by Prince Licaylicay | Aug 27, 2021 | All Articles, Buying, Investing, Leasing, Selling
In the world of commercial real estate, buying and selling properties can often be unpredictable. Most of the risks stem from the process of buying and selling rather than simply holding onto the property. Without proper representation, you might miss out on the ideal property or lose valuable profits. Therefore, working with a commercial real estate broker is essential for securing and closing deals successfully.
Here are 10 reasons why you need a commercial real estate broker:
1. Marketing Expertise
First and foremost, commercial real estate brokers possess valuable marketing expertise. They are skilled in developing strategies that attract potential buyers and ensure deals are closed efficiently. Given the fluctuations in the market, brokers can identify opportunities and help you target the right customers. By working with a professional, you avoid the pitfalls of rate hikes and market volatility, which can negatively impact your property deal.
2. Efficient Negotiation
Moreover, efficient negotiation is crucial to closing any commercial real estate deal. Brokers are experienced negotiators who aim to secure the best possible terms for you. They maximize your advantages while ensuring your best interests are protected throughout the negotiation process.
3. Access to Important Information
Additionally, brokers are legally required to provide full disclosure of crucial information. This is particularly important when it comes to transaction history, property inspections, and interest rates. Having this data allows you to make more informed decisions, which enhances the value of your property or purchase.
4. Financing Connections
Furthermore, many brokers have established strong connections with financing institutions. These relationships give you access to competitive rates and better deals, which you might not obtain otherwise. Without these connections, securing financing could be more challenging and may hinder your transaction. Brokers help reduce your financial risks by connecting you to trusted sources.
5. Extensive Buyer Network
In addition to financing connections, brokers maintain a broad network of qualified buyers. This network offers you more opportunities to sell your property quickly and at an optimal price. Their buyer relationships streamline the transaction process, allowing you to explore more tailored search criteria and close deals faster.
6. Licensed Professionals
Importantly, commercial real estate brokers are licensed professionals. This means they are legally qualified to manage transactions and ensure all legal documents are in order. Their expertise in legal matters removes the stress of dealing with complex paperwork, keeping the process smooth and efficient.
7. Better Time Management
Another key benefit of working with a broker is improved time management. By leaving the complexities of the transaction to a professional, you free up time to focus on your business and other obligations. Brokers organize every step of the process, from negotiations to legal documents, so you don’t have to handle the time-consuming tasks involved in closing a deal.
8. Long-Term Cost Savings
Furthermore, working with a professional broker often translates to long-term cost savings. Buyers are more likely to trust transactions managed by a broker, increasing the likelihood of a successful deal. This trust helps you avoid unnecessary commissions and additional fees while benefiting from cost-effective services that boost your overall profits.
9. Exclusive Commercial Listings
It’s also important to note that commercial property listings differ significantly from residential ones. Many commercial listings are private and not publicly accessible. Brokers have exclusive access to these listings, generating more leads and offering you more options to close deals at favorable terms.
Finally, experience is one of the most valuable assets a broker brings to the table. Experienced brokers know how to negotiate favorable terms and secure leases that protect your interests in the long run. Buyers and sellers trust brokers with industry experience, which gives you an edge in closing deals effectively.
Need assistance with your 1031 Exchange or DST? We’ve got you covered!
We’ve prepared a comprehensive, free e-book designed to guide you in achieving your long-term business goals or acquiring that dream property you’ve been eyeing.
Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
Stay informed with the latest in Commercial Real Estate strategies designed to enhance your income property investment results by bookmarking www.leveragedcre.com. Let us help you stay ahead in the market!
by Prince Licaylicay | Aug 20, 2021 | All Articles, Investing
What does CAM in CRE mean?
CAM, or Common Area Maintenance, refers to the fees that tenants pay each month to cover the costs of maintaining a property. These fees ensure that the building stays functional and in good condition. Importantly, landlords do not profit from CAM fees; instead, they use the funds solely for property maintenance. However, the specific costs included in CAM fees depend on both the type of property and the lease agreement between the landlord and tenant.
What Are CAM Charges?
In Commercial Real Estate (CRE), CAM charges often appear alongside Triple Nets (NNN). CAM charges form just one part of the total operating expenses, which also include insurance and property taxes. When someone refers to “the CAMs,” they typically mean the total operating costs of the property. Since CAM charges directly impact the net operating income (NOI), they are a crucial element in any lease agreement.
Types of Areas Covered by CAM Charges
Tenants leasing commercial properties usually pay for two types of spaces: usable areas and common areas.
- Usable area: This refers to the spaces that tenants exclusively occupy, such as private offices, restrooms, storage rooms, and other personal spaces.
- Common area: This includes shared spaces that benefit all tenants, such as lobbies, public restrooms, elevators, corridors, parking lots, and stairwells.
Where Can You Find CAM Fees in a Lease?
