How To Find Hidden Upside In Commercial Real Estate

A confident “that can’t be done” is one of the most expensive sentences in commercial real estate investing, especially when nobody can explain the reasoning in plain language. Michael and Don lean into a different approach: use your own common sense, stay curious, and keep asking “why” until you reach the real constraint you can actually work with.

We walk through a deal that looked dead on arrival a mall outparcel that everyone insisted could not become a restaurant because of parking requirements. One simple reframing and a quick call to the city revealed the real issue, and the fix was almost embarrassingly straightforward. That’s the investor advantage: when the market believes a property can’t reach its highest and best use, pricing often bakes in a discount for an assumption that may not hold up under real due diligence.

Then we shift into the building side of value creation, from fire code and mixed-use complications to hands-on verification when plans don’t match what was built. We also swap stories about everyday savings that add up fast a gutter system that “needed” full replacement until someone asked better questions, and an old-building elevator pit that went from impossible to practical once the right engineer got involved. Along the way, we talk about vendor psychology, risk aversion, and how to tell the difference between “can’t” and “not comfortable.”

If you want sharper instincts for value-add real estate, smarter renovation decisions, and better conversations with architects, contractors, and engineers, this one will help. Subscribe to Blue Dirt, share it with a friend who buys or manages buildings, and leave a review with the best “no” you ever turned into a win.

Learn more about Blue Commercial Properties on our website.

Transcript

What Blue Dirt Is About

Michael Carro 0:00

Welcome to Blue Dirt, the podcast that digs deep into the foundation of commercial real estate investing. Unlike most real estate shows that focus on deal making and market trends, Blue Dirt gets into the nuts and bolts of what truly builds long-term value, the building itself. We break down how to spot deferred maintenance before it costs you, why a solid preventative maintenance program is a game changer, and how triple net leases can maximize your investment returns. We'll also explore the importance of strong landlord-tenant relationships and how they drive stability and growth in your portfolio. Whether you're a seasoned investor or just getting started, Blue Dirt gives you the practical knowledge to make smarter, more profitable decisions in commercial real estate. It's time to get your hands dirty and build value from the ground up. Let's dig in. Welcome to the Blue Dirt Podcast, where even idiots can make a killing in commercial real estate. I'm Michael Kiro with Don Rudhe. And today we're going to talk about the pro the needed professionals in our life and where opportunities can exist in common sense. So we were just talking about this a moment ago, about three simple examples. One that actually uh uh made me actually money as a broker, one that actually allowed me to build a two apartments that didn't think could be built, and then something that really just occurred to me last week um that it turns out that we think that's wrong as well. So so let's go ahead and just kind of dive in and talk about that. But before we dive in, Don, you want to add any subject topic uh to discuss in advance?

Don Redhead 1:48

No, I'm sure we'll we'll take some. I'm sure we will.

Michael Carro 1:51

Okay. Because Don has been a part of all of uh, well, I guess maybe part of this, but the first one I want to talk about was a real estate transaction where I'm representing a a buyer of real estate, and there was a property that is uh on on a mall parking lot. So it's an out parcel to uh a local mall and really good location. And uh this particular uh franchise group was frustrated that they couldn't get a deal done with the broker that they had selected, so they decided to switch brokers and and they selected me to represent them. And so, you know, we're gonna kind of going through all the obvious locations, which they had already looked at a lot of these places, but I had brought up this location and they said, Yeah, we've looked at it really hard. It can't be a restaurant. And I said, Okay, well, I why can't it be a restaurant? And they were telling me that there apparently there wasn't enough parking to make a parking ratio. It was not a restaurant, so this would be a change of use. And um, and I was like, okay, fine. Uh, but regardless of what the rationale for not doing the deal is, if we can do a deal, do you want the property? And they said, yes. I said, okay. So I wrote together, I put together an offer because I had my own idea. I put together an offer, submitted it to the the listing agent, and he knows that I did a lot of restaurants uh back then. And he calls me up and says, Hey, listen, is this for a restaurant? I said, I'm just working a deal. Um, I didn't really want to disclose it because I didn't want him to block me. And he just said, Hey, just so you know, this can't be a restaurant property. So if it's a restaurant, just don't waste your time. And I said, Okay, thank you. And and so we get it under contract. I make a phone call to the city and said, hey, listen, here's the situation. We've got this property. Oh, yeah, Mike, we've everybody has already called about this multiple times. It can't be a restaurant because of this. And I said, okay, fine. And I said, is it because the total square footage? And he says, yes. I said, well, what if we cut off the second floor? And he says, Yeah, then no problem. It was literally a 30-second phone call where all of these other people had tried doing a deal, doing a deal, doing a deal, and then all of them gave up, but nobody just thought common sense. The restaurant did not need the second floor at all. Oddly enough, the city still allowed the second floor to be in existence as long as it was for storage, which the restaurant absolutely needed. So here we have how many professionals ultimately were hired, engaged, went through this process on this particular property. All, and by the way, what happens? We end up getting it at a discount because the property had the value, but everybody thought it couldn't be used for its highest and best use. So that was that's just the first example. So, Don, why don't you engage in on that and tell me your thoughts?

