Tag Archives: commercial building

Are You Trying to be a “Jack Of All Trades” in your Business?

Being a “Jack of all trades and a master of none” is not a good strategy your business.

Payson Arizona

I frequently talk to business owners who have paid the penalties “literally”, of hiring one of their regular “vendors” to provide additional services for them that was obviously outside the “vendors” area of expertise.

 

We are all in business to make money and it is difficult to turn down business form a regular customer/client and while meeting every need of every customer may sound customer-centric, that approach often leads to not serving any customers well.

 

Being in the real estate industry, many people think real estate is real estate. All real estate is not the same. Can you think of anything that a commercial building has in common with a house? If you said they both have at least one bathroom I urge you to think how the bathroom in a commercial building resembles the bathroom in your home. Right try again.

 

Well not only are the features between a house and a commercial building different, but the marketing strategies between residential and commercial real estate is also vastly different.

 

I am a commercial real estate agent, I do know however, many very qualified residential agents, so even though people give me strange looks when they ask me to help them buy or sell their home, and I refer them to one of those residential agents, even family members.

 

Even the largest of companies can’t afford to chase every dollar—only the dollars that align with their business strategy.

 

Let me know how I can help your with your commercial real estate needs.

 









 

The views and opinions expressed in this commentary are those of Richard D Chapin, PLLC as of the date of publication and are subject to change, and do not necessarily reflect the views of Arizona Elite Commercial and/or its affiliates.

 

 

This information is for informational purpose and not intended to be investment advice, and should be explained to you in detail. You should always seek legal and/or tax advice to obtain further information you deem necessary. I want you to be prepared.

 

Forget 401K – Invest in Commercial Real Estate Foreclosures

Does anybody doubt that the current commercial real estate market may be perfect for those seeking to invest in discounted commercial real estate, such as foreclosures and other distressed commercial properties. These commercial buildings are often well below market value, making them not only affordable but also provide perfect for positive cash-flow from your investment.

This, in a nutshell, is why many people have started to invest in real estate again. With home prices starting to rise and real estate market recovering being underway, isn’t it a matter of time before the commercial real estate market begins to recover as well,as it has been reported is happening in gateway cities across America already?
When it comes to saving for retirement, for many people, a 401K plan ( like rolling the dice ) is among the most popular. But, what do you do when you realize that your 401K savings will not be enough for you live the retirement lifestyle you had planned?
Believing that commercial real estate values are bound to rise throughout the foreseeable future, ( as they have over long term historically) you could simply sell the commercial real estate when it comes time to retire and walk away from the closing table with more than their 401K will provide.

Intelligent educated investors realize that the IRS has always permitted real estate to be held inside retirement accounts. Real Estate investing with a self-directed IRA are fully permissible under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules allow you to engage in almost any type of real estate investment, except from any investment involving a disqualified person.

The Employee Retirement Income Security Act (ERISA) of 1974 passed the responsibility of retirement saving from the employer to the employee. Which in 1975 resulted in the creation of IRAs which provide individuals a chance to direct where their retirement funds are invested.  Under both ERISA and IRS Codes, there are only two types of investments excluded: life insurance contracts and collectibles such as works of art, rugs, jewelry, etc. Refer to Internal Revenue Code Section 401 (IRC § 408(a) (3)).
A self-directed IRA is a retirement plan that allows you to choose where to invest your IRA money as permitted under IRA rules. Under your direction, your plan can invest in real estate such as commercial real estate, residential real estate, undeveloped land, foreclosures, rehabs, lease options, as well as limited partnerships, LLC’s, notes, commercial paper and many other holdings.

The key to making a profit in the current commercial real estate market all boils down to you finding the right properties, in the right location, and utilizing the right investment strategy for the property. For example, if you purchase a foreclosure commercial building and the local commercial real estate market is still struggling, then you may be better served holding renting out the commercial building and selling it once the local real estate market rebounds.

When determining how to invest in the commercial real estate market, make sure you ask all the right questions and do your research beforehand. Commercial real estate investing is more than simply finding a commercial building to buy at a great price, purchasing the building, and then selling it for a profit. Successful investors study the market and market projections and create an investment strategy that will be beneficial for them.

