Posted in Commercial Real Estate

Buying Commercial Investment Property – Your Office Building Checklist

Many investors prefer commercial investment properties such as small office buildings or small retail shopping centers.  The leases are usually 3 to 5 years, tenants often renew more regularly and there are fewer headaches.  It is also common to charge commercial tenants for all repairs and their fair share of annual expense increases and this type of cost sharing is impossible with residential properties.

Depending on your location, finding a commercial investment property can be as easy as driving down a major highway.  If you don’t see many for sale signs in your area look online for a real estate agent that deals in commercial property.  In today’s market there are quite a number of properties available and if you’re ready to buy the buffet is open.

There are small office buildings with only one or two tenants and larger ones occupied by several smaller offices.  Both have the advantage of a steady income however with multiple small offices your bottom line will suffer less of an impact if a tenant moves out.  No matter which type of  commercial investment property you select, always perform your due diligence especially if the location is currently occupied.  Here is a quick checklist to help you as you evaluate an office building for purchase.

* Read all leases and make sure that you are willing to honor the terms. Long term tenants tend to get nervous about new owners and your willingness to maintain or at least negotiate terms may prevent a mass exodus when you buy.

* Review of tenant payment histories over the past two years can alert you to any possible cash flow problems.

* Examine maintenance records for the past two years to determine how well the building has been maintained.  If there are no records, reconsider the property.

* Obtain property tax notices for the last five years.  The last thing you want is to have your deal frozen due to a tax lien.

* Review insurance policies and ask for permission to obtain copies of any claims.  Verify that the property has no open litigation against it.  A slip and fall last year could end up costing you.

* Conduct a walk through of all office spaces with the owner.  Although you will still require a professional inspector, use of this visit is to evaluate the quality of tenants and see if any problems leap out at you.

While there are many additional complexities associated with commercial investment property, as compared to residential property, there are also significant profits to be made for those investors with the desire to enter the commercial real estate market.

Posted in Commercial Real Estate

Notices, Disclosures and Addendums – Part 2

Mold Notification

The subject of mold has become tremendously important in the last few years and is also one that can lead to a great amount of liability for property owners. Check with your local landlord’s association for guidance regarding notification of mold. 

In some cases, the addendums which you provide to tenants may not actually have anything to do with potentially harmful elements in the property. In some cases, you simply may need to provide notification to tenants regarding specific rules and regulations which you establish. 

One of the most common is a roommate addendum. This type of disclosure notifies tenants that each roommate is jointly liable for anything to do with their rental of the property. This prevents one roommate from skipping out and you are facing a situation where the remaining roommate claims he or she is not liable. 

A Pet Addendum

A pet addendum is another important disclosure to consider if you are going to allow tenants to have pets in your property. Generally, it is best if you always have a description of the pet which the tenant will be bringing into the property. Perhaps you based your decision on allowing the tenant to have a pet because it seemed to be a mature, calm dog. Six months later; however, you discover that the tenant no longer has the calm dog and has replaced it with a puppy that is chewing up everything in sight. Making sure that you have a description of the pet which will be allowed to be in the property is always a good idea; otherwise, you may have no recourse since you agreed to let the tenant have a ‘pet.’ There is also the matter of exercising caution regarding certain breeds of dogs on the property. If you allow a tenant to have an aggressive breed of dog on the property and someone is bitten, you could be found to be liable. 

Along those same lines, you may want to take a few extra steps to protect your property if you decide to allow tenants to have a pet. For example, increase your security deposit, just in case there are problems later on. Also, make a point to check with previous landlords while you are performing the reference check to determine whether the tenant has had a pet in the past and if so, whether there were any problems or damages. Finally, you may also wish to require tenants with pets to provide a copy of their pet’s registration papers as well as their vaccination records. 

Working with a professional and experienced broker can help guide you with your investment. If you are in need of some guidance, feel free to reach out to us.

Posted in Commercial Real Estate

Notices, Disclosures and Addendums – Part 1

When you invest in rental property, it is important to understand that much of what you can do is guided by local, state and federal regulations. In many cases, these regulations provide guidance for the disclosures which must be made to all tenants. This is a matter of law and failure to make proper disclosures can result in quite a bit of legal and financial trouble, so it is always best to ensure that you have made all of the proper disclosures. 

While there are some disclosures which vary from one locality to another and it is always best to research the regulations for your own area, there are some regulations regarding disclosures that are common in most areas. 

