Economic forecast shows optimistic future for commercial real estate

The outlook for commercial real estate growth in California through 2018 is looking pretty good — that’s according to the latest Allen Matkins and UCLA Anderson Forecast Commercial Real Estate Survey.

Researchers surveyed developers throughout the state who said they’re optimistic about the next few years. Several of them are already planning new commercial projects, including office buildings, warehouses and multi-family housing.

The survey released Wednesday states that the Fed increasing interest rates has not dampened optimism for the future of commercial real estate in California.

Jerry Nickelsburg, senior economist at the UCLA Anderson Forecast, said that for Orange County, Los Angeles and San Diego, the survey shows markets tightening in the next three years.

“What this means is the markets are not overbuilt, and demand is still pushing supply,” Nickelsburg said.

He said that industrial space vacancy rates in the Inland Empire will be higher in the next few years, but rental rates will continue to rise faster than the rate of inflation.

Optimistic outlooks for developing commercial real estate also has positive outcomes for job growth and the economy, Nickelsburg said.

“What that means for local economy is increase demand for construction workers and increased demand for building supplies. All this is a positive development in economic growth in Southern California,” Nicklesburg said.

January 27 2016
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Investors don’t seem to mind.

by Kenneth P. Riggs Jr., CCIM, CRE, MAI, FRICS

“Price is what you pay; value is what you get.” — Warren Buffet

As we look to 2015 and beyond, the commercial real estate market is enjoying much positive press and continues to be a favored asset class relative to stocks, bonds, and cash. After the most recent commercial real estate downward cycle in third quarter 2008, followed by a rebound in 1Q10, we are at a new crossroads where prices are clearly outpacing valuations. This is the final phase of our up cycle, and the key question is, how long can this phase run? When we think about investments and investment cycles, we are coming to realize that the more things change, the more they stay the same. In other words, be worried when the market starts to say, “This time it is different.”

Economic Fits and Starts

In our search for how prices and values are aligning themselves, we first need to examine the economy. The outlook for the U.S. economy is much brighter than it has been since before the Great Recession. Besides more than 3 percent growth in gross domestic product in 2Q14 and 3Q14, inflation remains low and the unemployment rate declined to 5.8 percent in October 2014. In fact, job growth has improved enough that employers are on pace to add the most jobs on an annual basis since 1999, according to the Bureau of Labor Statistics.

However, a variety of headwinds is still holding back the progress that many economists had been predicting, with each setback causing forecasters to recalibrate their expectations. These recalibrations have been triggered by a workforce participation rate that has declined to 1978 levels, as the wages of the majority of workers remain relatively stagnant. In addition, the federal debt has ballooned to nearly $18 trillion, while major entitlement programs are underfunded. The housing sector has improved slightly, but the young adults we have relied on in the past to purchase homes are burdened with oversized amounts of student debt. Furthermore, many of the economies in Europe and Asia are contracting, and territory disputes from the Ukraine and Russia to Iraq and Syria have given rise to new acts of terrorism. However, in the end, the U.S. economy appears to have many resilient elements in place to withstand future disruptions in the financial markets.

Each quarter, Real Estate Research Corp., a Situs company, surveys some of the nation’s leading institutional investors about the economy and reports this information in the quarterly RERC Real Estate Report. As demonstrated in Figure 1, commercial real estate has been consistently rated higher than the alternatives, even as the economy has been recovering.

Flush With Liquidity

Despite the macroeconomic uncertainties, the global and domestic markets have provided investors more capital than they know what to do with. With investors searching for a place to park this capital (with good risk-adjusted and safe returns), the result has been asset prices pushed to all-time highs — which is making the market nervous. We see this in the stock market, with record-high performance, and we see it with commercial real estate, which, with its attractiveness as an asset class, including return performance, ability to hedge against inflation, and tangible nature, has attracted a great deal of capital.

Put stocks and real estate together and you get an idea of just how much in demand these two asset classes are. According to Bloomberg, investors are rewarding retailers’ efforts to spin their properties into real estate investment trusts. Sears Holdings recently announced plans to create a REIT for its properties, and shares increased 31 percent.

