Commercial Property As the Ultimate Storehouse of Value – 14 Winning Tips

To help invest in property that most nearly fits your wishes, let’s start by understanding the likenesses and differences, as well as the benefits and disadvantages, of owning a commercial property versus owning a home one. Here are few winning tips to serve as your steering light in an ocean of doubt.

1. Have clauses of every Sale & Purchase Agreement explained to you by a Barrister before execution.

2. Reasons your capital outlay is higher with commercial property are: commercial properties generally cost more and the margin of financing by banks is ten to fifteen percent lower. Rates of commercial property loans are sometimes higher than home property loans and the terms are generally not as flexible.

3. Capital appreciation of commercial properties are relatively higher than home property traditionally. With commercial properties you will most probably be working with companies and corporations whereby management is more ecstatic.

4. The value of a property is sometimes in close relation to the income it generates.

5. Approval level of upward rental revision is far higher with commercial properties.

6. With the properties, there are countless strategies you might support your tenants’ business.

7. Lease your property to firms / companies with successful track records and / or appropriate firms for the vicinity.

8. Long term leases can be anticipated from renters of properties.

9. It’s a norm for renters of properties to ask for a rent-free period for refurbishment to be carried out.

10. Renters of properties generally take better care of your properties.

11. There’s nearly always a budget for reconstruction works for properties put aside by your renter. There is not any prerequisite to furnish your commercial property.

12. Application rates and rates for give up rent and assessment are higher for commercial properties. Service charges can be applied to office lots, retail lots, serviced terraces, commercial shop-lots with facilities as well as some guarded commercial lots.

13. Collection of delinquent rental for properties is simpler in comparison to home properties due to straightforwardness of access.

14. The trend and requirement for intellectual commercial buildings is growing far more fast than smart houses. Unlike home properties, when the alignment of the project is favourable, it is OK to go for commercial properties found at T-junctions.

The excellent news is, you picked up this information and that already differentiates you from the outwardly blind flock of investing sheep. This information is one of the finest methods to start your successful property investment journey.

Commercial Property Management – Tenancy Schedule Tips Tools and Tactics

The tenancy schedule is the tool of choice for a property manager or leasing manager in a commercial or retail property investment. It is the tenancy schedule that will keep the property manager up to task on forthcoming events and dates.

Often you find that the tenancy schedule is not up to date, so if anyone gives you such a document, treat it with the caution it deserves, and check it out completely before you act on the information contained therein.

So let’s say that you have a great tenancy schedule that you know is totally accurate. I get many questions about what I would want to see in a tenancy schedule. Here are my main priorities:

  • Details of the tenant name, lease, and full contact detail for emergencies
  • Tenancy identifier or suite reference that comes from the plan for the property
  • The area of the tenancy in m2 or ft2 (depending on your unit of measurement)
  • The % of the tenant area to the building net lettable area
  • The rent $’s per annum, per month, and per unit of measurement (m2 or ft2)
  • Lease start date
  • Rent start date
  • Lease end date
  • Term of lease
  • Option term of lease
  • Anniversary dates and reminders for rent reviews, options, expires, renewals, renovations, and make good obligations
  • Outgoings charges for each tenant on the basis of area and monthly charge
  • Outgoings budget for the building
  • Total outgoings recoveries for the property on a currency and % basis
  • Types of outgoings to be charged to the tenants
  • Insurance obligations of the tenant
  • Rental guarantee details or bonds held
  • Provision for critical dates relating to any important lease term or condition
  • Maintenance obligation details of the tenants

This list is not finite and you can add your own extra priorities, I would however make sure that it is totally correct and maintain it to the highest level of accuracy. When you do this you can stay on top of important upcoming events that will impact the occupancy or rental of the property.

Whilst you can buy ‘off the shelf’ software programs that display this above information, that can be quite expensive for those commercial and retail property managers that are first entering this type of property. The alternative is to create some simple spread sheet that contains the data; in saying that, it is essential that great care is taken to maintain the spread sheet that you create. Any errors in the tenancy schedule can destroy your landlord, your business, your tenant, your reputation, and the property. Accuracy is paramount.