Lead-based Disclosures

This regulation is required by the federal government. To meet this requirement you should know when your property was built and specifically if it was built prior to 1978. In the event that it was, you will need to provide a specific booklet printed by the federal government regarding lead-based paint disclosure and have the tenant(s) sign a disclosure form. The booklet is called Protect your Family from Lead in your Home and it can be obtained from the EPA; Environmental Protection agency. 

Hazardous Materials Notice

Be sure to check with your local ordinances to determine whether this notice is required. Essentially, it notifies tenants that a variety of materials were used in the construction and/or improvement of the property which may contain materials that could be hazardous or toxic. 

Stay tuned for part 2 ! In part two we will talk about Mold Notifications and Pets.

Posted in Commercial Real Estate

Steps To Achieving Success In Commercial Real Estate

Selling or buying commercial real estate is a very rigorous process. Even if you know a lot already, you might miss something important if you don’t keep learning about commercial real estate. Keep reading to discover some tips that will make commercial real estate a little easier to understand.

You should take digital photos of the condition. Make sure your pictures clearly show any damage or defects, including carpet stains, holes in the walls or discoloration of plumbing and countertops.

Search online for websites that provide information about real estate investments. These general interest websites can provide you with useful information whether you’re new to the world of real estate investment or have made a career out of investing. You can never have too much knowledge.

Location is essential to commercial real estate. When investing in a property, consider what type of neighborhood it is located in. Cross-check similar areas to see how they are growing. Do not buy a property that is located in a neighborhood likely to take a wrong turn in the next five years.

Commercial property dealings are exponentially more complicated and time intensive than buying a residential home is. Keep in mind, though, that the complexity is required to ensure that your real estate investment gives you a high return.

When you first begin investing in properties, you may need to sacrifice a lot of your personal time. It can take a little time to find a property worth purchasing, and you also may have to make necessary repairs. You should never give up because it is time consuming. You may need to spend some time researching before buying your commercial real estate purchase, but it will pay off in the end.

Inspectors should always have credentials available for viewing, should you require their services in your real estate dealings. This guideline is especially important when working with people who deal in pest management; these specific fields are often populated by practitioners who lack proper credentials. This can help you avoid headaches after the sale.

Prior to selling commercial property, have it inspected first by a professional. If anything turns up during the inspection, you should immediately address the problem.

Have an understanding on what exactly it is you are looking for when it comes to commercial real estate. Take the time to outline what your needs may be, from number of rooms to types of spaces needed. This should include the appropriate number of washrooms based on people present.

There are a lot of different kinds of real estate agents. For example, some brokers represent landlords as well as tenants, while others only work with tenants. Brokers who work only with tenants have more experience with representing them well.

There is always more to learn about real estate activity in the commercial markets. Instead, you should always remember that you have plenty more to learn, and should take advantage of tips such as the ones you just read. Doing this will help strengthen the position you have in the market. If you implement this advice carefully, you will enjoy success.

Posted in Commercial Real Estate

What Does the Rent Include?

There is no simple answer to the question of what is included in the rent. This is because the answer will likely vary from one property to the next. Some buildings may include a variety of items within their rent while others may charge tenants additional fees as needed and still others may require the tenants to register directly with individual public utilities and handle these expenses on their own. 

Likewise some properties may include additional features with the price of the rent while others may charge additional fees for these features. An exercise room, a meeting room, after hour HVAC service or additional parking are just a few examples which may be offered by an office building. In most cases the use of these amenities are included in the price of the rent but there are exceptions where the tenant is charged an additional fee for the privilege of using these amenities. 

Consider the Price of Utilities

When considering the price or a rental property, the renter should first determine whether or not utilities are included in the cost of the rent. This is significant because depending on the size of the property and the climate of the area, heating and cooling costs can be rather expensive. In most cases, the tenant is responsible for the cost of their own utilities and their unit is individually monitored for usage and the renter is billed monthly by the utility company. However, depending on the type of property (Office, Industrial,Retail, etc), the landlord may collect money for utility uses in another way. Depending on the lease agreement between the landlord and the tenant the monthly rent may be set at a rate which includes a contribution to the utility costs or the tenant may be assessed a predetermined percentage of each utility bill on a monthly basis. 

It is important to consider the price of utilities when they are not included in the rent because failure to do so can lead to unpleasant surprises in the future. For example a tenant in South Florida, “a very hot and humid climate” may rent a spacious office space for a great rate only to find out later that the cost of cooling the office makes it difficult for the tenant to afford the suite. 