Typically, landlords outline CAM charges in the lease contract. If CAM fees are not specified, you should clarify this with your landlord. In some cases, CAM fees may already be included in your monthly rent. Therefore, it is essential to understand the exact CAM fees before signing a lease to avoid potential surprises down the line.
What Do CAM Charges Include?
The specific costs covered by CAM fees depend on the lease agreement and the property itself. Common CAM charges include:
- Property maintenance
- Roof and exterior building repairs
- Insurance, permits, and taxes
- Administrative fees
- Pest control services
- Security systems and services
- Operating expenses like landscaping, parking lot cleaning, lighting, signage, and snow removal
These charges can vary significantly between properties, so it’s critical to review your lease terms to understand what CAM expenses you will be responsible for.
How to Calculate CAM Charges
CAM charges are usually calculated on a per square foot (PSF) pro-rata basis. Essentially, the more space you lease, the higher your CAM charges will be. Your CAM fees are determined by the percentage of the total property that your leased area occupies.
Example:
- Tenant’s leased space: 15,000 SF
- Gross leasable area of the building: 60,000 SF
To calculate:
15,000 SF ÷ 60,000 SF = 0.25 (or 25%)
If the monthly CAM expenses total $2,000, you will pay 25%, or $500, in CAM fees each month. Typically, landlords reevaluate CAM charges annually, and they remain fixed for the year.
Summary
In conclusion, CAM charges are a vital part of any commercial real estate lease. Understanding what these charges cover and how they are calculated will help you manage your monthly expenses more effectively. Therefore, it’s always wise to review CAM terms carefully before signing any lease agreement to ensure you are fully prepared for the associated costs.
Need assistance with your 1031 Exchange or DST? We’ve got you covered!
We’ve prepared a comprehensive, free e-book designed to guide you in achieving your long-term business goals or acquiring that dream property you’ve been eyeing.
Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
Stay informed with the latest in Commercial Real Estate strategies designed to enhance your income property investment results by bookmarking www.leveragedcre.com Let us help you stay ahead in the market!
by Prince Licaylicay | Aug 13, 2021 | All Articles, Leasing
Renting a new office, retail space, or commercial property requires careful research. You need to ensure the space fits your business operations and attracts your target audience. After finding the perfect property, most business owners sign the lease without hesitation. However, there’s one more factor to consider: the security deposit. Leasing commercial property often involves paying a significant security deposit upfront, which can be a considerable financial burden.
What Is a Security Deposit?
A security deposit is a payment a tenant gives to the landlord when signing a lease. It’s not just a random fee—this deposit protects the landlord if the tenant fails to meet their lease obligations or damages the property.
Often referred to as “damage deposits,” these funds allow the landlord to cover repairs or unpaid rent. In most commercial leases, the security deposit equals one month’s rent. However, it can be higher, depending on the landlord’s policy. The landlord holds this deposit throughout the lease term and returns it when the lease ends, provided the tenant adheres to all obligations and keeps the property in good condition.
Make a Reasonable Request
Paying rent is already a significant expense, and adding a security deposit can strain your budget. However, you can sometimes negotiate a lower deposit.
Some landlords may insist on a deposit equal to one month’s rent to protect their investment. After all, they’re renting to a new tenant, hoping the business succeeds and that the tenant doesn’t damage the property. While understandable, some landlords may be open to negotiation.
You can propose a reasonable amount, such as a security deposit equal to 80% of one month’s rent. In many cases, landlords are willing to compromise, especially if you present a compelling offer.
Leverage Your Financial Standing
If you have a strong credit history and solid financials, use that to your advantage. Landlords are more likely to reduce the security deposit if they feel confident you can meet your rent obligations.
Additionally, consider market conditions. If the commercial space has been vacant for a long time or there’s competition for tenants in the area, this may give you more leverage in negotiations. Pointing out the property’s vacancy history or the number of other available spaces can sometimes persuade the landlord to lower the deposit.
Consider a Letter of Credit
If the security deposit is higher than you can afford, consider using a letter of credit. A letter of credit, issued by your bank, serves as a guarantee of payment. This option is viable if you have a strong relationship and good credit history with your bank.
However, not all landlords accept letters of credit. But for those who do, this option can help you avoid paying a large deposit upfront while still satisfying the landlord’s need for security.
Personal Guaranty Agreement
Another option for negotiating a high security deposit is a personal guaranty agreement. In this case, you agree to personally cover the rent if your business defaults. However, this is a risky strategy because you put your personal assets at risk if you can’t meet your lease obligations.
To reduce your risk, you might partner with someone willing to share the responsibility. A business partner can help you negotiate a lower security deposit and share the risk, making it less burdensome for you personally.
Conclusion
Security deposits in commercial leases can be significant, but they aren’t always set in stone. Whether through negotiation, leveraging your financial standing, using a letter of credit, or considering a personal guaranty agreement, there are several ways to reduce the burden of a large deposit. Just be sure to understand the risks, especially when offering personal guarantees, and always keep your end of the agreement to protect your assets and maintain a positive relationship with your landlord.
