Wednesday, July 8, 2009
Nebraska - The Good Life
Despite increasing unemployment in many sectors of the country, Nebraska and Omaha in particular have low unemployment rates. As a consequence, the economy has not had the severe struggles and pull back that has impacted the retail sectors of many parts of the country. Many companies have expanded into the Omaha area and have benefited from the midwest work ethic, and the availability of a well trained and educated work force. Multi-family properties continue to be a popular commodity and sought by a lot of investors. There have been some declines in real estate values, but sales are brisk and a lot of small businesses are taking advantage of lower rents to expand or move to a better location. This is an excellent time to take advantage of the lowered prices that still have a lot of value.
Wednesday, May 27, 2009
Commercial Terms
Whether you own or rent your office space, property costs are one of the largest business overhead expenses. That's why it's important to comprehend the full ramifications of taking over the title to a property or entering into a lease agreement. Before you sign a lease, work with a commercial real estate broker with a proven track record, and consult with an attorney skilled in real estate law. You should also familiarize yourself with some common real estate terms:
1.
Appraisal. A written report by a state-licensed professional that includes an unbiased analysis of the property's value and the reasoning that led to that opinion. An appraisal report is required for any property sale.
2.
Broker. An agent who brings together a buyer and a seller, or a landlord and a tenant, in a real estate transaction. All brokers must be licensed by the state in which they work. Most work on commission, and the landlord or seller usually pays the fee.
3.
Build-to-suit. A method of leasing property in which the landlord makes improvements to a space based on the tenant's specifications. The cost of construction is generally factored into the lease terms. Most build-to-suit provisions apply to long-term (10-year) leases.
4.
Concessions. Benefits or discounts given by the seller or landlord of a property to help close a sale or lease. Common concessions include absorption of moving expenses, space remodeling or upgrades (also called "build-outs"), and reduced rent for the initial term of the lease.
5.
Escalation clause. A clause in a lease that allows the landlord to increase rent in the future. Rent increases dictated under an escalation clause may be charged in various ways, including:
•
A fixed increase over a definite period
•
A cost-of-living increase tied to a government index, such as the tax rate
•
An increase directly related to increases in operating the property
6.
HVAC. An acronym for "heating-ventilation-air-conditioning" system. In a commercial building, the landlord generally is responsible for maintaining the HVAC.
7.
Lease. An agreement by which the owner of a property (the "lessor") grants the right of possession to a tenant (the "lessee") for a specific period of time (the "term") for a predetermined amount of money (the "rent"). A "leasehold estate" is the space occupied by the tenant. Common types of leases include:
•
A straight, or flat, lease, which stipulates that the same periodic payment (usually monthly) be made for the entire term of the lease.
•
A percentage lease, which uses a percentage of the net or gross sales to determine the monthly rent. This is most often used in retail properties and with a minimum base rent.
•
A net lease, which requires the tenant to pay maintenance, taxes, insurance and so on, along with a fixed rent. This is also called "net-net-net" or "triple net."
8.
Lien. A legal claim filed against a property for payment of a debt or obligation. If a property owner fails to pay a creditor, for example, the creditor can place a lien on the property. A lien can halt the sale of a property.
9.
Sale-leaseback. A transaction in which an owner sells a property to an investor, who then leases the property back to the original owner under prearranged terms. Sale-leaseback deals offer the original owner freed-up capital and tax breaks and the investor a guaranteed return and appreciation.
10.
Sublease. A lease given by a tenant for some or all of a rented property. For example, if a tenant rents 20,000 square feet but only ends up needing 10,000 square feet, they may want to sublet the extra space for some or all of the remaining term of the lease, providing they continue to occupy and pay rent for the property.
1.
Appraisal. A written report by a state-licensed professional that includes an unbiased analysis of the property's value and the reasoning that led to that opinion. An appraisal report is required for any property sale.
2.
Broker. An agent who brings together a buyer and a seller, or a landlord and a tenant, in a real estate transaction. All brokers must be licensed by the state in which they work. Most work on commission, and the landlord or seller usually pays the fee.
3.
Build-to-suit. A method of leasing property in which the landlord makes improvements to a space based on the tenant's specifications. The cost of construction is generally factored into the lease terms. Most build-to-suit provisions apply to long-term (10-year) leases.
4.
Concessions. Benefits or discounts given by the seller or landlord of a property to help close a sale or lease. Common concessions include absorption of moving expenses, space remodeling or upgrades (also called "build-outs"), and reduced rent for the initial term of the lease.
5.
