Commercial Real Estate Loans

Commercial real estate loans can help you purchase, build or refinance commercial properties owned by you or your company. Such loans are designed to help acquire, construct or simplify payments for residential income properties, such as like apartment buildings, commercial business properties (offices), retail and warehouses and development projects like a condominium and subdivision projects.

There are a number of free commercial mortgage lender databases on the Internet to help you find mortgage lenders and commercial construction lenders who will process your application. These search directories can be very powerful tools, if you know how to use them. As a general rule, you should only use commercial mortgage lender databases that give you direct links to the lenders, not brokers. This way, you cut the paper trail and do business directly with the lender.

Most commercial mortgage lender databases require that you fill out a basic commercial loan application. After you submit your application, the database matches your data with hundreds of commercial mortgage financing programs. The results of the search will depend on your location and the type of commercial real estate loan you are looking.

Your application will be matched with commercial lenders who best meet the information you provided. You can compare rates and choose lenders who you think will work for you. If you use commercial mortgage lender databases to your advantage, you can easily secure loans for virtually any commercial property purpose. A good database gives you intelligent insight into what kind of conventional and government commercial property loan is best for your particular circumstances.

How to Determine the True Worth of a Commercial Property

Did you know that when it comes to determining the true worth of commercial property, there is a difference between market value and investment value? This is true, there IS a difference. In order to understand this concept it is necessary to first understand the different commercial property value in existence. In this article we will briefly discuss these in addition to some other valuation factors.

“Market value is what’s typically meant when referring to a property’s value and is the value used for loan underwriting purposes.” Market value is used to estimate the amount of money the fully developed project will bring in (upon its completion) when it comes time to sell it or rent out its individual units. There is an organization called the Appraisal Foundation where much more information can be found on market valuation of commercial properties.

“Investment value refers to the value to a specific investor, based on that investor’s requirements, tax rate, and financing.” Or in other words the amount of money that a particular investor would pay for the property in question, upon its completion. Different people have different goals when it comes to investing their money. Therefore the investment value of a specific commercial construction property can vary from one investor to another.

Other types of factors that make up the total worth of commercial property include: insurable value, assessed value, liquidation value, and replacement value. There is also the cost approach; or a value that is determined upon what it would cost to replace that particular building in accordance with the value of the land. There is also a sale comparison approach where a particular building is compared in value to other properties with like characteristics.There is the income approach where a perpetuity discount model type is used to determine the rate of return on a project. There is a problem with this specific type of approach in that long-term tenants might not be paying current rates; therefore the building’s value goes down. Inflation can also negatively impact this type of approach to figuring out the worth of a certain commercial property.

In calculating the total worth of a certain commercial property it is necessary to have a basic understanding of the above-mentioned valuation concepts and also of the different approaches. MUCH more information is available on each of these factors on the Internet. Just go online to your favorite search engine and type in the title of this article. Your search will produce oodles of pertinent information for you to study. If you are having difficulties understanding these different aspects of commercial real estate investing, it is recommended you consult one or more experts who can assist you. A listing of such experts can also be found on the Internet.

Small Business Property Insurance Info: What Are Factors That Affect the Cost of Coverage?

No matter how big or small your business property is, it’s a good idea to have it insured. You never know when somebody might become injured on it, or when a thief might steal something or cause damage to it. There are also natural disasters to worry about, like fire and hail. Like any type of insurance, the internet is filled with information about small business property insurance, some of which is useless information and some very helpful.

The cost of insurance varies depending on multiple factors. Some providers will allow small business owners to include commercial property insurance in a BOP (business owner’s policy), which is basically a bundled package of various types of insurance. In some instances, the cost of the package as a whole is actually less than the underlying policies if you were to purchase them separately.

Here are some of the factors that will affect the price:

• Size of the premise. Obviously, a large commercial property will typically cost more to cover than a small property or single unit of office space.

• The geography. Where, exactly, your business is physically located plays an important role in how much small business property insurance you’ll have to pay. This includes the state and city, crime rate in that neighborhood, land value, and so forth.

Safety and Security Demands for Small Business Property Insurance

• The amount of safety and security. Do you have any security equipment setup on the property? Are there any hazardous materials stored in the facility or nearby? Is the landscape kept neat and clean? Is there any object someone could potentially trip over?

• Age and type of equipment. Obviously, heavy industrial equipment is going to cost more to insure than an at-home desktop. As for age, you’ll probably have to pay a higher premium if the equipment is older and contains parts that are difficult to come by now, therefore making it more difficult to repair or replace.