Tips To Get The Perfect Tenant Mix for Your Retail Property

The ultimate goal for any landlord is to achieve maximum income from their retail property. However, that does not imply that they must lose focus on the bigger picture and let their space to any retailer who is interested in the property. Maintaining the perfect tenant mix in the property leads to increased foot traffic, greater spend, delighted tenants and ultimately more demand and better rates for the property.

Read on to find out the five ways to create the ultimate blend of tenants for a retail center.

Study the demographics of the environment

The demographics of the nearby locations play a vital role in determining what kind of retailers will best tick among the shoppers. Conduct surveys and collect information pertaining to what your target customers would like to see in the area around them. For instance, pharmacy stores may be a valuable addition for an aging population.

Talk to your existing tenants

Existing retail tenants may be a good source of providing insight into what brands and products can add more value to their own store and ultimately to the landlord. Analyze the performance of the stores and take a deeper look into their strengths and weakness and build ways to overcome or enhance them.

Mix brands and categories

A retail center that draws a balance between the big and the small brands and has a wider collection of product categories than simply focusing on part of the demographics enjoy better foot traffic. Choose tenants from various product categories and be sure to include local retailers who always have something new and fresh to offer. Look beyond the retail line up and set up service facilities like ATMs to optimize the time and effort spent on creating the perfect tenant mix.

Make market assessment a part of the responsibility

Tenants come and may go at the end of the lease. This may interrupt the existing interconnections within the retail space. For instance, men visiting your retail center to buy baby diapers in one outlet tend to grab a few drinks at the next one. Retail centers must continually invest time and effort to assess the market and ensure that their tenant mix is optimizing the overall performance.

Hire a good commercial real estate property company

Commercial real estate property management services have mastered the art of using several proven techniques in finding the right mix for any kind of retail property. They study the area around the property, analyze the geographical pros and cons of the place and have seasoned real estate experts to work on the tenant mix. They perform competitor analysis to check what products and services are missing in the area and also work towards acquiring high quality tenants for the property.

Landlords and real estate companies can use real estate property management services to manage tenant relationships from the start till the end while they focus on other core activities.

Smooth Real Estate Transactions: 4 Tips to Consider When Selling or Buying a Commercial Property

No one would invest in a piece of commercial real estate without investigating it’s resale value, income generating potential, building structure, etc. However, there are a couple of things that seem to get overlooked, even by the savviest investors. Following are the four most overlooked items that you should consider when you are selling or buying a commercial property:

Has the building been unoccupied for more than 180 days?

Collier County has an established Land Development Code (LDC) that governs things like a building’s architectural standards, setbacks, landscape and parking requirements. These requirements vary based on the district where the property is located. The LDC is reviewed and updated twice a year and new projects are required to comply with the codes. Existing buildings are usually “grandfathered” in, however, there are certain times that a building is subject to review for compliance with the current land development code.

One reason a building is subject to review is if it is unoccupied for a period of more than 180 consecutive days. To bring newer buildings into compliance with the LDC may be as simple as revamping the landscaping with extra trees or buffer shrubs. However, with older buildings it can be very costly. A local businessman purchased an older building with the intention of using it as a warehouse-showroom. When he tried to get a permit for a renovation, he was informed that he would have to change the front facade of the building to include among other things, a 75% glass storefront. To bring this building into compliance, it would have meant serious structural changes that increased the renovation costs by tens of thousands of dollars. The project proved infeasible and the building was subsequently resold and developed.

Will the occupational license require a change of use for the building?

Another reason that would make the building subject to review for compliance with the land development code would be if there was a “change of use.” Change of use doesn’t necessarily mean a zoning change. It can mean going from a jewelry store to an office supply store, or a retail store to a restaurant. The reason for this review is to make certain that the new use is in compliance with the permitted uses of the specific zoning area. This review also ensures that there is adequate infrastructure (ie parking) to support the new use.