Don Redhead 5:05

I think it's it's just an incredibly powerful tool, if you want to call it that, that you can bring to the table when you just you you don't overthink things a lot, right? You just think things super simple and it's like So if you're an idiot, if you're an idiot, like me, it's a fine line. You have to you have to be able to dance and on both sides of the line. Because you really have to just say, Well, what if it didn't have that? I mean, you really well I knew the restaurant didn't need the space, but you know, what who would say something that crazy? Because on the surface, most people would say that, right? Right. But you have to be comfortable being that that that well, why not?

Michael Carro 5:48

Because yes, you have to be comfortable being an idiot and having people laugh at you. And I could care less. It's fun most of the time. I like being extremely underestimated. Well, but and and I don't mean that in a negative way. I'm just saying that I think it's okay. Ask questions until you understand. I mean, so many people are so afraid to look stupid or look dumb that they're afraid to ask. And I'm gonna tell you what, here's I'm gonna give you, I'm gonna give you one bit of advice that I think is the most valuable thing that that I can probably share with you. Ask why three times, and you'll ultimately get to the real answer. Because most people say, hey, listen, I want to do this, and and they're met with a no. Well, can you explain to me why it's a no? And they're gonna give you some to me, some high-level answer. They're gonna try to talk over your head because you might be asking a professional something. And so we tend to give professionals a little bit of extra credit about, hey, listen, they know their area better than I do. And and they do, but it doesn't mean that they're using common sense. So they're gonna give you an answer that's that's that that you may not understand. I can tell you, I likely won't understand it. And then say, hey, listen, I still don't understand this. This doesn't make sense to me. Explain it to me differently. And I'm gonna tell you ultimately, you're gonna you're gonna peel back the layers of that confusion and get to the raw answer. Then you have something to to work with. But if you stop, like most people do at that high-level answer, that you're like, I don't even know what he said.

Don Redhead 7:30

Like, like you assume you know what they're talking about.

Michael Carro 7:33

You just go, okay, I got you. And you don't. And you don't. And or or you understood what he said, but you don't understand the logic or reasoning behind what he said. That's fair.

Don Redhead 7:44

And it's and I can tell you, if you if you go and you ask these people and they don't explain it to you properly, and you ask again, like you're saying, you ask the the multiple times, and it still isn't being communicated like it would be to a toddler, you know, a five-year-old. Right, most likely they actually don't know what they're talking about. But people who are really good at what they are do, they can really bring it down for the for the idiots and explain it in a in a way that we can consume. Right. That's all.

Proving Fire Rating By Cutting

Michael Carro 8:16

All right. So I'm gonna bring up another example. Uh we, you know, some of these podcasts, maybe maybe we have idiot nation, you know? Are you part of idiot nation? Because I'm gonna tell you what.

Don Redhead 8:29

Get some shirts, mate.