RERC also examines the amount of capital available for investment and compares it to the underwriting discipline. As shown in Figure 2, investor ratings for capital availability have greatly outpaced the discipline (or underwriting standards) for capital in 3Q14. It is worth noting that the last time the availability of capital outpaced discipline to this degree was in 2Q07 — shortly before the credit crisis that preceded the Great Recession.

The comparison of the availability and discipline of capital shows that we are again at an inflection point. The flood of capital chasing commercial real estate continues to pressure property prices to increase, especially for high quality assets in top markets. Some investors have noted that, given high prices, there is already too little product to invest in, which further drives prices higher and returns lower.

However, RERC expects values and prices to continue to increase as long as interest rates stay low. If RERC’s history of availability of capital versus the underwriting discipline holds up, this bull commercial real estate market has another 18 to 24 months to run. This is not to say the market is right, but it is the market.

It All Depends on Interest Rates

Although the Federal Reserve has concluded its recent quantitative easing program, monetary policy remains accommodative, with the federal funds rate remaining at 0 percent to 0.25 percent for “a considerable period of time.” The Fed’s target unemployment rate has been reached, but its target inflation rate is elusive, and growth remains slower than expected.

The market and most investors anticipate that the Fed will raise short-term interest rates in mid-2015, stating that it is too risky for the Fed to leave rates at current record lows much longer (in case the rates need to be lowered again when there is another recession). Others believe that the Fed will leave the funds rate very low for several years due to global pressure, as troubled economies in the rest of the world would be forced to pay higher interest rates.

As shown in Figure 3, risk-free rates in other developed economies have followed the U.S. trend to keep rates low, and as shown in Figure 4, 10-year Treasury rates have been declining for several decades. Despite the Fed’s clear message about their intent to increase U.S. Treasury rates at some point, some investors have become complacent, expecting Treasury rates — as well as interest rates — to stay low for much longer. Continuing low interest rates will be another significant benefit for commercial real estate investors.

Value vs. Price

As long as Treasury rates and interest rates remain low, the global investment environment for commercial real estate will be very attractive. Investors will continue to purchase real estate, prices will continue to increase, and values will continue to chase prices, as capitalization rates on a broad market perspective will further compress.

As shown in Table 1, RERC’s value vs. price rating for commercial real estate overall dipped slightly to 5.3 on a scale of 1 to 10, with 10 being high, during 3Q14. However, with the midpoint of the rating scale at 5.0, a rating of 5.3 indicates that value vs. price can still be found in commercial real estate overall, despite the slight decline in this rating during the past few quarters.

On a property sector basis, the value vs. price rating increased for each of the sectors (except for the hotel sector) during 3Q14. As shown, the industrial sector retained the highest value vs. price rating among the property types. However, all sector ratings were higher than the midpoint of 5.0, which means that prices still have room to climb before properties become overpriced (compared to their value) — at least as long as interest rates remain low and cap rates have room to further compress.

A Closer Look at the Property Types

Additional Considerations

As 2015 continues, commercial real estate investors are encouraged to keep in mind the following points:
•The U.S. economy is resilient and will survive a looming short-term rate correction. In the long term (toward the end of the decade), the economy is positioned to demonstrate above-average growth.
•Global pressures will continue to keep 10-year Treasury rates below 3.0 percent in 2015.
•Commercial real estate will be a preferred asset class in 2015 relative to stocks, bonds, and cash, and this will continue to put upward pressure on prices and values throughout the U.S.
•Commercial real estate space fundamentals will continue to improve slightly, except in the multifamily sector, where vacancy is increasing due to supply additions.
•Required total returns and capitalization rates for the broad commercial real estate market will continue to compress in 2015, as long-term interest rates stay low.
•RERC’s total return expectations based on our value forecast and income forecast reflect a total return in the low teens for unleveraged commercial real estate assets, and a total return in the mid-teens on a leveraged basis for 2015.
•An increasing number of alternate property types (beyond the core property types) will continue to attract investors, including storage facilities, single-family housing, student housing, seniors housing, and medical office buildings.
•There will be continued expansion of investment products and opportunities for retail investors through private real estate investment trusts, single property-REITs, club investing, and defined contribution options.
•The market cycle is not different this time, but commercial real estate will see another strong year in 2015, only to be faced with another market down cycle looming out past 2015.

