—“sort of our retirement plan.” The properties are held in a holding company jointly owned by the partners, from which they are then leased to Empire, a common structure.
Grisé calls the property holdings a good investment for his personal financial future—the “cherry on the sundae” of Empire’s success, where the partners are riding a boom in demand for skateboards, snowboards and the hipster clothing that go with them.
While Grisé wears his hair in long dreadlocks and looks more like the cool young skateboarders who flock to Empire stores than a buttoned-down executive, when it comes to business, he and his partners take a disciplined approach.
As part of a decision-making process that he fine-tuned with his team over the past 10 years, best, medium and worst-case scenarios that take into account projected cash flows from the Empire store are compared with the cost of owning the building. The worst case scenario forecasts how much it would cost to carry the building until it’s leased to a tenant in the event they’re forced to close their store (something that’s never happened in a location they own).
Do the math before buying
“We do our math,” says Grisé. “Is it feasible in a worst-case scenario? If the answer is yes, we say: ‘Okay let’s do this,’” he says, adding that they always make sure to get properties inspected so they have the whole picture before buying.
Grisé is equally methodical when it comes to renovations. He recommends entrepreneurs carefully plan their cost projections with the help of designers, architects and other professionals, including a lawyer who can advise on permits and other regulatory hurdles.
It’s also essential to get detailed estimates from contractors before they begin work.
“You want to know, within more or less a few thousand dollars, what you’re heading towards,” says Grisé. “If your cash flow is chewed up by extra costs incurred through renovations or construction work, it’s going to affect the rest of your business. I’ve seen companies with amazing potential that have had the carpet pulled out from under them because they went on an expansion that wasn’t properly planned.”
Get advice from professionals
Grisé says entrepreneurs who are buying real estate for the first time should invest in advice from experienced professionals, including an accountant, lawyer and a commercial real estate agent.
“You have to find people who are credible and competent,” he says. “Better to pay a little more than lose it all later.”
Ultimately, according to Grisé, once you’ve done your planning and homework, there’s no reason to hesitate. Owning real estate comes with responsibility and headaches, but nothing that can’t be handled by an experienced entrepreneur with an established business, he says.
“If you’re wise in business, it’s almost a foolproof opportunity,” says Grisé. “But you have to be wise. You can’t be an entrepreneur who sits on his butt. If there’s a problem, you have to attack it.”