Michael Carro 8:30

That's right, idiot nation. I like that. Um, so the second example I want to give uh was uh we have an office building that's two stories. And uh it was my desire to build two apartments above uh the office. And now that's two different uses. So from a from a code standpoint, it gets a lot more complex um when you have have residential above commercial, things like that. And so a lot of fire codes and different things come into play. Um and so uh we fortunately we had an old set of plans uh from the group that we bought the property from, and we gave that to our architect, who does a great job. And uh and we're all excited, and uh, but there we knew that there was a barrier. If the current flooring system was not fire rated uh for a certain number of hours, the the situation would be cost prohibitive to actually build the apartments and we would just have to go with commercial up on the second floor, which we didn't really want. So he uh comes back um a couple weeks later and says, Hey, listen, we don't have the um we don't have the fire rating. I think it was two hours. Well, what it doesn't matter what it was. It was just we it wasn't needed. We didn't have what was needed according to code. And I'm like, golly, and I and I'm I'm actually ticked off because this is gonna be my personal apartment. I'm super excited. And and I just said, Well, did you are you sure? Did you take a core sample? Well, no, but it's right here on the plans. And it was really one of these surreal moments. There was a ladder, there is a uh, and I said, Get me a saw, get me something that I can cut through this. And I literally, I'm I'm I was probably in not a suit, I don't wear a suit, but you know, I was probably in a button-down shirt and slacks, and and I climb up on that ladder, they give me a sawzall, and I'm and I mean, I'm just unlike a madman, as Don likes to say, I'm just cutting in and I pull off the first layer and I said, What's that? And and he says, the architect says, Well, that is this on this layer. And I'm like, It's worth 30 minutes, right? Or whatever it is. And so I cut another layer, and it's like, what's that? And he goes, Well, that's this. And I was like, and I cut through it and I said, What's that? And he's like, Well, that's not on the plans. And I said, Okay, well, what do you think? He says, I think we have our rating. And so even though we had the plans, it was what was actually built wasn't all on the plans. So even though the architect in this case was 100% correct in what he was reading, the building itself had something else to say about this. So we went to the building, asked why three times, our why happened to be cutting different sections, and ultimately we got what we wanted, and now I live upstairs. So, just to give you an example. So that's that's another thing that I thought was that I'm kind of it's these surreal moments, and you, you know, that's my perspective. Don, tell tell the story from your perspective because you got to witness this craziness.

Don Redhead 11:49

Yeah, that's what it was. It was a madman with a saw just attacking a ceiling, and dust is going everywhere, and and and that's what it was. It was, but it was it was a sense of frustration, right? Because you're being told, and and and a fair amount of money had been spent still at this point, not as much as in total, but still. Uh, and it was just attacking it, getting these layers down, and and then just saying, okay, so what do we have in total here? It's like, I think we have it, and it's like, but so many people don't go and just I'm gonna say lack a little bit of of curiosity. They're making a lot of assumptions, they're just kind of flying through checking boxes, and it, and I agree, I I I fall onto that sometimes. You're like, you're so busy with a bunch of stuff, right? So you go, uh, it's not gonna work, and you move on. But if you if you just pause for a second and ask the questions that we're talking about and have a little bit of curiosity, a lot of times you'll get in there and be like, see, it's not it's not what you assumed it was, and so many times people just do, right?