• Age of the building. Older buildings are more susceptible to damage and will cost more to insure. Find out if you could save money in the long run by investing in renovations and remodeling, or if any discounts are available for making certain upgrades.

Now you have some idea of what to expect when it comes to small business owners getting their property insured. Regardless of your specific needs, you can count on a company like Hiscox to deliver the best policy. This company has its origins going all the way back to 1901 and has established an excellent reputation. There are many types of commercial policies to choose from, including affordable small business property insurance.

Commercial Real Estate Tenant Screening Checklist

The length of a commercial lease is more than a residential one. Generally, a commercial unit is rented for 3-5 years. Since it involves a great deal of money, it’s important to screen tenants before renting. Read on to know the essential commercial real estate listings before renting out an office space.

Have an established process for screening tenants

One must have an established process for screening inhabitants. Prospective renters must fill in an application form. In the form, one must seek permission to do a credit check. The method makes sure that there is no discrimination by the landlord while leasing out his property.

Review credit report

There are many online services which run credit checks on inhabitants on the behalf of landlords. After receiving the credit report, owners must review it carefully and ask for an explanation if there is any delinquency. The report will make it clear whether the tenant has a history of paying bills late or has suffered bankruptcy.

Get personal information

While leasing out a commercial real estate for rent, owners must ask for personal information of the lessee. Often during such a deal, tenants use the company’s credit, information, and not their own personal information. If the inhabitant is new in the business, it’s the right of owners to know whether he/she can pay the rent incase the business shuts down. Personal information will also help proprietors to know if the renter has a criminal background or not.

Contact previous landlords

Most applications ask tenants to fill name and contact information of their earlier landlords. However, owners tend to overlook it and don’t call up past proprietors for references. It’s a huge mistake as a past owner can give valuable information, which is not available otherwise. Therefore, before renting it’s imperative to contact previous owners of the prospective occupant.

Get help from tenant screening firms

It’s not always possible for an owner to do all the checks on his own. In such a scenario, they must seek help from tenant screening firms who do credit checks, reference check, etc. Landlords can make a decision based on the report of such firms.

Interaction in person

The last part of the screening process should include a face-to-face interaction with the renter. There are several things that can’t be communicated in an application or telephonic discussions. During such interactions, owners must study the body language of the lessee. This is a great indicator to know whether the occupant is reliable or not.

Proper screening doesn’t cost owners much, but reaps huge benefits for them in the long run.

Growing and Adapting Your Commercial Real Estate Agent Relationships

In commercial real estate agency the relationships that you have with your clients will shift and change during the year as their property needs change. Importantly, you should adjust your approach and make all your contact processes relevant and of high value.

There is no point in contacting the same prospect or client with the same information and strategy each time you call. Fresh market information and ideas will help the client relationship grow. So what type of information can you provide that will help the client connect with you?

Try some of these:

  • Time on market factors impacting the different property types
  • The levels of inquiry coming in currently through the local region
  • Price trends with properties on the market and those that have been sold
  • Rent strategies and results from recent leases
  • Yields and cap rates applying to prices and rents
  • Best marketing strategies that are getting better inquiries locally

In an ideal world you should be 'on top' of these facts as part of your daily market activity in commercial real estate. It is simply a matter of having the information available in a form that you can provide to the clients and prospects that you work with.

Here are some ways to distribute the information to the people that are in your database and that you regard as targets for more new business:

  1. Start a blog in your own name and featuring the local area and property type that you specialize in. Every week you can write a short article or two about current market activity and trends. Given this you can link your blog article in your emails and newsletters that you send out.
  2. Your database should be constructed and contained in a system where you can broadcast many emails and newsletters. It is best to send out a newsletter via email at least once a fortnight.
  3. The previous two points are 'electronic' and internet related. You will still need some more 'traditional' approaches to getting information to your clients and prospects. Direct mail once a month will be useful. Enclose a 'hard copy' of your newsletter in the mailing process. Always enclose your business card in every direct letter sent.
  4. Create what I call a 'one sheet'. It is essentially a single sheet of paper printed on one or two sides. It is a mini version of your newsletter and provides an update. You can conveniently copy the number of 'one sheets' that you need as the weeks progress. Black and white copy is fine for the process but always attach your business card to the sheet. Use the 'one sheet' in meeting new people or prospects, or in door knocking local businesses. Use the sheet as a 'leave behind' marketing tool. It is simple and yet highly effective process in getting the attention of the prospect.