Office. The office market continues to struggle. The vacancy rate was 16.8 percent in 3Q14, which was only 10 basis points lower than a year ago, according to Reis. Despite that, effective rents increased 2.7 percent to $23.94 per square foot year over year. In addition, according to Real Capital Analytics, 12-month trailing transaction volume increased more than 27 percent to $121 billion in 3Q14 compared to the previous year, and prices psf increased by 6 percent to $245. RERC’s required pre-tax yield rate (internal rate of return) dipped to 7.9 percent, and the required going-in cap rate decreased to 6.1 percent in 3Q14. Figure 5 illustrates the spreads between RERC’s required pre-tax yield rates and going-in cap rates and 10-year Treasurys. Vacancy is expected to drop to 16.3 percent and rents to increase 3.7 percent by the end of 2015, according to Reis. Some metros are expected to outpace expectations, such as Portland, Ore., with stagnant cap rates in the office market, and Minneapolis, which is expected to see slightly higher rental growth than the national average over the next couple years.

Industrial. Vacancy in the industrial sector decreased to 9.0 percent in 3Q14, according to Reis, and was accompanied by effective rental growth of 2.5 percent YOY to $4.45 psf. Transaction volume increased by 6.0 percent, with prices increasing 17.3 percent to $77 psf over the past year, per RCA. RERC’s required pre-tax yield rate for the industrial sector declined to 7.7 percent, while the required going-in cap rate decreased to 6.0 percent in 3Q14. Reis forecasts the industrial vacancy rate to decline to 8.0 percent by 2016, and for effective rent to grow by 3.3 percent. Industrial vacancy is expected to decline even more in some markets, such as Sacramento, Calif., and Orlando, Fla.

Multifamily. The vacancy rate for the apartment sector increased slightly in 3Q14 to 4.3 percent, while the effective rent rose 3.91 percent during the past year to $1,117 per unit, according to Reis. As reported by RCA, 12-month trailing transaction volume increased 6.2 percent YOY to $104 billion in 3Q14, as the price increased 21.5 percent to $128,259 per unit, a new high. RERC’s required pre-tax yield rate declined to 7.0 percent, while the required going-in cap rate declined to 5.0 percent. Reis notes that due to expected completions of 444,000 units over the next two years, vacancy is likely to increase to 4.9 percent in 2015 and to 5.1 percent in 2016, although vacancy in some metros (San Diego, for example) is not expected to increase as much. Effective rental growth of 3.1 percent in 2015 and 2.6 percent in 2016 is expected.

Retail. According to Reis, retail vacancy declined slightly to 10.3 percent in 3Q14, while effective rent increased 1.91 percent to $17.07 psf. Transaction volume increased 8.1 percent YOY, with pricing increasing 24.8 percent to $214 psf, as investors have been purchasing higher quality retail properties. RERC’s required pre-tax yield rate decreased to 7.8 percent in 3Q14, while the required going-in cap rate declined to 6.1 percent, although this has had more to do with abundant capital and easier financing than improving fundamentals. However, Reis projects that vacancy will be 100 bps lower at 9.3 percent and rents will step up to 3.3 percent annual growth in 2016. Retail properties in some metros — especially Florida markets like Miami and Orlando — offer strong investment opportunities due to improving fundamentals.

Hospitality. Smith Travel Research reports that U.S. hotel occupancy rose 3.9 percent YOY to 62.7 percent during the week of November 9-15, 2014. Revenue per available room and the average daily rate increased 8.6 percent to $72 and 4.6 percent to $115, respectively, according to PKF Hospitality Research. Hotel volume increased to $33 billion on a 12-month trailing basis in 3Q14, according to RCA, while the price per unit increased to $154,798. RERC’s required cap and discount rates for this sector decreased more than for any other property type on a YOY basis in 3Q14, as RERC’s required pre-tax yield rate and required going-in cap rate declined by 80 bps to 9.2 percent and 7.2 percent, respectively. PKF predicts that hotel sector occupancy will reach 65 percent in 2015, which would be the highest occupancy achieved since the recording of this rate started. Investment trends for hotel properties seem to be moving further out from core urban areas for example, Long Island, N.Y., versus Manhattan.