Consider Amenities which are “Free”

When business owners are selecting a property in which to run their business, they should consider the features and amenities which are “free” as opposed to the amenities for which the tenant is charged an additional fee. The word free is used in quotations in the heading of this section to indicate these amenities do not always come without a price. A tenant may not pay a usage fee for some amenities but it is very likely the privilege of using these amenities is factored into the monthly rent.

As an example consider two 800 square foot office spaces in the same geographical area. Each office may have a similar layout and comparable square footage but the monthly rents associated with these two offices might be quite different. In examining the amenities you might notice the higher priced office has access to a meeting room, an exercise room and an employee lounge for the use of its tenants while the lower priced office offers no such amenities. In this case the occupants of the more expensive offices are actually paying a higher monthly rent as a result of the amenities offered.

In a case such as the example above, tenants should weigh their options carefully. If they can afford to pay the more expensive rent, they should carefully consider whether or not they wish to pay a higher fee for use of the amenities. A business who doesn’t need a meeting room, has employees who belong to other gyms and does not have a great deal of free time to use the facilities may decide they would be better off selecting the lower priced office without amenities.

Posted in Commercial Real Estate

Getting Your Security Deposit Back

For many tenants the subject of the security deposit is somewhat of a touchy subject. Most renters assume they should receive their security deposit back in its entirety as long as there is no significant damage done to the property. However, this is rarely true as there are a number of factors which contribute to whether or not the security deposit or a portion of the deposit will be returned to the tenant when they vacate the premises. 

1 – Did You Do Any Major Damage?

Certainly doing major damage to the property such as putting holes in the walls, breaking fixtures or tearing up the flooring may warrant the security deposit being kept but even in these cases the leasing agent must justify these costs. In other words the leasing agent cannot use one damaged item to justify keeping the whole security deposit. Rather the leasing agent is obliged to determine a cost to repair the item. If this estimate is large enough to justify not returning the security deposit the renter should be informed of the estimated cost of repairing the property. 

2 – Is Your Property Clean Enough?

All properties should be cleaned thoroughly before the tenant vacates the property. This should include extensive cleaning of all offices, reception, warehouse space, showrooms, bathrooms and any common areas. A cleaning should also include cleaning of all of the fixtures in the property including window coverings. Blinds can be rather difficult to clean and many leasing agents charge approximately $10 per blind if they deem there is a need to clean these items. This can add up rather quickly if there are a number of windows in the property. 

Many leasing agents also perform a number of standard cleaning functions when any tenant vacates the property. This may include items such as cleaning out any employee lounge appliances (ex: refrigerator and microwave), shampooing the carpet, repainting the walls and in some cases restoring the property to its condition prior to any tenant improvements. When these items are required, there is typically a fee associated with each item. In many cases, adding up these required fees results in a number which is likely already approaching the sum of the security deposit. Additionally, leasing agents often only allow for one hour of cleaning services to prepare a property for the next tenant. This is rarely enough time to complete the work and therefore tenants wind up being charged an additional fee at an hourly rate. 

3 – Have You Read Your Contract Documents?

Tenants who want to have the greatest chance of having a large portion of their security deposit refunded to them should be very familiar with their Lease documents. This is important while occupying the property as well as while getting ready to vacate it. It is important to be familiar with the contract terms while occupying the property because it can prevent the tenant from making decorating choices or tenant improvements which are explicitly prohibited by the lease agreement. These types of decisions can be costly in the long run because they may result in the tenant being assessed for perceived damages by the leasing agent. 

Tenants should also carefully review the lease agreement documents as they are preparing to vacate the property. This is important because it may help the tenant to clean and make repairs to the property in accordance with the guidelines set forth by the leasing agent. Doing this will make it much more likely the renter will not be assessed exorbitant fees at the conclusion of the lease term. 

Posted in Commercial Real Estate

July 2020 Commercial Insights

The commercial real estate sector continues to struggle as a result of the coronavirus pandemic. The hotel and retail property markets are the heaviest hit, while multi-family and industrial are performing relatively well, with the office sector in the middle of the pack.

The improving job market is the silver lining on the economic horizon, but the resurgence of coronavirus cases is casting a pall on the job recovery and the continued opening of businesses that underpin the generation of rental income for commercial and multifamily properties.