Be sensitive to the growing and changing relationships with all of your prospects and contacts. Your marketing material can be adjusted to their ever changing property needs.

A Systems Approach to Commercial Property Due Diligence (An Investors Guide)

Systems

A Systems approach to thorough Due Diligence will provide all the information you require to make an informed choice and most importantly, provide peace of mind. Commercial Property Risk comes in four distinct areas. Each of these risks must be specifically identified and mitigated against. We include all the activities associated with closing the purchase, even those outside the process of Market, Financial, Tenant and Physical Due Diligence. No single person can be expected to complete all the information search by themselves. No one can remember to perform a thorough discovery process, there is just too much information to cover. Due Diligence demands that a proven system be used, to get the results you require. Doctors invest the same way they approach any presenting set of risk symptoms: break down a symptom (risk), and search the smallest components and follow a proven system of (due diligence) discovery.

A system checklist provides a step by step information search you will require for both apartment and Healthcare or Medical Office Building (MOB) commercial properties. A checklist will organize your actions and make sure you complete your search. Do not do begin your search without a complete list!

The Letter of Intent can give the Seller time to gather the information you need. The Seller may also resist your request for certain documents or delay making them available. When you put a request for information in your Letter of Intent (LOI), you can negotiate your information requirements up front. The sooner you start, the sooner you will have the information and begin to implement a systems discovery approach.

Commercial Property Condition Assessment (PCA)

The purpose of all Commercial Property Condition Assessments (PCAs), ASTM standard E2018, is to make sure that the property and building you believe you are purchasing or leasing is actually the property being received. You will have reached that decision, in part, from the information attained via a professional inspection and Property Condition Report (PCR). Every real estate transaction is different and each transaction has its own unique set of considerations and conditions to validate before finalized. The utilization of professional third party experts in the physical property due diligence process is critical to the overall accuracy and cost efficiency of your property transaction.

The Purchase or Leasing of Commercial real estate, whether it be a basic commercial net lease, a commercial triple net lease, the purchase of a church facility, a retail outlet, or the purchase of a million square foot office/warehouse, the prospective buyer or lessee absolutely must conduct an adequate level of due diligence when investigating the physical quality of the commercial real estate they are investing in.

You need to know not only the physical characteristics of the real estate and buildings being acquired, but the approximate condition and age, to assess the good with the bad, such that you can adequately balance the risks and rewards being offered in conjunction with your real estate deal. The single most important part of the real estate transaction process, aside from the purchase price and profitability balance, is a well-documented review of the actual physical condition of the real property. Otherwise, you could find yourself the not so proud owner of a commercial property that, doesn’t suit your needs, costs more than you can afford in upkeep, or the ultimate remorse for investors – capital expenditures are being sunk into a property on a regular basis that someone else is utilizing and making money off of, and you are not. Suddenly, that long term lease with a solid anchor doesn’t seem so attractive anymore.

The process of commercial real estate inspection begins before the offer to purchase real estate is drafted or signed, by visiting the site and discussing the physical condition of the property with the Owner and real estate brokers. This process should be considered invaluable to establishing relationships required to obtain the information that will be necessary to concrete your due diligence with a Commercial Property Condition Assessment (PCA).

During negotiations and drafting of the real estate sales/lease contract it is important to recognize seller or lessor reluctance to points such as the existence and availability of important documents such as warranties, maintenance contracts, architectural and engineering plans and/or local municipality reviews and inspections. Negative reaction to the request for release of these documents by seller or lessor can imply possible deferred maintenance and/or inattention related to property and building condition(s) and inspection issues.

Once the commercial real estate sales contract is signed the due diligence period begins, focus on maximizing efficiency of time and cost and prioritizing concerns to start checking off the costly big ticket items from the top down. Assuming adequate documentation is furnished by the seller for review, adequate time should be allotted to verify the information provided. Additional effort and monies that that will need to be spent to make up a shortcoming of available documentation through extra property condition assessment and additional field inspections and/or experts should be considered essential and figured into the cost of the property transaction. Ask the seller for all documents and contacts the seller received during his due diligence process when he purchased the property to speed up fact finding.