Value Expectations for 2015

Commercial real estate is a favored investment alternative compared to stocks, bonds, and cash, especially in these uncertain times. Not only does commercial real estate generate high risk-adjusted returns compared to other investments, property is tangible, transparent, a hedge against inflation, and offers reasonable return performance on capital and income. (Income is currently approximately 60 percent of returns.)

Commercial real estate has more than recovered the value it lost in the Great Recession, as shown in Figure 6, and with respect to return performance, broad market prices and values have room to grow for approximately 12 to 18 months. This does not mean that commercial real estate prices and values are sustainable, but for many investors, there are no other good alternatives, and as a result, many investors will continue to pay nearly any price for the value commercial real estate offers.

Kenneth P. Riggs Jr., CCIM, CRE, MAI, FRICS, is president and CEO of Real Estate Research Corp., a Situs company, and publisher of the RERC Real Estate Report. For more information, or for a special CCIM member discount to the report, please contact RERC at publications@rerc.com.
– See more at: http://www.ccim.com/cire-magazine/articles/323739/2015/01/sky-high-prices#sthash.N9c8Dpz2.dpuf

Thank you to all of our clients over our 11 year history. We have added team members, increased our office size and now have two offices (Los Angeles / Orange County and the Inland Empire). On behalf of our experienced and dedicated team, we are ready for a great year going forward and bringing success to all of our clients.

Best Wishes 2015
Managing Director
John Scatoloni

Assembly Bill 1103 requires documentation of a building’s energy usage anytime there’s a sale, lease, financing or other change involving the building itself.

By Ben van der MeerStaff Writer- Sacramento Business JournalEmail

A new state law affecting any transactions on most commercial properties is causing headaches and delays for brokers, property managers and others.

The law, Assembly Bill 1103, requires documentation of a building’s energy usage any time there’s a sale, lease, financing or other change involving the building itself. Passed in 2007, implementation of the bill was delayed several times because of problems with a state website where building data is entered.

But in the last year, the bill went into effect, including on Jan. 1 for non-residential buildings of at least 10,000 square feet, then on July 1 for buildings of at least 5,000 square feet.

Heather Johnston, an attorney specializing in commercial real estate transactions with Trainor Fairbrook in Sacramento, said the implementation portion is proving difficult. Not only are those entering the data often frustrated by the unwieldiness of the state’s website – for example, it doesn’t have a way to record information when a building’s tenants pay separate utility bills – utility companies are balking at providing confirmation data, citing privacy concerns.

Johnston said there are ways to estimate the information, but a full report of a building’s energy usage has to be disclosed to all parties before a transaction is complete.

“In every single situation, there’s a handful of difficulties,” she said, noting the legislation has created delays in deals being finalized, as well as added costs for property owners who pay to get a full measure of energy usage.

The idea behind the law was to increase market interest in more energy efficient buildings, similar to posting projecting mileage on cars for sale. Johnston said those are noble goals, but the execution needs work, and many commercial real estate industry professionals still aren’t aware it’s in place.

“When it had gotten around implementation, it had just fallen off the radar for most people,” she said. “If I had a recommendation for the state, it would be to fix the website.”

Encon Commercial Real Estate Services – Los Angeles

The Benefits of Using a Foreign Trade Zone

From large manufacturers to individuals, any size importer or exporter can take advantage of a foreign-trade zone (FTZ). However, many companies are unaware of the sizeable cost savings and other benefits they can achieve by taking advantage of an FTZ program. Utilizing an FTZ can significantly reduce costs from customs duties, taxes and tariffs; improve global market competitiveness; and minimize bureaucratic regulations. Outside the United States, there are many other names for FTZs, including free, foreign, or export processing zones. Below are some benefits of using an FTZ.

