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Searching Solo: 5 Common Commercial Real Estate Mistakes
An essential component of your commercial property search can be working with a professional commercial real estate broker. From the initial research to the final negotiations, the commercial market can be fraught with uncertainty and complex choices if navigated without the right guidance. A tenant representative can provide you with expert analysis of market conditions, available properties, and deceptive lease agreements, working to get you the best results at the best value. Those who undertake the commercial property search themselves often make a few key errors, like those below, that can be more costly in the long run.
- Strategic Errors: Does this property have potential for expansion? Is it in a location that will continue to grow and thrive? These considerations should influence commercial real estate decisions but can be often overlooked by those without the knowledge to answer. An experienced commercial real estate broker can help you locate the property that is most advantageous to your short-term goals and long-term success.
- Lease Mistakes: Most tenants have little experience negotiating and signing a commercial lease agreement. Without knowledge of landlord practices and reasonable requests, tenants can end up signing expensive and restrictive leases. A tenant representative can work with you to identify your needs and wants, negotiate effectively with landlords, and advocate for the most beneficial lease terms. He or she can also perform a lease review to help you better understand the terms of your agreement.
- Paperwork Oversights: Leasing or purchasing commercial property requires a great deal of the necessary paperwork, some of which may be overlooked or little understood. With the assistance of an expert on the commercial market and legal guidelines, tenants can file the right paperwork more efficiently and move into their new space in less time.
- Landlord Conflicts: Dealing directly with a landlord can be problematic for tenants, particularly when it comes to lease agreements. Some landlords can be difficult to work with, refusing to negotiate, and tenants do not always have the experience or knowledge to challenge them.
- Conflicts of Interest: Many commercial real estate firms represent landlords and developers, which means they benefit most when their clients benefit. To avoid a situation in which your interests are subordinate to those of landlords whose business a firm covets, work with a tenant representative. A tenant representative works exclusively with tenants, aligning his or her goals with your own and advocating for your interests over the landlord’s or interested firms’.
For more information about commercial real estate, please contact Tom Pappas. As managing director at Studley, Inc., Tom specializes in strategic planning within the Denver market and develops real estate strategies to help his clients make sound commercial real estate decisions. Visit us online or call Tom today at (720) 259-1809.
Tenant Representation and Real Estate Advocacy: Resources for Further Reading
With tenants and landlords both negotiating for a better deal, navigating the commercial real estate waters can be a challenge. If you are a tenant in search of new office space, consider working with a commercial real estate broker to help you secure a space that works for you and on your terms. With an in-depth knowledge of the Denver market, Tom Pappas represents and advocates for tenants exclusively to help them make sound real estate decisions. For more information about commercial real estate, contact Tom and read through some of the resources below.
- Selecting an office space involves more than just measurements and having adequate meeting space. In addition to researching the location around the building, inquire about a building’s amenities, accessibility, and tenants. Learning more about your office space options can help you to avoid sharing space with a competitor and to create a comfortable space for employees.
- When renting commercial office space, tenants will find that the commercial lease agreement they sign dictates how much they pay and how much protection they have against the landlord. To help you interpret the terms and conditions of your commercial lease, have a commercial real estate broker review the lease and read more about commercial lease agreements.
- If you are a commercial real estate professional or someone looking for office space, refer to the resources provided by BOMA International. Setting the standards for commercial real estate assessment, the Building Owners and Managers Association also provides additional articles and statistics to help you make an informed real estate decision.
For more information about commercial real estate, please contact Tom Pappas. As managing director at Studley, Inc., Tom specializes in strategic planning within the Denver market and develops real estate strategies to help his clients make sound commercial real estate decisions. Visit us online or call Tom today at (720) 259-1809.
It’s an Exciting Time for Commercial Real Estate
People always give a sigh of apology when I say I am in the commercial real estate business. With the residential markets taking huge hits and the economy struggling, the assumption is that commercial real estate is too. For those holding grossly overvalued, leveraged commercial properties, times are tough. However, for the commercial broker and investor with their nose to the ground sniffing for great deals, it is an opportune time. With tight lending requirements, the term, “Cash is King” has never been more valid. It truly is an exciting time for commercial real estate in Denver.
Many commercial properties are facing loan renewal deadlines. Those who paid a premium five or more years ago are faced with the reality of not getting a new loan. With lower market lease rates, banks requiring higher debt coverage ratios, and overall declining property values, those who leveraged their investment years ago are left with little to no options today.
Another example is a property that sold in 2000 for $2.95 million, but was unable to be refinanced last year. A group of local investors were able to purchase the property this year in a short sale for $1.1 million in lieu of the bank foreclosing. The property needs work, but with existing tenancy (which was at 60 percent at the time of purchase), the property was returning a 10 percent CAP rate. Once work is complete and the project is stabilized, the investors should see returns between 12 percent and 15 percent annually even after the capitalization costs.
With the uncertainty of financial markets and the threat of hyper inflation in the next couple of years, investment in hard assets should definitely be considered as part of one’s investment portfolio. In an article written by CoStar‘s Mark Heschmeyer, he quotes Andrew Little, an investment banker with John B. Levy & Co. in Richmond, Va., who said, “Although the downgrade (of the U.S. debt rating) has made market participants more anxious, and the immediate impact is widening spreads, the cost of capital for better quality commercial real estate has not gone up. The bond market certainly doesn’t believe there will be any U.S. Treasury default, but prospects of continued political gridlock and further downgrades has investors of all kinds trying to figure out where to put money,” Little said. “Commercial real estate doesn’t look too shabby when compared to many of the alternatives.” Mark goes on to quote Asieh Mansour, Ph.D., and CBRE’s head of Americas Research who says, “While we anticipate continued stock market volatility, commercial real estate will not fare as poorly because it remains a preferred asset class, within a well-diversified multi-asset institutional portfolio.”
Be a wise and prudent investor. A trusted advisor has always told me, “I don’t invest in anything I can’t sell for $8.95 with Schwab.” Once committed to a commercial asset, it certainly is not as liquid as a stock trade. However, if done right, it can prove to be a very valuable return for the future. Look to those who know and understand the market and seek their advice. Do not invest in something you don’t understand. The last thing you want is to be the “one” having to arrange a short sale or face foreclosure down the road.
A friend and I recently sat down to play a game of Monopoly with my 9-year-old son. My friend has a Ph.D. and I being in real estate felt confident in our abilities to school my son. My son is infatuated with Boardwalk and Park Place (who isn’t?). He had successfully purchased Boardwalk, but needed Park Place, which my friend had already purchased. For 30 minutes he begged my friend to trade nine of his properties for my friend’s one interest in Park Place. My friend would not trade him because he felt guilty of taking advantage of such a naive trade. After repeated requests, I finally encouraged my friend to make the trade, knowing it would give me the opportunity to teach a valuable lesson to my son. It took only another 30 minutes (we all know this game has a painfully long time requirement), but my son successfully purchased the requisite amount of homes, then two hotels and subsequently bankrupted my friend first and myself not long after. No lesson in prudent spending was taught that day, and my 9-year-old has not let myself, my friend or anyone else within ear shot forget his victory.
My point is, many have made a lot of money on real estate. Some make it through wise and prudent purchases and others through dumb luck (no offense to my 9-year-old). I believe in the real estate market in Denver. It has weathered these economic times better than most major cities throughout the country. Be wise, use good judgment and counsel, and you too can end up winning in the game of real estate in Denver.
Michael Bright is president and CEO of BRC Real Estate Corp., Highlands Ranch.
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- Commercial Real Estate Bubble? (naiopmablog.org)
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