Tag Archives: Commercial Real Estate

The Top Five Commercial Real Estate Investing Tips

Pros Offer Tips for Best Commercial Real Estate Investing

The advantages of real estate investing have been touted over the years as a profitable, consistent source of passive income that can continue to generate funds over the span of many years. While both residential and commercial real estate investments have proven to meet each of these qualifications in recent years, commercial real estate often holds better financial rewards for investors as compared to residential properties. However, there can also be increased financial risk depending on the terms of your deal.

No two commercial real estate investments are the same. Identifying these key differences and using the information available to pinpoint which properties to invest in, when the opportunity is ideal, and how to proceed once the time is right are crucial to determining whether a commercial real estate investment will be successful or ultimately fail. This brief set of commercial real estate investing tips is designed to assist potential real estate investors in reviewing some of the most important strategies, common mistakes, and other risks associated with commercial real estate investments.

1. Know Your Market

“Know your market” is a common catchphrase among residential realtors and commercial real estate agents for a reason; it is essential to know as much as you can about the market area you’re considering before you pursue investment. Not only does each unique area have its own characteristics, but its own supply and demand as well. Before you make a purchase, you’ll want to investigate your target market to determine the needs there, as well as the probable success of an investment.

Research the current supply of commercial investment types in the area, focusing on those you hold most interest in. In addition, keep an ideal working size or function in mind, including any improvements you’d be willing to make to a property. If multiple properties of this type and size are currently on the market, you may risk entering a saturated market.

Alternatively, if you are open to numerous types of properties, watch for property types that seem underserved for the area. These properties are often more in demand than the average property and have the potential to be lucrative. However, additional research regarding the potential for future growth should not be overlooked.

2. Commercial Property Type Matters

There are many commercial property types, and each comes with its own unique set of challenges and advantages. For instance, multi-unit, commercial residential properties usually demand the services of a maintenance staff or individual, available 24/7 or as emergencies occur for each individual unit. Commercial office or retail space comes with unique maintenance issues of its own, while industrial properties often require special licensing for technicians working around large machinery.

While there are certainly many considerations other than maintenance involved with commercial properties, such as security, repair costs, and more, the point is that it is essential to determine your readiness for handling the issues that come with each property type.

In addition, the supply and demand and ultimately the profitability of commercial property is largely dependent on the type of property you’ve chosen.

In general, commercial property consists of five main sectors, including multifamily, office, retail, industrial, and special purpose. However, within those types exist subgroups, such as hotel properties, medical facilities, and many others. Extensive research into which types are most profitable in your chosen market can help you make the most of your commercial real estate investment.

3. Build Up Adequate Down Payment & Reserves Funds

Commercial property investment requires, on average, a larger initial investment than residential property. Property values are usually higher, and when coupled with regular 20 to 30% down payment requirements, you’ll need more capital up front. Consider, too, that any immediate expenses you’ll need to undertake, such as remodeling, maintenance, rezoning, and other fees, are typically more substantial than residential real estate costs.

As such, you should build a contingency fund into your initial cost estimates for your commercial property purchase. This fund will help pay for unexpected expenses in excess of the purchase amount, expenditures for improvements before you find renters, and other various costs. Depending on your lender, you may be required to show a 5 to 15% contingency budget.

After you’ve made your purchase, it’s ideal to have additional capital reserves to cover expenses if further unexpected situations or the need for other improvements arise throughout the life of the loan. If you need to replace a roof or cover expenses between tenants, for example, having cash in a reserve fund or account to meet these needs is a good practice. Plan on reserving between three and five percent of your gross rent for these purposes.

4. Do Your Due Diligence

In commercial real estate, due diligence isn’t just an expression used for “doing your research,” although that is primarily the gist of what you’ll do during this time period. For the commercial real estate investor, the due diligence time period is where you’ll do comprehensive research on the property you’ve chosen. Information you’ll need will include:

  • Your financial statements
  • Previous owners’ profits and losses
  • Tax returns
  • Surveys (if necessary)
  • Property tax and zoning information
  • Property inspections
  • Feasibility studies

With your necessary information in hand, determine whether your property can be used as you intend (crucial if you’re developing vacant land), which improvements it can feasibly or legally support, as well as what the local market looks like for both of these factors. Due diligence is also the perfect time to learn all you can about the city or county that covers the property, particularly regarding permitting, zoning, applicable ordinances, and associated fees.