1. Deferral, reduction, or elimination of certain duties. FTZs allow the most duty deferral of any kind of Customs program. Companies can bring goods into the FTZ without duties or most fees, including exemption from inventory tax.
2. Relief from inverted tariffs. In some cases, tariffs on U.S. component items or raw materials have a higher duty rate than the finished product, putting a U.S. manufacturer at a cost disadvantage to an importer. However, by participating in an FTZ, the U.S. manufacturer pays whichever duty is lower. In many cases the tariff of the manufactured good is zero, eliminating any costs associated with importing raw materials and goods. There is no way to take advantage of inverted tariffs without operating in an FTZ.
3. Duty exemption on re-exports. Since an FTZ is considered outside the commerce of the United States and U.S. Customs, a company importing components or raw material into the FTZ doesn’t pay Customs duty until it enters U.S. commerce. If the good is exported from the FTZ, no Customs duty is due.
4. Duty elimination on waste, scrap, and yield loss. Since a manufacturer operating in an FTZ doesn’t pay duties on imports until its goods leave the FTZ and enter the United States, it essentially is paying for the duties on the raw materials after they have been processed. Thus, duties owed do not include manufacturing by products, such as waste, reducing the amount of goods taxed.
5. Weekly entry savings. Instead of filing an entry every time a shipment enters the country, an importer operating in an FTZ only needs to file one Customs entry a week, reducing bureaucratic headaches and costs associated with entry filings. There is a 0.21-percent merchandise processing fee for every entry, with a minimum of $25 and a maximum of $485 per entry, which is for goods with a value of over $230,952. A company with 10 shipments a week, each of which are over $230,952, would save $226,980 annually with weekly entries. Weekly entries also save on customs brokerage fees.
6. Improved compliance, inventory tracking, and quality control. FTZs allow companies to more closely track their inventory. By bringing goods into an FTZ warehouse that you control, you can identify and classify goods at the warehouse instead of at the port at a Customs control location.
7. Indefinite storage. A company can hold its goods indefinitely in an FTZ until a port opens up, or if there are quotas on a good, until they can be entered into U.S. Commerce without falling under quota restrictions.
8. Waived customs duties on zone-to-zone transfers. FTZs can be used to manage transshipping operations, saving money on manufacturing processing fees. While most companies are focused on using FTZs for exports, FTZs can also be used to take advantage of crossdocking and transferring goods from one FTZ to another without paying Customs duties. Many mid-level companies, in particular, are using this capability to transfer goods to FTZs both within and outside the United States.

TAKING ADVANTAGE OF AN FTZ PROGRAM

To take advantage of an FTZ, companies need to be able to track their inventory; trace manufacturing and production orders; determine whether material came from domestic or international sources; and classify goods for duty deferrals and reductions. How much a company saves by using an FTZ depends on the size of the company and its business model. Reducing merchandise processing fees alone can save a company a substantial amount of money.

Larger companies may want to consider using automation to help alleviate the burden of managing the FTZ process, particularly since with high-volume operations it can be extremely difficult, if not impossible, to manage manually. The data needed for classifying goods, for example, is voluminous and frequently changes and must be pulled from country-specific lists. Software that has this information in a central repository with automatic updates can pull information from different systems, such as import/export and warehouse management systems, and use that data for Customs filing and inventory management.

Six in ten eviction notices have errors

Written by: Rosalind Renshaw | June 23, 2014

Over six out of ten legal notices served by agents and landlords on tenants are incorrect.

The claim comes from eviction specialists Landlord Action which looked at the last 200 instructions received from agents and landlords that had served their own legal notices on tenants (Section 8 and Section 21).

The findings reveal that 62% of these notices were incorrect, which meant they were invalid or posed a greater risk of being thrown out at court – resulting in the need for new notices to be served.

The study found the top five reasons for notices being invalidated are:
1.Incorrect expiry dates
2.Failure to comply with deposit legislation
3.Inaccurate schedules on rent arrears
4.The method of how the notice was served
5.Typing errors on the notice

Paul Shamplina, managing director of Landlord Action, said mistakes in eviction notices are among the most common reasons for delays and increased costs in trying to recover possession from a tenant who has an Assured Shorthold Tenancy.

Shamplina said he understood that some landlords serve their own notices to save expense.