Will the building need alterations to the fire alarm or sprinkler system?

Another overlooked item is the fire safety system, which includes the fire alarm and fire sprinklers. By adding sprinklers or changing out a fire panel, you open the whole fire safety system up for review and it will have to be brought up to current code. Depending on the age of the building, this can include relocating the fire alarms on the wall; adding fire sprinkler heads; or replacing an entire control panel, which can add thousands of dollars to a project. If you are in doubt, get a consultation with a qualified general contractor or architect during your due diligence period.

Have you allotted enough TIME for planning and permitting?

Permitting is frequently the place where owners don’t allot enough time. According to the City of Naples Building Division, it typically takes three-four weeks for a permit application to be reviewed and a permit issued. However, if your permit application is rejected it can take another two-four weeks after your plans have been revised by the architect. According to the Collier County Building Department, it typically takes six weeks for a permit application to be reviewed and permitted. Depending on the complexity of the project and allowing for a couple of rejections, it is more realistic to plan on three to twelve months for a permit to be issued. A renovation might be three months and a building under 10,000sft might take six-nine months. Unfortunately, there are NO short cuts in getting through the permitting process.

With proper planning, your commercial real estate transaction can go smoothly and provide you with a profitable investment. If you have any questions about the process, it would be wise to consult with a reputable commercial general contractor and an architect.

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.

Tips to Hire a Commercial Property Inspector

Hiring a commercial property inspector is an important part of buying, selling, or owning a building. Having relevant and accurate information regarding the state of a building can be helpful in each of these circumstances:

1. When an individual is preparing to purchase a building and wants to know the true state and value of their investment.

2. When an individual already owns a building, but wants to know the condition of their building, enabling them to take preventative care measures or reevaluate their investment.

3. When an individual is preparing to sell a building and wants to know the true state and value of their investment.

In each of these circumstances, the property-owning individual requires information that can only be provided by a commercial property inspector, making the process of hiring a commercial property inspector rather important. The tips included in this article are therefore intended to help commercial buyers, investors, and owners gain an accurate evaluation of their investment in order to protect and grow their investment portfolio.

Six Tips:

1. First and foremost, it is crucial to make sure that your commercial property inspector is licensed, whether by National Property Inspections, the International Code Council, the National Association of Certified Home Inspectors, the state, or another reputable and trusted standards association.

2. Do your research. Social media sites like Yelp and Google Reviews provide unfiltered reviews of commercial property inspection businesses. Though business owners can control the reviews that appear on their company website, they cannot control the reviews posted about their business on social media sites like the examples above. These are the best places to get a feel for the businesses you’re considering; however, don’t let one bad review rule out a company – look for a general consensus.

3. Do more research! Follow up on the company’s references. Of course the references that any business owner provides you with will have a positive review to share, but they may be able to answer specific questions that you have regarding work styles, principles, and other miscellaneous concerns.

4. Make sure that your commercial property inspector’s equipment is updated and conforms to current standards of practice. Advances in technology, such as thermal imaging systems, have bettered an inspector’s ability to identify water and air leaks, and should be on your list of requirements. Further, make sure that your commercial property inspector has adequate training to use advanced equipment – ask for credentials!

5. Discuss payment options. Some commercial and home inspectors are small, often family-owned, businesses and may not have the ability to take credit cards. If you plan on paying by credit card, make your intentions known early on so that you may decide to choose another company or another payment option.

6. Communicate effectively. Be clear about your expectations for the commercial property inspection and discuss obstacles. Inspectors are not expected to move potentially harmful objects, such as heavy machinery or hazardous materials.

If you are unsure of whether to hire a commercial property inspector or not, make the smart decision and move forward with an inspection. For property owners, preventative maintenance is always more cost effective than repairs, which may also stall productivity. Additionally, whether you are interested in buying or selling commercial property, an inspection will give you the information you need to accurately assess your investments.

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!