Escalation clause. A clause in a lease that allows the landlord to increase rent in the future. Rent increases dictated under an escalation clause may be charged in various ways, including:
•
A fixed increase over a definite period
•
A cost-of-living increase tied to a government index, such as the tax rate
•
An increase directly related to increases in operating the property
6.
HVAC. An acronym for "heating-ventilation-air-conditioning" system. In a commercial building, the landlord generally is responsible for maintaining the HVAC.
7.
Lease. An agreement by which the owner of a property (the "lessor") grants the right of possession to a tenant (the "lessee") for a specific period of time (the "term") for a predetermined amount of money (the "rent"). A "leasehold estate" is the space occupied by the tenant. Common types of leases include:
•
A straight, or flat, lease, which stipulates that the same periodic payment (usually monthly) be made for the entire term of the lease.
•
A percentage lease, which uses a percentage of the net or gross sales to determine the monthly rent. This is most often used in retail properties and with a minimum base rent.
•
A net lease, which requires the tenant to pay maintenance, taxes, insurance and so on, along with a fixed rent. This is also called "net-net-net" or "triple net."
8.
Lien. A legal claim filed against a property for payment of a debt or obligation. If a property owner fails to pay a creditor, for example, the creditor can place a lien on the property. A lien can halt the sale of a property.
9.
Sale-leaseback. A transaction in which an owner sells a property to an investor, who then leases the property back to the original owner under prearranged terms. Sale-leaseback deals offer the original owner freed-up capital and tax breaks and the investor a guaranteed return and appreciation.
10.
Sublease. A lease given by a tenant for some or all of a rented property. For example, if a tenant rents 20,000 square feet but only ends up needing 10,000 square feet, they may want to sublet the extra space for some or all of the remaining term of the lease, providing they continue to occupy and pay rent for the property.
Wednesday, May 6, 2009
Economic Recovery
RE/MAX International recently held their second symposium exclusively for commercial real estate professionals and I was privileged to be invited to attend. The symposium was a chance to meet and compare best business practices with some of the leading commercial real estate agents in North America. Brokers in other parts of the country are reporting very few real estate closings, rising cap rates, and increased nervousness among the bankers with money lent on commercial properties. Here in the Midwest we have been relatively insulated from the recession and market drawback but we have not been without our share of concerns. Despite this, I am seeing an increased demand from small business owners who are seizing opportunities to relocate, expand and start up businesses. Just this week I closed one transaction for a couple that need to expand their tree trimming service, and I just got a lease signed for a young lady who is moving her pet spa and grooming service out of her home and into a retail space. The determination and ambition of these young entrepreneurs is very refreshing and encouraging. It is this spirit and dedication along with their belief in themselves that will take us a long way toward recovery. If you have concerns about your present lease, or whether you should be buying or selling property, I would be delighted to discuss them with you.
Sunday, April 19, 2009
News from Commercial Real Estate Workshop!
I recently attended the Commercial Real Estate Workshop of the Midwest (CREW) held here in Omaha. Some of the newsworthy information gleaned from this meeting are:
1. Retail landlords are making some very good concessions to get tenants to stay in place and are being much more generous with allowances to get tenants into their buildings.
This means that if you presently have a lease with a retail or office landlord, a review of your lease may find some areas where you can negotiate some savings from your current landlord. If you are contemplating a renewal or a new lease, you should enlist the services of a seasoned commercial real estate agent to be sure you get the best deals available. It is typically not in your best interest to merely contact the agent on the sign, as he or she has a vested interest in keeping the landlord very happy with the deal.
2. Several bankers presented information at the meeting with the message, "yes we have money, but you can't have any".
Basically these bankers are saying that they have a lot of capital but they are being very select in how they lend it. Non-recourse loans are basically a thing of the past, loan to value ratios are dramatically lower (60-65 percent), and debt service coverage ratios have gone up. All of this means that if you are planning to buy commercial or investment property, you will need a guarantor that has exceptional credit, a sizable down payment, and cash flow to cover at least twenty five percent over the cost of the loan.
3. There are exceptional deals on commercial and investment real estate available in all parts of the country.
If you have the cash for a down payment, good credit, and a well thought out and documented business plan, there are some great deals on real estate, and you can get the money to finance it. Capitalization rates have climbed meaning lower asking prices. As commercial notes come due, the value is no longer there as cap rates have risen and net operating income (NOI) has dropped. Property owners will find themselves with a more difficult time getting refinanced, and banks don't want to own the real estate. This scenarios creates an excellent opportunity for those with the means and desire to acquire real estate at substantial savings.