He said: “I understand the need for landlords to consider every cost, but I can’t stress enough that the notice is the most important part of a possession court case and the slightest mistake can end up costing a landlord significantly more than the cost savings – in extra legal fees, delays and lost rent.

“Over the last year, we have encountered an increasing number of problems with notices served by landlords and agents.

“Unfortunately, some landlords and even agents are making classic errors when drafting and serving notices.

“The worst-case scenario for a landlord desperate to regain possession of a property is to be three months down the line and find they have to start the whole process all over again, costing them a small fortune in legal fees and lost rent.”

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U.S. commercial real estate market improving

Apartment rents could rise 4% this year, again in 2015, Realtors group says

by Jeb Bing / Pleasanton Weekly

The outlook for all of the major commercial real estate sectors is slightly improving across the country despite disappointing economic growth during the first quarter of 2014.

According to the National Association of Realtors quarterly commercial real estate forecast and its chief economist Lawrence Yun, the sluggish growth experienced in the first quarter is not indicative of the actual health of the economy.

“Gross Domestic Product should expand closer to 3% for the remainder of the year,”.Yun said. “The improved lending for commercial loans and continuing job gains we’ve seen this spring bode well for modest progress in commercial real estate leases and purchases of properties.”

However, Yun cautioned that with rising long-term interest rates on the horizon, consistent economic growth is imperative to solid commercial real estate investment in the years ahead.

National vacancy rates in the office market are forecast to decline 0.2 percentage points over the coming year, while international trade gains continue to boost use for industrial space, which forecasts a decline of 0.3 points.

The outlook for personal income and consumer spending is favorable for the retail market, likely leading to a vacancy decline of 0.2%.

“The multifamily sector continues to be the top-performer in commercial real estate with the lowest vacancy rates. However, tight availability, despite new construction, is causing rents to currently rise by nearly 4% annually in many markets,” said Yun. “Many renters who are getting squeezed may begin to view home ownership as a more favorable, long-term option.”

NAR reported earlier this month in its annual “Commercial Member Profile” that despite sub-par economic expansion, Realtors who practice commercial real estate saw an increase in sales transaction volume and medium gross annual income in 2013.

NAR’s latest “Commercial Real Estate Outlook” offers overall projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS Inc., a source of commercial real estate performance information.

Office Markets

Office vacancy rates should decline from an expected 15.8% in the second quarter of this year to 15.6% in the second quarter of 2015. Currently, the markets with the lowest office vacancy rates in the second quarter are New York City and Washington, D.C., at 9.4%; Little Rock, Ark., 11.5%; San Francisco, 12.6%; and New Orleans, at 12.8%.

Office rents are projected to increase 2.5% in 2014 and 3.2% next year. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 39.7 million square feet this year and 49.8 million in 2015.

Industrial Markets

Industrial vacancy rates are anticipated to fall from 9.0% in the second quarter to 8.7% in the second quarter of 2015.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.5%; Los Angeles, 3.9%; Miami and Seattle, 6.0%, and Palm Beach, Fla., at 6.5%.

Annual industrial rents should rise 2.4% this year and 2.6% in 2015. Net absorption of industrial space nationally is seen at 107.8 million square feet in 2014 and 107.1 million next year.

Retail Markets

Vacancy rates in the retail market are expected to decline from 10.0% currently to 9.8% in the second quarter of 2015.

Presently, markets with the lowest retail vacancy rates include San Francisco, at 3.2%; Fairfield County, Conn., 3.8%; and San Jose, Calif., at 4.7%. Northern New Jersey; Long Island, N.Y.; and Orange County, Calif., all have a vacancy rate of 5.3%.

Average retail rents are forecast to rise 2.0% in 2014 and 2.3% next year. Net absorption of retail space is likely to total 11.5 million square feet this year and 19.6 million in 2015.

Multifamily Markets

The apartment rental market (multifamily housing) should see vacancy rates edge up from 4.0% in the second quarter to 4.1% in the second quarter of 2015, with added supply helping to meet growing demand. Vacancy rates below 5% are generally considered a landlord’s market, with demand justifying higher rent.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 2.3%; Ventura County, Calif., 2.4%; and New York City; San Diego; Hartford, Conn.; Oakland-East Bay, Calif., and San Diego, at 2.5% each.