Church Restroom Fix Nobody Tried

Michael Carro 12:56

And and again, it's about forging uh a bit more forward. So the next example is a very simplistic example, which is what prop prompted this discussion for today's episode. So I'm at the finance, I'm I'm on the finance committee at my church, and and our uh church leader was talking about the expansion of of this very small restroom. And they were gonna spend some money to just, I mean, we're talking about a restroom that is maybe three feet by four feet. It's a very small closet. And they weren't talking about expanding it, they were simply talking about pivoting the toilet so you can approach it from a slightly different angle. And I ask a lot of questions as I always do. And I said, Well, how what's the ability just to expand the restroom? Oh, it can't be done, you know, because of X or Y. And he goes, you know, it's been, you know, and he's a relatively new uh new person in charge, but but he has had relationships with all of the other people that have been previously in charge. And apparently this has been a discussion for a long period of time, and every time it's can't be done, can't be done, can't be done. And I said, Listen, I don't want to overstep my bounds, which I always do. Um, but is it that you don't want to do it or you just don't believe it can be done? Because that's that's a fair question. Some people say it can't be done when and when it's really that they either don't want it done or don't want to spend the money to get it done. And he said, No, we would like to have it done, but you know, and this is a very old church built in the late 1800s. The walls are probably 14 inches thick. And I said, Listen, I'll I just need to see it for 30 seconds, and I should be able to at least have an idea. And so I go over, I look at it, and I'm like, this is this might be the easiest no-brainer of expansion that I've ever seen. So he was right. There are two walls that are are these massive load-bearing walls. And we don't want that expense. By the way, let's be fair, you can expand anything if money is no object. But in this case, it was more the fact that we we we knew there were two walls that were immovable. The question is, is whether or not that third wall, because when I say two walls, one of them is curved, so that really forms two sides of a square, if you will, even though it's it's a rounded part, and one is straight. So the question is whether that third wall was also part of the structure. And it turns out we do not believe it is. There's a big inset. There might have been uh an old uh picture showing it being a doorway way back, maybe 50 years ago. So I have every confidence that this is not a load-bearing part of this wall. And the ability to double the size, not make it a huge restroom, but double the size is super easy and quite honestly, really low cost. So um, so we're gonna we're gonna just undertake this project for the church as a as a donation, um, just because we we think we're excited just to work in this environment. Um, and so, but it's just another example that I just don't like when I hear it's all it's either always been done that way or it can't be done. Or and and by the way, it could have just as easily had that third wall solid and say, hey, you're right, whoever told you this, and that's okay. But to constantly find these little openings where it's not correct and and and you but but guys, this is where the opportunity lies because these these obstructions happen in investments all the time. And if you can be the one to ask those three whys and get to a place of understanding, you too might find the opportunity of of a great investment. So that's kind of some of my thoughts on that.

Gutter Quote Slashed With Questions

Don Redhead 17:11

Yeah, it's it's it's it's I think at this point now, like you said, I don't like being told no, it's almost more fun. Yeah. Because once you get to the point where you you have uh crossed that that bridge so many times and where you've you've asked why enough and gotten comfortable enough, it's almost like almost like negotiation or whatever. When you actually get more comfortable in that world where you're just asking why it's it's more entertaining, I think. Because you're putting a lot of people most of the time that are very intelligent and very you know uh good at what they do, but sometimes have just gotten complacent or hey, that's the way we've always done it. And and yeah, we just we're working on that roof project next door as an example. And uh the guy goes, Hey, this this whole and this is a large gutter system, it needs to be all replaced. I was like, okay. I was like, all right, well, give me a price on it. I'm like, I'm gonna look at it again with somebody else. So somebody else comes over. They look at it, they go, No, this is fine. We just need to, we need to, you know, repair some of the rivets, you know, recoulk it. I go, but overall it's in good shape. He goes, there is an issue. He goes, it is, you know, sloping a little bit to the back, so there's a a kind of a hip in the middle, so it's not draining as it should. And um, I go, can you just take these bars that these straps? I go, can you just cinch it up a little bit? He goes, Yeah, that may work. So I'm like, so everyone's like, oh, you can't fix that. I'm like, but can't you just drill through that strap and restrap it down and and and just nudge it up? I go, I'm not fighting for a lot of of you know fall here. Uh he goes, yeah, we can do that. I was like, okay.

Michael Carro 19:00

So you went from a complete gutter replacement to uh switching out basically a repair job, right?

Don Redhead 19:07

So a few hundred bucks versus probably you know four thousand bucks.

Elevator Pit Problem And Right Engineer

Michael Carro 19:10

All right. So I thought of another example while you're saying that one. Okay. Okay. This happens to be at the Sanctuary Event Center when you were doing the construction. And you remember the elevator pit that you were working on? Yeah. And you had the one uh civil uh structural engineer who was who recommended this crazy process. And then so walk through that engineer. Then when we switched to the other engineer, the difference in psychology between the two.

Don Redhead 19:40

Yeah, so that's probably one of the greatest examples of this situation in in in real-world context with really you know, structural engineers are smart. Um, guy came in and was doing some of the structural elements. We had to to cut through one of the walls, and and there's a couple other parts that he had to provide some designs for for the drawings. We decided to shift the elevator inside the building, which which we all know is probably the right call long term. It's just outdoor elevators, maintenance becomes a nightmare. Elevators are already a uh a maintenance nightmare to begin with. So we bring it in, but the way that the building was constructed was very unique because it's structural now.

Michael Carro 20:25

This is built in 1905, so it's 121 years old. Yep. And so just to give you a little context, it's not this amazingly poured foundation.

Don Redhead 20:32

It's it's no, it's it's it's basically brick laid maybe six foot wide at the base, and then it just kind of and then just tapers, right? Just kind of goes up until there's a certain point. And uh the structural engineer who was the the one that was on the job in the beginning, no, you can't you can't do anything with that, you can't, you know, modify it at all. There's nothing that can be done. And probably asked why more than three times in this scenario, because we really wanted it on the inside. Well, why can't we do that? What what's the issue? Fortunately, the guy that was working on your apartment, right? Um we just called him and asked him, and he goes, Oh, that's really simple. So I'm we're fighting with this guy to to, and he just at the end of it, when we're like, and he finally quit, unfortunately, or fortunately, depending on how you want to look at it.

Michael Carro 21:25

Well, hold on, let me qualify this. Super nice guy, but he was just nervous.

Don Redhead 21:31

That's exactly what I was about to say. He just he wanted to say it couldn't be done. It was not that it it couldn't be done, it was that he just didn't feel comfortable designing it, and he'd rather say it can't be done. Right. So the other guy had a lot of experience with this. He came back, he goes, Hey, you need to do X, Y, and Z. All very logical. Yeah, right. All made a lot of sense.

Michael Carro 21:52

X, Y, and Z included some helical peers and things like that.

Don Redhead 21:57

Uh part of the the elevator pit. Kind of flowed actually underneath um underneath it. So it was very interesting how they designed it and everything. But it was uh but worked.

Michael Carro 22:09

It was it it we he we found a workable solution. It wasn't actually crazy expensive.

Don Redhead 22:14

No, the pit cost remains constant.

Michael Carro 22:16

Yeah.

Don Redhead 22:16

It was another few thousand, you know, three thousand.

Michael Carro 22:19

It wasn't crazy. Correct. Um, but it went from can't be done, which means the other alternative would have been it was extremely less desirable and more costly. But this one was our number one choice. And in this case, switching professionals to somebody who had a lot of experience with these old buildings versus so it's not just that it's not that the first guy wasn't good at what he does, but this task was outside of his comfort zone. And so yeah.

Don Redhead 22:51

And and honestly, him just probably saying that in the beginning. Hey, I'm not the guy for this, I'm the guy for that, that, and that. I've never done this, but I know this guy has this guy that has. You know, that's the right approach, uh, a vendor, a professional should take.

Michael Carro 23:07

But you don't see that. So many people don't want to even admit their shortcomings. And you know, listen, be the first to say, hey, listen, I'm not the guy, but I know the guy. You know what I mean? Or this gal is so much better at that that than I am. And, you know, refer stuff out.

Curiosity Creates Real Estate Opportunity

Don Redhead 23:20

I mean, we're all good at certain things. Yeah. Can't be all great great at everything. Right. Yeah. So that was another, another great example.

Michael Carro 23:29

So hopefully today's episode really helps you to focus in on challenge the professionals, but more importantly, if you're not using your own common sense, then you're gonna miss those opportunities to mine those gold nuggets which are out there. It's just that do you have the patience and fortitude to find them? Because they exist all around you, but it's up to you to figure it out because nobody's gonna hand it to you. Because the person that's gonna hand it to you is gonna be the person that's gonna take it themselves.

Don Redhead 23:56

And curiosity.

Michael Carro 23:58

Yeah. That wraps up another episode of the Blue Dirt podcast, where even idiots like Don and myself can make a killing at commercial real estate. That's a wrap for this episode of Blue Dirt. We're here to help you build smarter, invest wiser, and create long-term value in commercial real estate. One solid foundation at a time. If you found today's insights useful, be sure to subscribe so you never miss an episode. And if you know somebody who could benefit from these discussions, share Blue Dirt with them. Got questions or topics you'd like us to cover? Reach out. We'd love to hear from you. Until next time, keep digging deep. Stay sharp, and remember, real value is built from the ground up. See you on the next episode.