commercial real estate Archives

What is an Estoppel Certificate in Commercial Real Estate

by Prince Licaylicay | Sep 1, 2024 | All Articles, Investing

An Estoppel Certificate, also referred to as an Estoppel Letter, is a document used in Commercial Real Estate (CRE) to outline the specific terms of a lease agreement and verify representations made by the landlord.

For a CRE investor purchasing a property with existing tenants, obtaining an Estoppel Certificate is a critical part of the due diligence process. This document ensures that the buyer understands the terms of the leases and avoids potential complications.

Why Are Estoppel Certificates Important?

Estoppel Certificates are crucial for protecting investors from potential liabilities involving current tenants. As you move through the process of acquiring a commercial property, the certificate clarifies any uncertainties regarding tenant agreements. It ensures that the buyer is fully informed about the lease terms, reducing the risks associated with tenant relationships.

What Does an Estoppel Certificate Contain?

An Estoppel Certificate typically includes several key details:

The amount of rent being paid
The security deposit amount
The lease duration
Any special provisions agreed upon by the landlord and tenant

Essentially, the document verifies the terms of the agreement between the landlord and tenant. For a buyer or lender, this information is crucial before finalizing the transaction.

Why Do You Need an Estoppel Certificate?

If you are an investor purchasing a commercial property with tenants, it is essential to verify the rent, payment history, and tenant-landlord relationship. For example, if a landlord claims four tenants are paying $4,700 per month on a five-year lease, how can you be sure that’s accurate? What if the tenants are actually paying $4,300 per month, and the lease isn’t fully signed?

An Estoppel Certificate provides an accurate, verified record of the lease agreement, ensuring you have the correct information. This protects you from future disputes or surprises during the transaction.

Other Uses of an Estoppel Certificate

Besides due diligence, an Estoppel Certificate is also useful when refinancing. If a property owner wishes to refinance or use the property as collateral for a loan, banks or lenders often request estoppel certificates from tenants. These certificates include important financial information such as payment records and credit history. If the documents confirm reliable cash flow, lenders are more likely to approve the refinance.

Thus, an Estoppel Certificate offers confidence to both investors and lenders, ensuring they have accurate financial data about the property.

Legal Importance of Estoppel Certificates

In some cases, unresolved tenant issues might require legal intervention. When this happens, an Estoppel Certificate serves as a legally binding document. If disputes move to court, the certificate proves that the agreed-upon terms between the investor and the tenant are valid. This can be vital during legal proceedings, providing the investor with solid evidence.

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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.

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Commercial Real Estate Is A Good Investment: Here Are 8 Reasons

by Prince Licaylicay | Sep 24, 2021 | All Articles, Buying, Investing

The commercial real estate industry has long proven to be a bankable field for investors. It generates massive income and has produced billionaires like Sam Zell, Stephen Ross, and Donald Trump. The industry offers diverse investment options, including rental properties, real estate stocks, investment trusts, and crowdfunded deals.

Exploring Commercial Real Estate: A Lucrative Venture

Real estate is an exciting venture. If you’re looking to start investing, diversify your portfolio, or generate higher income, commercial real estate (CRE) is an excellent choice. It offers numerous opportunities to grow your wealth in ways that other forms of real estate might not.

What is Commercial Real Estate (CRE)?

Commercial real estate properties are those that generate income. These include business infrastructures such as stores, warehouses, restaurants, office buildings, hotels, entertainment spaces, and more. CRE investments carry a higher risk, but with higher risk comes higher reward. Although this may sound overwhelming at first, the potential returns make it worth considering.

Here are eight reasons why you should pursue investing in commercial real estate.

Bigger Profit

Let’s talk about the financial benefits. Commercial real estate properties typically sell or rent at much higher prices than residential properties. In fact, the commercial real estate industry in the U.S. generated $27 billion in annual revenue in 2020. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), investors received a 12.7% profit share from this, which amounts to over $3 billion. This far exceeds the 8.8% annual return in residential real estate.

More Income Stability

In residential real estate, lease agreements typically last one year. While this benefits tenants, it can create high turnover rates for investors, meaning a constant need to find new tenants. However, CRE properties generally come with longer lease agreements, often three years or more. This ensures a more stable income flow and reduces the hassle of finding new tenants regularly.

Less Competition

There are fewer commercial real estate properties compared to residential ones. As a result, CRE properties are often in higher demand, making it easier to find tenants, especially for businesses looking to expand. On the other hand, residential real estate faces intense competition, which can lower profit margins.

Freedom to Choose Your Investment Scale

In CRE, you have the flexibility to invest in large-scale establishments like malls, hotels, or casinos, or you can choose smaller facilities. This allows you to start small and expand your investments as you gain more experience. Therefore, if you’re new to the industry, beginning with smaller properties is a good way to test the waters. Once you’re comfortable, you can diversify and increase your investments.

Property Maintenance Isn’t Always on You

Commercial properties are often leased by business owners, and they usually take care of maintenance themselves. In some cases, tenants may even improve the property, which increases its value over time. This reduces the investor’s overall cost while enhancing the property’s worth. Moreover, many CRE properties operate under triple net leases, meaning tenants handle expenses like utilities, insurance, and taxes, further reducing costs for the investor.

Professional Tenant-Renter Relationships

With business owners as tenants, the dynamic becomes more professional. Business owners maintain credibility and usually settle concerns in a professional manner. In contrast, residential tenants may have more demands and cause more stress over time.

More Time to Rest and Relax

One of the advantages of CRE properties is that they typically require less attention from you as the investor. Complaints and maintenance issues, if any, usually arise during regular business hours. This means fewer disruptions during your personal time. Additionally, less tenant attention means more time for you to relax, explore other investment opportunities, or spend time with your family.

CRE Can Generate Great Wealth

If you’re still uncertain about CRE’s ability to generate significant income, just remember that it has produced billions for investors globally. While the initial investment is higher compared to residential real estate, the potential payout is much larger. Therefore, before diving into CRE, it’s essential to seek advice from professionals, including commercial real estate brokers or real estate lawyers. This can help minimize risk and maximize your investment returns.

Even after outlining all the information above, deciding whether to go for a 1031 Exchange or a Cash Refinancing can still seem daunting. That’s why the LeveragedCRE Investment Team at Commercial Properties, Inc. is here to help you achieve your business and investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.