Finally, you’ll need to do your due diligence regarding your lender and other investors as well. Speak with others who have worked with this broker to get a feel for what’s expected of you during this time as well as what their procedures for due diligence consist of. If you’re entering a partnership or real estate investment trust, you may want to consider conducting a background check.

5. Plan for the Unexpected

Planning for the unexpected may seem like an oxymoron, but preparing yourself to experience at least a few setbacks, unplanned hurdles and even failures along the way will make dealing with them once the situation arrives much easier. Whether you’re starting a partnership or real estate investment trust, awaiting confirmation from a municipality or forging a construction contract, working with other people has the potential to alter your timeline beyond your initial plans. Taking precautionary steps like building plenty of extra time into any improvement timeline to account for unexpected delays or increasing your contingency funds to cover potential additional costs unique to your property type can prevent you from financial and emotional stress later.

Once you’ve made your initial investment, it’s also important to remain flexible regarding your expected returns. Potential hurdles include waiting for tenants, changing management, and implementing your initial rental terms. Your timeline and capital reserves should be able to withstand these common issues.

Work With a Seasoned Team

If you’re considering investing in commercial real estate, I urge you to use these five tips to your advantage. You’ll find yourself better prepared to enter into the commercial real estate world, and your first meeting with your broker will proceed smoothly. A wealth of other commercial investing tips, tricks, and advice can be found elsewhere on this blog.

When you’re ready to learn more about either commercial real estate investing in general or the properties currently available in the Phoenix area, contact COBE Real Estate at your earliest convenience. Our seasoned brokerage team can assist you on your way to commercial real estate ownership with all the necessary precautions.

Complete our contact form to request a consultation, or call 480-610-2400.

Why Buying Commercial Property in Arizona Without a Broker Isn’t Worth the Risk

Everyone wants to save a buck when they can. Do-it-yourselfers have risen to fame over the past decade as YouTube, Vimeo and other social media channels have provided a public forum to teach non-experts how to do things.

The reasons for the shift have much to do with our drive to save time, aggravation and the almighty dollar. But does this mindset apply when buying commercial property in Arizona? The answer, like commercial real estate itself, is complicated.

Understanding the Value of a Good Commercial Broker

Not every state in the country conducts the real estate transaction in the same manner; in fact, some of the players are different. While areas in the east coast, for example, often include a real estate attorney and a real estate broker as part of the process, Arizona transactions sometimes exclude attorneys on either side. This puts the onus of proper real estate dealings on brokers and brokerage firms. Though there is a caveat in this, the buyer of commercial property must take responsibility in performing the necessary due diligence before and during the escrow period to uncover matters than would affect their desire and ability to close.

Commercial brokers help facilitate all dealings related to the search, identification, negotiations, investigations and successful closings for the sale and transfer of real property. How well they perform is often contingent upon their overall local market knowledge, which includes, but is not limited to:

  • Proposed changes in the industry
  • Municipal and private developments in the works
  • Strength of peer relationships
  • Understanding of transaction process
  • Use of commercial real estate contract language and nuances therein that provide negotiating edge
  • Their network of strong third-party resources

The Art of Timing and Playing a Good Game of Chess

A purchase contract is boilerplate content that presents the ins and outs of what is expected, the timelines to execute, and available remedies in the event that an issue arises or a party deems it necessary to back out. What may be of more importance is what the paragraphs and line items don’t say. This is where a commercial brokerage firm can represent a buyer’s best interests exponentially.

For the unsuspecting (and that would be most buyers of real estate not using a broker), time is of the essence and progresses similar to a move in a game of chess. For example, if you want to bide time to ensure you have chosen the best property for your needs, make sure to ask for a lengthier inspection period. This allows you a larger window of opportunity in discovery of issues that may present concern, especially pertinent when buying real estate on or near environmental hazards (such as a gas station or Circle K).

What You Don’t Know When Buying Commercial Property in Arizona Will Hurt You

We’ve seen this happen in many geographic areas in cities from coast to coast. Often, buyers of residential property, including investor pools, will consult their residential REALTOR® for information and representation in commercial real estate transactions. Even for the most well-intended agents and brokers in this part of the industry, accepting the undertaking puts them, their brokerages and buyers at risk.