Need assistance with your 1031 Exchange or DST? We’ve got you covered!
We’ve prepared a comprehensive, free e-book designed to guide you in achieving your long-term business goals or acquiring that dream property you’ve been eyeing.
Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
Stay informed with the latest in Commercial Real Estate strategies designed to enhance your income property investment results by bookmarking www.leveragedcre.com. Let us help you stay ahead in the market!
by Prince Licaylicay | Aug 6, 2021 | All Articles, Investing
Investing in Commercial real estate (CRE) has long been an attractive financial opportunity, performing well in both up and down market cycles. It plays a key role in a diversified investment strategy, though it often requires more money, skill, and time than many investors have available. Despite these challenges, CRE remains one of the most sought-after investment options. Analysts and market reports are increasingly highlighting this niche, prompting many to ask: why commercial real estate?
The answer is simple: CRE has consistently proven to be a profitable investment. What has changed now is that both the benefits of commercial investing and the steps to get started are more clear than ever. Keep reading to learn why investing in CRE is best for you
Six Essential Factors for Starting in Commercial Real Estate
One reason commercial real estate attracts investors is its broad nature. Here are six important factors to consider before diving into CRE:
1. Location is Key
The most critical factor in CRE is the location of the property. Studies show that the right location can increase sales by more than 50%. When purchasing commercial property, choose a location that is convenient, visible, and accessible to customers. High-traffic areas can save money on advertising. A well-placed sign on the building can serve as a free billboard for your business.
2. Consistent Cash Flow
Real estate investments often provide steady cash flow, with income paid monthly, quarterly, or annually. Unlike stock dividends, real estate returns tend to be higher. While stocks may provide an 8-9% annual return, CRE can generate up to 15% cash flow over the same period.
3. Two Types of Investment Options
There are two main ways on investing in commercial real estate:
- Equity Investment: You buy ownership in a tangible asset, like an office building or apartment complex. Rental income then provides steady cash flow.
- Debt Investment: You invest in a real estate loan, using an asset (like land or a building) as collateral. This type of investment often offers predictable returns.
4. Leverage Increases Returns
Leverage in CRE means using debt to finance a property, which can boost returns. A small cash investment can be used to buy multiple properties, increasing your portfolio and overall return. When debt is placed on a property, the rate of return increases, a concept known as positive leverage.
5. Diversification Minimizes Risk
CRE helps diversify an investment portfolio, reducing risks. If one investment underperforms, others can balance the portfolio. Experts suggest allocating 10-30% of a high-net-worth investor’s portfolio to alternative investments, including commercial real estate, along with stocks and bonds.
6. Tangible Assets Offer Control
Real estate is a physical asset you can touch and control. While tenants may come and go, the property remains. This tangibility is a key reason investors prefer CRE over intangible assets like stocks, where you’re reliant on others to manage performance. As a property owner, you or your property manager control expenses and income decisions, providing greater control over asset value.
Tax Advantages of Commercial Real Estate
There are significant tax benefits to owning commercial property. Unlike stocks and bonds, where capital gains taxes are inevitable, CRE offers ways to reduce or defer these taxes.
- Depreciation: This non-cash expense allows you to deduct a portion of the property’s value each year, reducing taxable income. Even though no money is spent, you still receive a significant tax deduction.
- Interest Deductions: When financing a commercial property, the interest paid on the loan can be deducted from taxable income, further reducing tax liability.
- 1031 Exchange: Real estate investors can delay paying capital gains taxes by reinvesting the proceeds of a property sale into another property. Although taxes are deferred (not avoided entirely), the 1031 exchange can be a useful tool for long-term investors.
Setting Realistic Goals on Investing in CRE
Every investor’s goals are different, so set yours with a realistic timeframe. Avoid setting unrealistic expectations. Here are a few tips to help you achieve your CRE goals:
- Ensure zoning regulations support your intended property use.
- If you plan to develop or expand a property, research how many additional units the market can support.
- Learn about the permitting process and associated costs in your area.
- Connect with other real estate investors for referrals and insights.
- Investigate the due diligence processes of investment firms and REITs to understand how they evaluate opportunities.
Final Thoughts
Commercial real estate is becoming increasingly attractive to investors. The 2012 JOBS Act, which allows investors to crowdfund, has made CRE more accessible to a broader range of people. As long as land and properties exist, commercial real estate will continue to be a lucrative investment option.
Need assistance with your 1031 Exchange or DST? We’ve got you covered!
We’ve prepared a comprehensive, free e-book designed to guide you in achieving your long-term business goals or acquiring that dream property you’ve been eyeing.
Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
Stay informed with the latest in Commercial Real Estate strategies designed to enhance your income property investment results by bookmarking www.leveragedcre.com. Let us help you stay ahead in the market!