Average apartment rents are projected to rise 4.0% this year and in 2015. Multifamily net absorption is expected to total 221,400 units in 2014 and 173,100 next year.

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thestreet.com – Rick Kahler

Want a good way to build wealth? Own commercial real estate. But only if you are willing to undertake due diligence that may not be readily available online, make a big hands-on commitment to mind the investment and exercise enormous patience.

Real estate is one of the largest asset classes in the world. The family home is the largest asset many middle-class Americans own. And real estate makes up a significant portion of the net worth of many wealth accumulators.

Directly owning real estate is not an investment for the faint of heart, the armchair investor or the uneducated. Most wealth accumulators do well to leave direct ownership of real estate to the pros and invest in real estate investment trusts instead.

Still, the lure of investing in a tangible asset such as real estate is enticing for high-risk tolerant investors who need a sense of control and interaction with their investments. If you are among them, here are a few guidelines that may keep you on a profitable path:

1. Don’t try to buy investment real estate without the help of a commercial property specialist who is a fiduciary, bound to look out for your best interest. Engage a Certified Commercial Investment Member with years of training and experience in analyzing and acquiring investment real estate to advise you. To find a CCIM near you, go to ccim.com and look under the “networking” tab, where you click on “find a professional.”

2. The broker you work with should be a member of the National Association of Realtors, which has a code of ethics. You must get a disclosure agreement that tells you who the Realtor represents. Be sure the Realtor you engage represents you and not the seller or both parties.

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familyandfinances.com
Jacklyn Evans

If you invest in any commercial real estate, you will be able to make a big profit, though you will need to be patient, and do a lot of studying and research. Many people have become successful with it by reading and applying the tips below so that they can succeed in this lucrative field.

When dealing in commercial real estate, it is important to stay patient and calm. Do not be hasty about making an investment decision. If the property turns out to be wrong for you, you will regret your decision. You should be prepared to wait an entire year before a worthy investment becomes available to you.

Net Operating Income, or NOI, is one of the most important metrics used in commercial real estate. You must understand what it means, and how it’s used. Staying in the positive is what you need to do to succeed.

TIP! Negotiate, whether you are the buyer or the seller. Let people know what you want and make sure you are asking for a realistic price.
When having your real estate inspected (as you should), always ask for the qualifications of the inspectors. A lot of people have no accreditation, especially in pest control services. This can prevent larger problems from occurring after the sale.

Do your best to have your properties occupied at all times. If you have any open spaces, then you are losing money. If you have multiple unoccupied properties, try to determine the reasons why, and rectify the problems that are keeping tenants from renting the spaces.

Prior to listing your property for sale, you should first hire a reputable, professional inspector to go over the place. Repair any problems that the inspector finds immediately.

TIP! Take the time to be certain you are satisfied with a piece of real estate before you purchase it. Don’t rush to make an investment.
You need to advertise that your commercial property is for sale to both locally and non-local people. Do not assume that only local investors will be interested. There are a lot of private investors who like to buy properties that are not in their direct area if they are affordably priced.

Keep letters of intent simple by tackling large issues before sweating the small stuff. Doing it this way will allow the negotiations to be less intense and get them to agree faster.

You can find different kinds of brokers. Full service brokers work with both landlords and tenants and there are agents representing tenants only. Consider hiring a broker who only works with tenants. This type of broker may have more experience with helping tenants successfully enter the commercial real estate market.

TIP! One of the most critical considerations for valuing a commercial property is its physical location. Consider the neighborhood of the property.
Carefully peruse the disclosure statements issued by the real estate agency you intend to hire. Look for any disclosures regarding dual agency. In this sort of situation, the agency acts as both parts of the transaction. In other words, the agency is working for both tenant and landlord simultaneously. The fact that the agent is representing both parties must be disclosed to everyone involved and those parties must sign off on it.

The decision to invest in commercial properties can carry significant tax benefits. Investors may receive interest rate deductions as well as depreciation benefits. There is a chance that an investor may receive money that must be taxed, but does not come in the form of cash; this is known as phantom income. You have to keep all of this in mind before you start to invest in real estate.

