My First CRE Investment: An SBA Loan Helped Turn a Dentist and Her Husband Into Commercial Landlords

This is the second installment in LoopNet’s new series, “My First CRE Investment.” You can find the first article in the series here.

Sometimes a sign can be something vague or mysterious that needs to be carefully deciphered to fully grasp its meaning; on other occasions, it can be quite literal.

The latter was the case for Steve Hodges, whose path to commercial real estate ownership began with a “for sale” sign on a vacant lot in Garland, Texas, a suburb of Dallas, way back in 2005 — before the Great Recession, before the pandemic and before interest rates plummeted only to rise again.

Hodges had been seeking such a sign for several years at that point. His wife, Janet Mason, was running a thriving dental practice in the area, but, according to Hodges, “paying rent didn't make a lot of sense,” given the pace at which his wife’s business was growing.

With the help of a Small Business Administration (SBA) loan, that vacant lot would soon become the site of Hodges’ first commercial real estate acquisition, though not his last.

Because Hodges and his wife intended to use the site to erect a building that Mason’s business would partially occupy, they were able to take advantage of a Small Business Administration loan.

The SBA is a U.S. government agency that provides assistance, guidance and financing to U.S. based small businesses. The agency’s definition of a small business varies depending on the industry, but broadly speaking it’s a privately-owned business with less than 1,500 employees and under $40 million in annual revenue.

Because the SBA is devoted to helping small businesses in the U.S. grow, it typically provides financing at very reasonable terms, including no collateral or down payment. In Hodges’ circumstance, he and his wife were able to borrow the money for both the initial land purchase and the construction loan for the property that was built upon it without putting any money down. The initial land purchase amounted to approximately $435,000, and the cost for the entire project was around $2 million.

According to Hodges, “the key” to securing these generous terms was that the property would be partially owner-occupied. In fact, according to the SBA’s stipulations, more than half of the property needed to be occupied by Mason’s dental practice.

Hodges noted that he and Mason did incur “some soft costs, including some initial engineering [expenses],” but that it was well below “what a down payment might be.”

Of course, since this was prior to the financial crisis, Hodges and Mason did have to cope with a relatively high interest rate, at least at the outset of their journey. According to Hodges, that initial rate was over 9%, which would prove somewhat problematic as they struggled to find a tenant to occupy the remaining 45% of the property. But first, they needed to get past “the most active HOA [homeowners association] in all of the land,” as Hodges described it.

While the property was zoned for commercial use, it was situated within an existing neighborhood with a very particular HOA — so particular, in fact, that the city essentially deferred its approval to them.

“[The city] said, if you can make [the HOA] happy, we'll accept whatever your design is,” Hodges recalled.

Hodges worked closely with the HOA to ensure that they would be satisfied with the property’s design and quality of the build. He added that he had an advantage because the HOA preferred his proposed use to a convenience store that was also interested in the property.

Hodges also elected to subdivide the lot and sell off one acre prior to beginning construction, as the two-acre lot was oversized for the 6,800-square-foot, single-story property that he intended to build.

It was early 2007 by the time the construction process was complete. As planned, Mason’s dental practice occupied the primary suite in the property, while Hodges set about securing a tenant for Suite B.

Unfortunately, this was before Hodges “got my head around [online listing services].” Instead, he tried leasing the space primarily by sending letters to his wife’s colleagues, as they thought a complimentary business would be the best fit. But this approach, coupled with a sign on the front lawn, yielded few leads.

Finally, Hodges and his wife had the idea of hosting an open house, the way you might if you were selling or leasing a residential property, and this somewhat unorthodox approach worked. An orthodontist, a rather perfect companion tenant for a dental practice, attended the open house and soon signed a lease for the remaining 45% of the property. Approximately a year and a half after completing construction, Hodges and Mason had their first tenant.

The orthodontist remained in place for 11 years, which was a relatively solid tenure, but the timing of their exit was less than ideal.

“The orthodontist went out on the last day of 2019,” Hodges said.

Because of the COVID-19 factor, it took two and a half years to rent the space again. Fortunately, Hodges had two advantages during this vacancy period that he lacked previously. For one, he had discovered the benefits of advertising the space on listing services. In fact, Hodges said that it was through LoopNet that a California-based broker representing a credit union reached out to him and ultimately leased Suite B in 2022.

Secondly, Hodges and Mason were no longer dealing with an interest rate exceeding 9%. They had refinanced twice since then; once in 2009, when they achieved a rate around 6%, and again around 2019 when they brought their rate down to just under 4.5%. The decreased carrying costs made it considerably easier for them to manage the vacancy.

Some other things have changed since the husband and wife first purchased the property. Mason sold her practice to a fellow dentist, though she still works in the office. And they also acquired another piece of commercial land — an 18-acre lot in Royse City, another Dallas suburb. At the moment, that lot is being farmed, which enables Hodges to take advantage of an agricultural tax exemption, while he determines the land’s highest and best use.

One thing that hasn’t changed: Hodges is still doing all the work keeping his and Mason’s property at 901 W. Campbell in Garland up and running. When asked if he manages the property himself, Hodges responded with a wry chuckle and a nod.

“I'm the bookkeeper, security guard and all the little parts that go with it,” he said. And you get the impression he wouldn’t have it any other way.