My First CRE Investment: An Auction, a Flip and $750K in Profit in Less Than 30 Days

This is the latest installment in LoopNet’s new series, “My First CRE Investment.” You can find previous articles in the series here.

Dustin Maher, a Madison, Wisconsin-based fitness chain operator turned real estate investor, practically embodies the word “entrepreneur.”

“I still don't have business cards. I don't have a business name,” he said about his expanding portfolio of real estate investments. “I’m just buying properties, making deals and making money.”

Despite the seemingly ad-hoc nature of his enterprise, Maher came across as diligent, thoughtful and very ambitious in his interview with LoopNet. He may be making up the rules as he goes along, but that doesn’t mean the rules don’t exist.

As of this writing, Maher’s portfolio of six commercial properties includes multiple retail assets, a 112-bedroom student housing property and a mixed-use building that houses one of his gyms. But we’re not here to talk about any of the properties that Maher presently owns; we’re here to discuss the one that, very much by Maher’s own choice, got away.

In the interest of journalistic integrity and comprehensive disclosure, it’s worth noting that the retail property Maher acquired, at 2024 South Stoughton Road in Madison, Wisconsin, did not technically represent his first investment in commercial real estate.

In 2016, when one of his gyms was unceremoniously given 28 days' notice to vacate its existing premises, Maher found himself venturing into the world of commercial property ownership. Feeling that rental rates were too high and not wanting to be at the mercy of a capricious landlord again, Maher elected to purchase an 18,000-square-foot 1980s-era office property. He converted 11,000 square feet for his gym and left the remaining 7,000 square feet as office space.

After that experience, Maher’s interest in real estate investing grew. As a limited partner, he invested in deals led by his friend, Tim Bratz, a self-styled wealth and investment guru who is the CEO of Legacy Wealth Holdings, which describes itself as a “socially conscious real estate investment company.” It’s also the platform from which Bratz hosts numerous seminars and courses about wealth-building and real estate investment, including the “Mastermind Summit,” which Maher was invited to attend.

At the Mastermind Summit, Maher found himself surrounded by several hundred fellow strivers. As he described it, there were newbies seeking their first single-family rental; single-family investors looking to break into multifamily; and multifamily investors interested in making the leap into office, retail or industrial assets.

This experience inspired Maher to move quickly. “I'm just like, ‘Why start with the small stuff?’”

So, Maher set about searching for retail assets to acquire. Shortly before the end of 2021, he purchased a 10,000-square-foot strip center in Madison for approximately $1.5 million.

It was less than a year later that Maher found himself navigating a complex transaction that resulted in what he described in a Facebook post as the “biggest single financial win” of his life.

The timing was not exactly ideal.

It was August 2022 and Maher was on a 17-day vacation in Vancouver, Canada when he spied the listing for 2024 South Stoughton Road on Ten-X, the commercial real estate auction platform. (Ten-X and LoopNet are both owned by CoStar Group.)

Totaling 52,000 square feet, the property was occupied by several prominent retailers, including Dollar Tree, Sherwin-Williams, a gym (not one of Maher’s) and a local appliance and electronics chain. It also had two vacant spaces and had been foreclosed on by the bank, which is how it wound up on Ten-X.

While Maher had never actually visited the property, it was located on his home turf in Madison, and he had driven past it dozens of times. He knew the area well and was aware that it was a desirable location on a high-traffic road.

While conducting due diligence from afar is never easy, Maher’s existing knowledge of the location gave him an advantage. He reviewed the materials provided by Ten-X thoroughly and then he set about working the phones — contacting local brokers, the building’s property manager and some of the tenants.

From these investigations, Maher learned several important facts. Firstly, the parking lot needed to be repaved and the roof required work. Maher set aside approximately $400,000 in his underwriting for those expenses. From the listing broker, Maher also discovered that there were at least two tenants who were quite interested in the existing vacancies.

Maher also talked to his banker, and they were confident that they could loan him the money to complete the transaction at a 4% interest rate. Moreover, the bank believed it could complete the transaction within 30 days following the end of the auction, as required by Ten-X.

Based on an 8% capitalization (cap) rate, Maher figured that the property, with its existing occupancy, was worth approximately $3 million. If he could fill the two vacancies, Maher estimated that the property’s value would increase by nearly 50%. Even with $400,000 in capital expenditures, that represented a gain of more than $1 million.

Maher was more than intrigued, and he knew that he could cover the 10% non-refundable down payment that Ten-X required as soon as the auction ended. However, as he continued through the Ten-X registration process, Maher discovered a problem: he needed to provide “proof of funds” for the maximum amount that he planned to bid on the property. Maher, like most people, didn’t have $3 million just sitting in an account waiting to be put to use.