Don’t choose a real estate broker until you learn about his or her preferred negotiation techniques. Ask them what specific training, expertise and professional experience they might have. In addition, you should ensure that the methods they employ are ethical and that they know how to go about obtaining the best deals. Ask them to show you examples of past negotiations, both successful and unsuccessful.

TIP! When choosing between two similar commercial properties, think large scale. Whether it be a twenty or ten unit apartment complex, you want to get adequate financing to back you up.
Use this article as a springboard for smarter real estate investments. When you take the time to use the advice that has been discussed, you can enjoy a lot of the same rewards as others have who learned how to make money from commercial real estate.

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This collection of general commercial real estate tips is a great place for beginners to start learning. The tips that follow will help put any beginning real estate investor on the road to becoming a pro.

Make sure that you invest some time researching local income levels and other factors, such as unemployment rates or local employers plans for expanding or contracting their businesses before you invest a large amount of funds into real estate. If you’re looking at a property that’s close to things like a university, employment centers, or a hospital, they’re likely to sell fast, and at a high value.

The Internet contains a lot of information for those interested in investing in real estate, whether they be experienced investors or novices. There is no such thing as having too much knowledge, so it is always a good idea to learn as much as you can.

Take plenty of pictures of the building. Be sure the photos capture any defects that exist in the unit, such as holes in the wall, and damaged or dirty carpets.

List your real estate at a realistic price. Your property’s actual value is influenced by many factors.

Every prospective real estate purchase should include thorough onsite inspections; it is equally important to verify the inspectors’ credentials. A lot of people have no accreditation, especially in pest control services. You’ll have less problems after the sale, as such.

Check a commercial property for access to electricity and other utilities; make sure there is good access. In addition to any needs specific to the business, you will surely need to have gas, electricity, sewer and water services, and so on.

Whether you want to rent or lease, you will have to deal with pest control. This is especially important if the region is known for certain types of pest infestations. If this is the case, ask specifically what the landlord will do with regard to pest control.

Try to decrease potential events of defaults before negotiating a lease. Decreasing these will prevent tenants from performing a default on the lease after your negotiations. That is not a situation you would want to encounter.

Advertise the commercial property to both locals and non-locals. Many sellers mistakenly presume that their property will appeal only to local buyers. There are many investors who are interested in financing properties which are outside their area as long as they are a great deal.

Do a walk-through and close evaluation of each property you are considering. Even better, have someone who knows commercial real estate tour the properties with you. Submit a first offer and solicit counteroffers. Think long and hard about the counteroffer before deciding to accept or decline.

An essential fundamental of commercial property is location, location, location. Consider how the neighborhood will affect business. Look at the growth of areas that are similar. What you are seeing now in terms of commercial potential might be very different a few years from now.

You may have to make some repairs or improvements to your property before you can move in. It may simply be cosmetic issues that need addressing, such as a fresh coat of paint or some furniture rearrangement. Normally, however, it may be something a little more involved like walls being moved. When negotiating, you should discuss who will pay for the improvements you’ll have to make, and should see if the current owner will cover some of your costs.

In commercial real estate, there are different kind of brokers. Full service brokers work with both landlords and tenants and there are agents representing tenants only. A tenant’s-only broker may serve your needs better than a full service broker.

Transactions for commercial property take more time, and are a lot more complex, than the process of buying a home. Keep in mind, though, that the complexity is required to ensure that your real estate investment gives you a high return.

To initiate a commercial loan, the prospective borrower must first request an appraisal. The bank won’t permit your use of it at a later date. Make sure you have all your paperwork in order before you even apply for your loan.

Be sure to deal with a company where customer care is important prior to buying. If you work with a company that only cares about its own profits, you might lose money on preventable mistakes.

Hopefully, the previous tips gave you enough information when talking about selling or buying real estate. Keep these tips in mind and you hone your skills and become successful at both buying and selling commercial property.

Ask any potential broker about what experience they have had with commercial property before choosing someone to represent your interests. Make sure you know that they actually specialize within the area you plan on selling and buying. Most brokers will require you to have an agreement to work exclusively with them.

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