Review of existing property documents where available may include:

Accessibility surveys, Architectural Building plans, Certificates of Occupancy, Citations from Authorities Having Jurisdiction, Emergency evacuation plans, Environmental studies, Electrical System Construction plans, Fire-detection test and maintenance records, Fire-door inspection reports, Fire-Protection System Construction plans, Fire and Restoration records, Maintenance records, Mechanical System, Construction plans, Violation Notices from Authorities Having Jurisdiction, Construction Permits, Plumbing System Construction plans, Previous inspection reports, Roofing System Construction plans and Warranties, Safety inspection records, Seller condition disclosures, Sprinkler System Test Records, Systems and Material Warranties, Current tenant information, Current policy of title insurance, Notices of any environmental conditions, Notices of any new or special assessments or taxes, Copies of all current bills for the property, Service contracts, Evidence of current zoning, As-built plans and specifications, All construction related documents including warranties, All past and present uses of the property, Third party reports or inspections, Any surveys of the land and improvements in seller’s possession.

One of the best tools available to the commercial property due diligence team is the interview process which can unlock a plethora of potentially useful information regarding the subject property.

Interview of any available key personnel with specific knowledge of the property conditions may include:

Owner, Tenants, Maintenance Foreman, Contracted maintenance services personnel or other contracted companies that routinely work on the property and/or building.

Property Inspection, Real Estate Inspection, Building Inspection, Due Diligence Survey, as they may be labeled in the due diligence report is essential to ensure sufficiency of construction considering the intended use of the occupants and the surrounding geography and climate. The furnishing of any available plans and specifications should be helpful here, but will not end the investigation. A current commercial property condition assessment should be done by a qualified third party inspection company experienced in the type of property to be inspected. A previously performed property condition assessment or inspection is nearly always furnished for the use of a single party in a single transaction and is protected under law and not reusable nor transferable to any other party. The focus of the inspection should be primarily on site condition and building components such as the site drainage, parking, building structure, mechanical and electrical systems and general accessibility and usability of the property. Various climates and geographical regions will require more specific inspection knowledge, thus hiring a local inspector is always a good idea if possible, in lieu of hiring a company out of Wisconsin to perform due diligence on a California high-rise building on a fault line.

Site Survey and Walk-Through to Observe Existing Conditions may include:

Grounds and Topography, Parking, Paving, Access, Building Exterior and Fa├žade, Building Interior, Roofing systems, Structural systems, Mechanical systems, Electrical Systems, Plumbing systems, Fire-protection systems, Vertical transportation systems, and any number of other specialty systems.

The 2010 Americans with Disabilities Act is the current guideline for accessibility standards nationwide and is a federal law, hence non-negotiable and to an extent, yes, it’s retro-active even for older commercial and public buildings. Many states also have additional and/or more stringent or specific accessibility standards as well. Most professional property condition assessment and inspection companies can also perform both abbreviated and complete accessibility surveys as part of a real estate transaction.

Basic abbreviated and full compliance Accessibility surveys may include:

Abbreviated survey looking only for basic ADA Accessibility components visible during the walk-through and documented according to the ASTM abbreviated survey form and checklist gives a quick check as to the general status of compliance. Full compliance survey involves physical measurements of distances, slopes, and push/pull forces required within the accessibility standards to allow for a certain level of physically disabled person to be able to successfully navigate a property, site, and building.

Environmental Due Diligence known as Environmental Site Assessment (ESA) is the most utilized Environmental Inspection Report. The typical level of report preferred by lenders to demonstrate adequate due diligence is called a Limited Phase I Environmental Transaction Screening ASTM standard E1528. This explores the past use of the property and the surrounding properties to identify any potential onsite or adjacent environmental problems or future liabilities. These reports normally require a significant monetary investment and take a number of weeks to complete so they should be done as soon as you have determined you will be moving forward with your due diligence. The purpose of this inspection is to determine if the property contains any hazardous materials or poses a threat in any way to its surroundings. This could be caused by underground storage tanks located on the property or runoff from the property into the water table or any other number of hazards listed by the Environmental Protection Agency. While the report is expensive, the cost of cleaning up an environmental hazard can be astronomical. While not every deal will require you to obtain a Phase I Environment Site Assessment, many lenders will require it as part of their loan guidelines. In case of a fairly new development with a clean environmental record and no neighbors of an industrial nature, a simpler less expensive and much quicker Environmental Transaction Screening ASTM standard E1528 may satisfy lender and legal requirements.

Any basic environmental due diligence report may include:

Research of historical site usage, aerial photography records, property transaction records, construction records, building records, EPA mapping data, local municipality topography mapping, and a through site walk-through to visually identify potential environmental issue indicators.

The information contained herein is purely professional opinion and provided for general real estate inspection reference only and is not intended in any way to be a definitive guide, nor a guarantee of past, present, or future legal or state or federal requirements, nor a measure of performance of any professional services company. Best of luck to you in all of your future property, real estate, and building dealings!