If you are currently saving for retirement then you wish to consider investing in the commercial real estate market in an effort to help improve your after-retirement quality of life. Now may be the perfect time to invest as commercial real estate prices remain low and recovery appears to be underway soon.

 

 

commercial realtor

 

 

This information is for informational purpose and not intended to be investment advise, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared

Real Estate Investing Pitfalls to Avoid

Beware of the real estate investment guru seminars. Many real estate investors like to medical office condo in gilbertattend seminars to gain knowledge in hopes of increasing their profit.  And it’s not hard to find an “expert” trying to sell you their real estate investment program.   The danger is that many times these gurus don’t focus on one single technique.  You could basically become a “jack of all trades and a master of none” so to speak.  While it is a good idea to have a plan B. It is primarily important to find a niche, practice it until you have mastered it, and then repeat it.  Become an expert in one strategy and stay focused on that model.

Don’t fall into the analysis paralysis trap. As any good real estate investor knows, it’s important to conduct thorough research on a commercial building before making an investment.  The key is to avoid getting stuck in this step of the process.  And spending too much time thinking about and analyzing the numbers, particularly the estimated future value of a property, you run the risk of losing the deal.  Pay attention to current market values so you don’t waste time on unnecessary analysis; don’t purchase something for what might be. If the numbers work move forward, if the numbers don’t work, move on, unlike residential real estate where there is very little inventory in the Phoenix-area, we still have a good supply of commercial buildings available. And of course you want to be sure and allow enough time once you have found a property that meets your investment criteria to preform all the recommended due diligence associated with the purchase of a commercial building.

Don’t over extend yourself, don’t allow yourself to carry more debt than your investments can sustain.  Make sure you maintain a cash flow at all times; and don’t tie everything up in financing, or you may have a difficult time surviving the market when it goes through a downward cycle.  There are plenty of investors who have learned this lesson the hard way and are now bankrupt as a result of the latest crash in the commercial real estate industry.

Don’t buy emotionally, this is business. A big mistake a lot of people make when it comes to investing in a commercial building is that the most important thing to remember when considering a commercial building for investment, its all about the numbers !!
Unlike your buying a home for you to live in yourself, its not about the color of the carpet or even the condition of the carpet or how pretty the color of the building is, whether the building has garages or new maintenance free siding. The most important thing to remember when considering a commercial building is its all about the numbers !!

Join a local real estate investor group of club. Real estate investors feel a strong alliance to one another.  Don’t be afraid to ask for help if you are new to the world of investing.

 

commercial realtor

 

 

This information is for informational purpose and not intended to be investment advise, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared

Should You Buy or Lease Your Next Office Space for Your Business?

Sooner or later, every successful business has to consider whether it is better off buying or leasing office space. And with commercial property prices lower than we have seen in years, it is worth consideration.
Some other factors to consider are.

Generally, you don’t need to put out as much money upfront for a commercial lease. Especially if you will need to finance the commercial property purchase, unlike buying a house, typically much larger down payments are required from the lender for a commercial property.

Additionally a buyer would also have to pay considerably more for an appraisal for a commercial property, commercial building inspections, and a whole host of additional due diligence costs could add up into the thousands and possibly tens of thousands depending on the type of commercial property and prior use.
One or the benefits of buying  a commercial building is that you have a good idea of what your costs are going to be year after year, especially if you get a fixed-rate loan on the property. With a commercial lease and you’re subject to the variations of the market when your lease term expires. Also many commercial leases also have periodic bumps or escalations in the cost.
You also need to consider what your office space needs will be in the future. Buying a office building that’s just the right size for you now can look attractive. But what will you do if your business and your space requirement grow over the next few years? Growing out of a office building that you own can involve more upheaval than growing out of a leased office space.
Buying a office building puts you in the real estate investing business also. If you’re in an area than has a potential for appreciating commercial property values, eventually you could sell it at a profit. But if you own a office building with more space than your business presently needs, you’ll probably end up leasing part of the building to others, thus becoming a landlord. It can be profitable (positive cash flow if purchased at the right price).
There are also tax issues to consider. Businesses routinely can deduct the full amount they pay in rent. Owners of rental property of course can write off actual expenses like repairs, taxes, interest on the loan etc…, but the owners can are also allowed to take depreciation on their commercial building as well as deprecation for any capitol improvements they make to the property.
Basically leasing a commercial building would tend to appeal to businesspeople who don’t want to make the kind of large upfront investment required to purchase a commercial building, who aren’t really sure what their future space needs will be. Buying is going to make more sense for businesspeople who are more established, who have totaled up what they have paid in lease payments in the past 10 years or so and figure they could have paid for the building but they still don’t own it. They are also businesspeople who want to stay in one location for several years and who have the financial resources to take on the upfront costs associated with a commercial office investment.
Let me know how I can help you in your search for a commercial building to purchase or lease.