4. It is no longer business as usual.
Virtually everyone that spoke at the the CREW meeting agreed that commercial and investment real estate owners, brokers, and investors can no longer do business as usual. There is a lot of uncertainty in the marketplace, with tax considerations, and with wall street. It will take a while for confidence to return and even when it does you must have a broker that has the ability to stay in touch with national as well as local issues. You need a broker that has the training and understands IRR, NOI, GOI, cap rates, basis points, tax issues, and a host of other terms that will impact your commercial and investment property decisions.
As a member of the RE/MAX Commercial network, I have access to some of the most advanced technology available and over 95,000 agents around the world. My membership in the CCIM Institute and as a CCIM designee puts me in the company of the top five percent of all commercial real estate agents in the country. I not only have the tools and the connections, but I have the willingness and ability to speak to commercial real estate agents around the country and with specific expertise that I may need.
I look forward to working with you in all aspects of commercial and investment real estate.
1. Retail landlords are making some very good concessions to get tenants to stay in place and are being much more generous with allowances to get tenants into their buildings.
This means that if you presently have a lease with a retail or office landlord, a review of your lease may find some areas where you can negotiate some savings from your current landlord. If you are contemplating a renewal or a new lease, you should enlist the services of a seasoned commercial real estate agent to be sure you get the best deals available. It is typically not in your best interest to merely contact the agent on the sign, as he or she has a vested interest in keeping the landlord very happy with the deal.
2. Several bankers presented information at the meeting with the message, "yes we have money, but you can't have any".
Basically these bankers are saying that they have a lot of capital but they are being very select in how they lend it. Non-recourse loans are basically a thing of the past, loan to value ratios are dramatically lower (60-65 percent), and debt service coverage ratios have gone up. All of this means that if you are planning to buy commercial or investment property, you will need a guarantor that has exceptional credit, a sizable down payment, and cash flow to cover at least twenty five percent over the cost of the loan.
3. There are exceptional deals on commercial and investment real estate available in all parts of the country.
If you have the cash for a down payment, good credit, and a well thought out and documented business plan, there are some great deals on real estate, and you can get the money to finance it. Capitalization rates have climbed meaning lower asking prices. As commercial notes come due, the value is no longer there as cap rates have risen and net operating income (NOI) has dropped. Property owners will find themselves with a more difficult time getting refinanced, and banks don't want to own the real estate. This scenarios creates an excellent opportunity for those with the means and desire to acquire real estate at substantial savings.
4. It is no longer business as usual.
Virtually everyone that spoke at the the CREW meeting agreed that commercial and investment real estate owners, brokers, and investors can no longer do business as usual. There is a lot of uncertainty in the marketplace, with tax considerations, and with wall street. It will take a while for confidence to return and even when it does you must have a broker that has the ability to stay in touch with national as well as local issues. You need a broker that has the training and understands IRR, NOI, GOI, cap rates, basis points, tax issues, and a host of other terms that will impact your commercial and investment property decisions.
As a member of the RE/MAX Commercial network, I have access to some of the most advanced technology available and over 95,000 agents around the world. My membership in the CCIM Institute and as a CCIM designee puts me in the company of the top five percent of all commercial real estate agents in the country. I not only have the tools and the connections, but I have the willingness and ability to speak to commercial real estate agents around the country and with specific expertise that I may need.
I look forward to working with you in all aspects of commercial and investment real estate.
Saturday, March 7, 2009
Right Agent for Commercial Real Estate
As the economy continues to take a downward turn it is inevitable that real estate prices and the number of transactions continue to fall as well. There have been a few "residential" agents trying their hand in commercial transactions as a means to make ends meet. Buying and selling commercial and investment properties is a risky business where not getting all the facts or misinterpreting data can be devastating. If a business is relocated to a market area where the business struggles or a construction project closes the road for months, the success of that business will be in serious jeopardy. Not knowing the true value of an investment property will also likely mean loss of revenue for the seller or buyer, depending on which way the error was weighted. If you are contemplating buying or selling investment property, be certain that you agent has successfully completed coursework and achieved a designation such as the prestigious Certified Commercial Investment Member (CCIM) offered by the CCIM Institute of the National Association of Realtor(r)s. Agents that have earned the CCIM designation have completed a minimum of 160 hours of classroom work, passed competency tests along the way and provided a portfolio of qualified transactions prior to being allowed to sit for the comprehensive exam. The course work is strenuous and challenging, while the portfolio requires persistence, organization, and result. The result is that a CCIM knows how to conduct commercial and investment transactions and protect his client through the process.
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