So, Maher, an avid user of social media, put out a call on Facebook asking if any of his friends or followers had $3 million that he could use. He clarified that he wouldn’t need the money to close on the transaction, but just to provide proof of funds for the bidding process.

In short order, one of Maher’s friends messaged him. “Hey, I've got three and a half million dollars in one of my accounts, and I'm happy to do that for you,” he told Maher.

Now that the proof-of-funds hurdle had been cleared, Maher had another issue to contend with. The auction was set to take place on the day Maher and his family, including three young children, were planning to fly back to Wisconsin. So, as Maher was navigating checking in for his flight and dealing with luggage, he was actively bidding on a relatively expensive real estate investment.

Bear in mind that Maher was a complete novice to the auction experience. Not just with regard to commercial real estate but in general. “I've never even done an eBay auction in my Life,” Maher recalled.

With just a few minutes remaining in the auction, Maher had the leading bid. He’d reached his limit of just over $2.9 million, enabling him to stay under $3 million total including all fees. Maher and his family were making their way through the ever-arduous airport security line when he received a notification that he’d been outbid. Maher was disappointed, but he didn’t want to exceed his self-imposed limit. And, besides, he needed to turn his phone off to go through security.

A bit later, Maher was sitting at the gate, waiting to board the flight, when he got a call from the listing broker. The property failed to meet the reserve price, and the owner was requesting the best and final offers from all the bidders. Maher stayed firm at his final bid price, fully expecting that he wouldn’t get the property.

But then, to Maher’s surprise, the listing broker called him a day or two later.

“You got it,” he told Maher.

Now there was just the matter of what he was going to do with it.

It’s worth noting that Maher’s initial intention wasn’t to flip the property. He told LoopNet that his general strategy around commercial real estate investment was “to just keep holding and acquire $100 million worth [of real estate assets].”

But he also knew better than to overlook a good opportunity. So, when the listing broker mentioned that there was another party interested in the property, it piqued Maher’s curiosity. Particularly once the broker explained that the investor in question had offered the bank $3.6 million for the property before the auction, but the bank turned it down because the buyer insisted on an appraisal contingency — i.e., a requirement that a third party appraise the property for at least the purchase price before the transaction closed.

But first, Maher had to see what he’d bought. Now back in Madison, Maher paid a visit to the property. And waiting for him there were two potential tenants.

Maher described the situation as almost comedic, as he fumbled around the property while talking with the tenants. “I've never been in there before. I know how many square feet there is, but I was like, ‘I don't know where the lights are,’” he recalled.

That didn’t dissuade the potential tenants though. One of them, the proprietor of a successful antique store, was located one mile down the road, but her existing property “was getting torn down any day,” Maher said. She had been trying to get the bank to lease the space to her for six months, but they weren’t interested.

But Maher was. Even though local brokers had told Maher that the top market rate for the space was $8 triple-net (NNN) he made her an offer at “$9 NNN, no tenant improvement allowance (TI), and you move in the day I close on it, which is in three weeks. And she says, ‘That sounds great.’”

“My family and I drove out into the country where [the tenant] lived that night and had a letter of intent (LOI) signed,” Maher said.

Based on an 8% cap rate, Maher said that the lease increased the property’s value by $800,000. If he was going to flip the property, Maher knew he couldn’t let it go for just $3.6 million.

The next day, Maher met with the investor who was interested in acquiring the property — another local real estate and business owner named Tyler Marks. Maher told Marks about the LOI from the antique store.

“I'm here to make a deal,” Maher told Marks. “Otherwise, we wouldn't be here wasting your time or our time.”

Marks’ reply was succinct. “So, what’s your number?” He asked Maher.

$3.8 million, Maher told him.

Once again, Marks’ response was concise. As Maher recalled, “He pauses for a split second. Then he goes, ‘You got a deal.’”

According to Maher, Marks’ offer represented, “$751,000 of profit.” As much as he believed in the property’s future, Maher couldn’t turn his back on that kind of windfall.

Maher still had to close on the property with Ten-X. That meant going through the rest of the purchase process, including completing the financing with his bank. (As it turned out, Maher and Marks had the same banker.) He also had to agree to Marks’ appraisal contingency; but with the new tenant’s LOI in hand, the property was valued at just under $4 million.

As they waited for paperwork to be filed during the two weeks between when Maher closed on the property and Marks could purchase it, Marks even agreed to manage the property for Maher.

Maher acquired other properties as 2022 drew to a close, but he’s yet to find anything to purchase in 2023. “I haven't found anything that pencils out yet for me,” he said, acknowledging the current disconnect between buyers and sellers in markets throughout the United States.

But, given his focus, and perhaps general disposition, Maher is optimistic.

“I'm a value-add guy and I’m just trying to find those distressed properties. So, yeah, I'm excited for the future. I think next year there's going to be more opportunities out there.”