 

 

This information is for informational purpose and not intended to be investment advise, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared.

Positive Net Absorption for the Phoenix Office Market. What Does That Mean?

 

With so much information available now on the internet I often talk with clients that read something and they are not sure what it means. Like what impact does a positive absorption rate have on the market or why might a $22/sf Triple Net (NNN) lease be over my budget when a $24/sf Full service lease is within my budget? What is a Triple Net (NNN) lease anyway?
As a result I have decided to list here some, (not all) of the most commonly used terms in Commercial Real Estate:

  • Absorption Rate – the amount of units inventory of a commercial property type that become occupied during a specific time (usually a year).
  • Air Rights – The rights to use  the air space over a piece of property.
  • Americans with Disabilities Act (ADA) – A civil rights law that was passed to prohibit discrimination against persons with disabilities.
  • Anchor Tenant – A tenant of a shopping center, building or industrial development that has leased a large space sometimes called a “destination” tenant, usually these tenants lease at least 25,000 SF. An example in a neighborhood shopping center anchor tenant may be a grocery store.
  • Base Rent – The minimum rent due the landlord. Typically a fixed amount, Escalations are calculated from the annual base rate.
  • Building Code – Local, state or regional ordinances that specifies the method and materials to be used in constructing improvements.
  • Capitalization Rate (CAP Rate) – The rate of return investors are receiving on similar investments.
  • Class A – A classification used to describe commercial buildings that are considered as extremely desirable investment-grade properties and command the highest rents and sales prices compared to other commercial buildings in the same market. These buildings contain a modern mechanical system, and have above average maintenance and management as well as the best quality materials and workmanship in their trim and interior fittings.
  • Class B – A Classification used to describe commercial buildings that qualify as a more speculative investment, ans as such command lower rents or sale prices compared to class A commercial properties. These commercial buildings typically have average to good maintenance, management and tenants. They lack prestige and must depend chiefly on a lower price to attract tenants and investors.
  • Class C – A classification used to describe commercial buildings that generally qualify as no-frills, older commercial buildings that offer basicd space and command lower rents and sale prices compared to other commercial buildings in the same market. These commercial buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige, inferior elevators, and or mechanical/electrical systems. These commercial buildings lack prestige and must depend chiefly on a lower price to attract tenants and investors.
  • Common Area Maintenance (CAM) – An expense that can include a variety of property expenses. Typically expenses such as utilities, maintenance, parking lot cleaning, management fee and landscaping expense.
  • Community Shopping Center – A shopping center that has a trade area of usually between 5 miles up to 20 miles, depending on the other competition. These centers typically have a total square footage between 100,000 and 350,000 SF and will generally have 2-3 large anchored tenants. Common anchors are supermarkets and super drugstores and sometimes contain tenants such as apparel, home furnishings, toys, electronics or sporting goods.
  • Due Diligence – The process of investigating all the issues that effect the property such as zoning, soil tests, feasibility studies, tenant interests etc.
  • Estoppel Certificate – A ratification of the tenant’s lease by the tenant(s). Requested by the landlord when selling or refinancing the property to prove the validity of the lease.
  • Full Service Lease – A lease that usually provides full services such as janitorial and utilities, always confirm what expenses are included.
  • Gross Lease – A very broad term where the landlord paying the operating expenses read carefully to determine who is paying what expenses.
  • Letter of Intent ( LOI ) – Used in the early stages of negotiation, is a non-binding outline of the terms of the agreement to aid in the drafting of the agreement.
  • Load Factor – equals the rentable square footage/usable square footage minus 1.
  • Neighborhood Center – Provides for the sales of convenience goods( food, drugs etc..) and personal services for day-to-day living needs of the immediate neighborhood with a supermarket being the primary tenant.
  • Net Lease – Where some or all of the rent is “net” of expenses to the landlord. Carefully review.
  • Power Center – The center typically consists of several freestanding anchors and a minimal amount of small specialty tenants. A Power Center is dominated by several large anchors, including discount department stores, off-price stores, warehouse clubs etc.
  • Rentable square footage – the area the tenant is being charged rent on. In office buildings this often includes a load factor. A load factor is a markup over usable space to reflect the common areas of the building.
  • Strip Center – A strip center is an attached row of stores or service outlets managed as a coherent retail entity, with on-site parking usually in the front of the stores.
  • Triple Net Lease ( NNN) – A Type of lease where the tenant pays some of the expenses in addition to the rent. In many areas including the valley the NNN part refers to common area maintenance (CAM), real estate taxes and insurance. Always confirm.
  • Useable square footage – The actual physical space occupied by the tenant. Useable space increased by the load factor will equal the rentable square footage.