Residential agents and brokers have to abide by a Code of Ethics that, in part, stipulates the need to serve customers and clients best by referring them to industry professionals who specialize in the specified market niche, whether that be the type of property desired, and county of location.

The above info just illustrated some of the pitfalls in dealing with real estate experts who don’t normally work the commercial market. Now, imagine what it’s like to navigate the hills and valleys of the business without any formal knowledge and licensing in real estate.

You wouldn’t perform surgery on yourself. Why would you consider buying property without the right experience and certifications under your belt, through buyer representation?

The Slippery Slope of Due Diligence Is Best Left to Those Who Hike It Every Day

For the novice in real estate, negotiations don’t start and end when all parties fully execute the purchase contract. It’s a step-by-step roadmap that is often dotted with traps. Some can be anticipated while others come about by surprise. A well-crafted letter of intent can pique the interest of a seller. It can spur a conversation between listing and buyer brokers. This convo can reveal hot points that shape the way the offer will be written. But if you were a buyer without representation, you’d never know what you missed.

The intricacies of a commercial real estate transaction can be arduous … especially during the due diligence process. Some of what it entails includes:

  • Site research about property use and other history
  • Why the seller wants to sell
  • Pertinent details about the area
  • Recent city code changes that affect property condition
  • Potential deferred maintenance or ADA guidelines unmet
  • Environmental hazards
  • Zoning and difficulty in obtaining a variance if needed
  • Buzz on the street amongst other brokers
  • Private and municipal developments and redevelopments that could affect value, foot traffic and ease of ingress/egress
  • Current market value
  • Current market rents
  • Proof of rent rolls, cap rates, net operating income, and operating costs

Do you really want to do this solo?

Most Common Misunderstandings, Errors and Overlooks in Commercial Transactions

As long as you’re probably questioning your ability to enter into a commercial property purchase without qualified representation, here’s a list of other reasons to remove any doubt.

5 Common Mistakes in Commercial Property Purchases:

  1. Underestimating cost of ownership
  2. Negligence in performing per contract
  3. Weak knowledge of competitors (location, location, location)
  4. Glossing over details that can cost you
  5. Inspecting property with verified, licensed, bonded third-party resources

Let’s take a moment to dive into No. 4 noted above, which is all encompassing. In a hot market, when properties fairly priced are hard to come by, haste in securing property can lead to errors in judgment and overlooking clues of issues on the horizon.

As a buyer, are you ready, willing and able to complete the transaction? Unrepresented commercial real estate investors can find themselves in a quandary should they use the inspection services from vendors that don’t have clearance or aren’t deemed as approved vendors from their lender. A buyer broker who’s on your side will know the questions to ask a lender before you spend any money on inspections.

In addition, seasoned commercial brokers will review a closing statement and know what to look for in the numbers. They can check for duplication in fees, overcharges and other inadvertent oversights that can increase the buyer’s cash-to-close.

What Do You Mean There’s No Code of Ethics in Commercial Real Estate?

As daunting as this may sound, there is no formal code of ethics for commercial real estate brokers. Hhhmmm … how do you deal with that and have a chance at getting the commercial property you want at the price, terms and conditions desired?

The Truth About Getting a Better Deal By Not Paying Buyer Broker Commissions

Here’s the biggest sticking point for business owners and investors looking to buy office, retail, industrial, land or multi-family property in Arizona without the use of a commercial broker working on their behalf: the money.

If you need to reread all the information provided in this article up to this point, please do. Take it all in. These, among other reasons, are why an un- or under-represented buyer is in a vulnerable position when making an offer on a property.

If you’re considering this course of action as a means to save the 3 percent (give or take) in commissions that go to the buyer broker, here’s the reality of how that “savings” breaks down:

  • Listing broker will convert the buyer commission into an increase in Seller’s net proceeds.
  • Listing broker will increase their own commission.
  • The broker’s fiduciary responsibility is to the Seller not the buyer, which can then:
    • Compromise disclosure of material facts or defects.
    • Compromise the due diligence and inspection process.
    • Misrepresent at any point in the transaction.
    • Compromise negotiations, not in best interest of buyer.

Experience is the greatest tutorial in commercial real estate. You can’t get a how-to online and have the adequate knowledge and protections that come from seasoned, local professionals working diligently on your behalf. It’s what you’ll find at COBE Real Estate.

Consult a Local Leader in Commercial Brokerage

Purchasing Commercial Real Estate: Identify the Right Property

This entry was posted in News and tagged , on by .

5 Factors to Consider When Purchasing a Commercial Property

There are several details to consider when looking for suitable commercial real estate to purchase. We all know the old adage “location, location, location” is true for commercial properties just as much as it is for residential. But there are many other issues to consider as well:

  1. Location, Location, Location.  This is still the No. 1 priority. You need to have good visibility, close to customers, workers, and vendors or suppliers. Businesses need to be convenient to customers to the extent that they have a location where the customer can find with easy accessibility.
  2. Physical condition. After identifying the general location, research the history of the property. Consider how the building was previously was used, the wear-and-tear, whether there are any environmental issues or potential liability issues, such as asbestos or lead paint. Verify the building was properly permitted and walk it with either a license general contractor or building inspector.
  3. Allowable uses. If your business is an accounting firm, you likely need commercial office space. If you are a manufacturer, you need an industrial space. Either way, you need to make sure the zoning allows you to do what you need to do on the property.
  4. Adequacy of access and parking. You need to make sure your customers can park and take into consideration whether access is compliant with laws such as the Americans With Disabilities Act.
  5. Opportunity for expansion or leasing. Entrepreneurs often have a rosy outlook about growth and so the potential to expand is a consideration as is the flipside – if you don’t grow as much as planned, can you lease out extra space?

Each of these five factors contribute to the overall satisfaction with your space and success of your purchase. A Commercial Broker can help you identify the right space, and navigate the purchasing process.

For more information on purchasing or to view available properties visit COBE Real Estate 

Brad Broyles

Senior Advisor

Brad Broyles is a real estate professional with over 11 years of experience in real estate investments, management, development, leasing and sales.

Since joining COBE Real Estate in March 2013, Brad has participated and closed over $50 million of commercial real estate transactions. Prior to joining COBE Real Estate, he spent 4 years as a Vice President of Commercial Banking which he was responsible for managing and selling a $30 million commercial portfolio. Brad also specialized in business start-ups, SBA lending, cash flow capital and special asset management. His unique business and real estate background allows him to be the best representative to any business owners who are wanting to expand or relocate their company.

Brad has a Masters of Real Estate Development from Arizona State University and a Bachelors degree in Accounting and Finance from the University of Phoenix. He is a member of the Arizona Small Business Association and is active with the Mesa Chamber of Commerce.

brad@coberealestate.com

Recent Closings: 2152 S Vineyard Ave Suite 131

This entry was posted in Medical and tagged , , on by .

Vanderbilt Plaza Medical Building Investment

2152 S Vineyard Suite 131, Mesa, AZ 85210

  • Sold for $770,000
  • Building Size: 4,001 SF
  • Zoning: Limited Industrial

This Beautiful turnkey medical building sold to Kaktus Investments  for $770,000. The property is fully leased to Ketamine Wellness Centers thru April 2021.  COBE Real Estate Broker Dave Collins represented the seller.

Located in the Vanderbilt Plaza Professional Park just off Baseline and Country Club in Mesa. Within 1.5 miles of the US-60 and quick access to the 101-Price Freeway. 3 Miles to Banner Desert Medical Center and 10 Minute drive to Banner Gateway Medical Center. Adjacent to new Mark-Taylor Development of 380 apartment units to be completed by Nov. 2015. Strong corporate office area with Fiesta Tech Center within 1 Mile.

  • Build Out Includes: 9 exam rooms (7 with sinks), spacious waiting room, reception area and file room, 2 nurses stations, billing office, 2 doctors offices, x-ray room, lab room, 3 restrooms, private shower room, storage, janitorial, server and break room
  • Traffic Counts Over 48,000 Vehicles Per Day on Country Club Drive
  • Within 1 Mile of the US-60 Freeway
  • Quick Access via Freeway to Banner Desert and Banner Gateway Medical Centers

 

For more information on COBE Real Estate listings visit:

Browse Available Commercial Properties

Featured Property | Mountain View Plaza

This entry was posted in Office and tagged , on by .

Mountain View Plaza: 1333 N Greenfield Rd Ste 104, Mesa, AZ 85205

  • Price: $432,075
  • Building Size: 5,319 SF
  • Zoning: LC- Limited Commercial

2,469 SF professional office condominium for sale at $432,075 or for lease at $14/SF NNN

Build Out Includes 2 Executive Sized Offices, 4 Offices, Large Reception Area, Break Room, Conference Room, Copy/Storage Area and Restroom.and 2 Built in Work Stations. Covered parking available. Building and monument signage available.

This beautiful high end office is located in the Mountain View Plaza just north of Brown Road on N Greenfield Rd. Plaza has excellent tenant mix of medical and professional offices. Adjacent to retail, numerous restaurants and Mountainside Fitness Center. Strong demographic area with high income households. Condo is only minutes from Falcon Field Airport and easy has access to Loop 202 – Red Mountain Freeway.

  • 2,469 SF professional office condominium for sale at $432,075 or for lease at $14/SF NNN
  • Build Out Includes 2 Executive Sized Offices, 4 Offices, Large Reception Area, Break Room, Conference Room, Copy/Storage Area and Restroom.and 2 Built in Work Stations
  • Tons of covered parking available
  • Building and monument signage available.
  • Condo is only minutes from Falcon Field Airport and easy has access to Loop 202 – Red Mountain Freeway.

For more information contact:

TJ ZAHARIS
VP, Designated Broker
COBE Real Estate

2152 S Vineyard, Suite 116
Mesa, AZ 85210

(O) 480.610.2400
(F) 480.610.2407

 

Building Wealth in Commercial Real Estate Investment

This entry was posted in News and tagged , on by .

Exploring the Rewards of Commercial Real Estate Investment

by Brad Broyles

Commercial real estate investing can be very rewarding, both financially and personally. For many business owners and entrepreneurs, the objective of investing in commercial real estate is for wealth and security, which can be grown into a portfolio and passed down to future generations. Commercial real estate also offers an abundance of tax benefits for investors and increased diversity on their investments.

Office/ Retail Investment Property with Parking Lot

Commercial real estate investment offers the following advantages:

Higher Potential Income: The biggest reward of investing in commercial real estate is higher potential income. Typically, commercial properties have a better return on investment, which could average from five to twelve percent, while single-family home properties struggle between one and four percent annually.

Longer Leases: The hallmark of commercial real estate is the attractive length of leasing contracts.  Residential properties are typically set for one year, while commercial leasing contracts are set for three up to twenty years.  These leases offer impressive returns and considerable monthly cash flow to investors.

Investment Property: 2 Office Buildings, Warehouse and Fenced Contractors Yard

Cash Flow: Commercial investing has one very clear advantage: a relatively consistent stream of income. Remember, the tenants are business professionals and need the property for company operations. Therefore, rental payments are steady and thus deemed a reliable monthly income.  Some commercial properties consist of more that 1 unit, resulting in multiple streams of income.

Tenants Pay Property Expenses: In most leases, tenants will also pay operating expenses on a commercial property. This is commonly known in the industry as triple net (NNN) lease. Triple net leases generally state that the lessee must pay the building’s real estate taxes, property insurance and maintenance costs, in addition to monthly rent.

Lower Vacancy Risk: Another perk, is that commercial real estate provides lower vacancy risk with leases spread over several units or properties. Typically, vacancy rates range between ten to fifteen percent and can be leased within two to four months.

Auto/ RV Sales and Repair Investment Property

Building significant wealth through commercial real estate investing requires planning, patience, and persistence. It may take time, but the right property investment  it will generate genuine wealth and security that can carry on for generations.

For more information on how COBE Real Estate can help you find your next investment visit COBE Real Estate , or for listing information visit our Property Search 

Brad Broyles

Senior Advisor

Brad Broyles is a real estate professional with over 11 years of experience in real estate investments, management, development, leasing and sales.

Since joining COBE Real Estate in March 2013, Brad has participated and closed over $50 million of commercial real estate transactions. Prior to joining COBE Real Estate, he spent 4 years as a Vice President of Commercial Banking which he was responsible for managing and selling a $30 million commercial portfolio. Brad also specialized in business start-ups, SBA lending, cash flow capital and special asset management. His unique business and real estate background allows him to be the best representative to any business owners who are wanting to expand or relocate their company.

Brad has a Masters of Real Estate Development from Arizona State University and a Bachelors degree in Accounting and Finance from the University of Phoenix. He is a member of the Arizona Small Business Association and is active with the Mesa Chamber of Commerce.

brad@coberealestate.com
(480) 610-2400
Cell: (480) 797-5266