Flex Space: The Hidden Gem in Commercial Real Estate with Alec McElhinny

Alec McElhinney runs LandPlay, a flex space development shop in central Texas. He started in industrial value-add. When cap rates compressed and interest rates climbed, he met someone at a conference doing flex space and ran the numbers. The margins held up at higher rates. He pivoted into development. Flex space is the hybrid that sits between warehouse and small office: roughly 10 percent office, 90 percent warehouse, bays of 2,000 to 4,000 square feet that can move with demountable walls. The typical tenant is a contractor, plumber, electrician, HVAC operator, or a niche operator like the guy in one of Alec's New Braunfels buildings who packages every bingo chip in America and clears seven figures a month from a small bay. What landed in this conversation: Do not maximize density. On a five-acre site that could hold 70,000 square feet of flex, Alec will build 40,000 instead and put a two-to-three-acre outdoor storage yard on the rest. Inside space rents at $14 to $20 a foot. Yard rents at $1.50 a foot. The yard leases faster than the buildings because contractors and equipment dealers want a fenced spot for bobcats, materials, and overflow. The combined site stabilizes faster and at a higher blended return than a 70,000 square foot all-building site. Pick the jurisdiction before you pick the dirt. Inside the city of New Braunfels, site plan approval runs about a year and a half. Five miles north in Comal County, the same approval runs about two months for similar rents. Same submarket, same buyer pool, twelve months of carry cost difference. Alec's first filter on a deal is which county or city will let him build before the second filter is whether the land works. Look for retail sites that cannot be retail. Alec is targeting high-traffic frontage along I-35 (around 100,000 to 150,000 cars a day) that should be retail but has a sewer constraint or another issue that knocks retail off the table. Flex needs much less sewer than a restaurant or strip center. He gets the traffic count without the retail competition, and front-row rents in the high teens or low twenties instead of the $14 a foot the same product gets in the industrial park behind it. The metal building is a Lego set. Standard kit, three to four months to put up plus two to three months of site work. Alec orders from Cornerstone (not Chinese kits, because a missing part on a Chinese order is a six-month problem). He sticks to one building size and lets his architect cookie-cutter the floor plan, which keeps engineering costs down. Cost is around $120 a foot if a GC builds it, less if he self-performs with the right subs. He performs to a $250 to $270 per-foot sale price on stabilized flex. The mentor line Alec carries with him: "Bigger is not harder. It is just bigger." His first deal was a duplex he overpaid for by $5,000 at age 23. This year he is doing about 250,000 square feet of development. The 250K feels easier than the first deal did. Reach Alec at land-play.com or on LinkedIn. Real Estate Underground with Ed Mathews. Find us wherever you get your podcasts, at clarkst.com/podcast or elevista.com/podcast 🎧 Subscribe to Real Estate Underground for weekly insights on building wealth through real estate, without sacrificing your sanity.Additional Resources:Clark St Capital -> Passive real estate investments for busy business owners and executivesElevista -> AI SaaS for real estate investorsClark St Academy on YouTube -> Learn how to invest in real estateSocial Media:LinkedIn -> Ed Mathews (President at Clark St and Elevista)Heads up: If you find this week's book intriguing and you buy using our link, we receive a small commission that helps support the show. Thank you!