 

 

 

This information is for informational purpose and not intended to be investment advise, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared.

More Time is Needed for Commercial Property Due Diligence.

If you have not invested in commercial real estate in the past, but are considering investing in commercial real estate, perhaps as a result of the 32% increase in home prices in the Phoenix area or the low inventories of homes to invest in in the Phoenix area, you should know the due diligence is more involved and more time consuming than purchasing a residential real estate investment property.

The physical inspection, a visual inspection to seek out certain conditions, which may reveal aspects of the physical condition of the property not recognized by the untrained eye. While as a investor you already know it is not a job for your uncle Leroy, who happens to be a “handy man”, but the job also should not be completed by a home inspector either as the building codes vary greatly between homes and commercial buildings and a competent, licensed professional should be hired to inspect a commercial building.

An environmental inspection report should be done by a qualified expert which may may reveal conditions, which may be hazardous to human health, and determine if the property is in compliance with Arizona and U.S. Environmental rules and laws. Since the Superfund Amendments and Reauthorization Act (SARA) specifies that the owner of a contaminated property may be held liable, even if that owner did not release the contaminant, it is advisable you discover any of these conditions before you become the owner of the commercial property.

Zoning for any commercial property should be confirmed as well as investigating any possible future zoning changes. Building, Fire and Safety codes for all commercial buildings should be checked out.
Not only use restrictions but any private deed restrictions should be looked into.

Depending on the results of the previously mentioned inspections, Roof and/or Mold and/or septic and/or phase 2, 3 and 4 environmental inspections may be required.
Depending on the documentation provided or lack thereof, additional inspections or investigating may be desired, such as a survey if accurate square footage, lot size and boundary lines uncertain.

As you can see from this partial list, there is considerable more due diligence to be performed with commercial real estate than there is with residential real estate investment property, and many of these inspections can take more time, so that should be kept in mind and allow enough time to complete your due diligence when considering a closing date.

 


This information is for informational purpose and not intended to be investment advise, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared.

Planning and Zoning play a Major part in Commercial Real Estate Values!

Whether you are looking at buying a commercial building for you own business use after adding up what you paid the landlord in lease payments over the past 10 years or so or  you are looking at buying commercial real estate for investment as a result of the increased competition for investment homes in Arizona (with 25% price increase in the past year and 22 day supply of homes under 100k) it is important to know that planning and zoning play an important part in commercial real estate values.

Zoning goes through constant evolution and change, new interpretations of the code are made by zoning board members as well as city commissioners.
While Zoning must be thoroughly determined and could be a potential pitfall to overcome, it could also provide an opportunity that awaits the real estate investor who takes the time to study how it can be used.
Imagine a neighborhood of small frame homes built 75 years ago that you find the underlying zoning allows multifamily homes.

Also imagine the opportunities of knowing of plans for a bypass Loop (changing traffic flow) new roads, airport expansion while these projects may not appear for years, think of the commercial real estate opportunities a real estate investor can be looking for.

 

 

 

 

 

 

 

 

This information is for informational purpose and not intended to be investment advise, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared.