Commercial Real Estate Is A Good Investment: Here Are 8 Reasons Why…

by Phill Tomlinson | Sep 24, 2021 | Blog

The real estate industry has proven itself a bankable field for investors. It has generated massive income through the years and has produced billionaires, the likes of Sam Zell, Stephen Ross, and Donald Trump. Real estate industry’s diverse scope of investment options include rental properties, real estate stocks, investment trusts, and crowdfunded deals.nnIndeed, real estate is an exciting venture to be in. If you are looking for a great place to start investing, diversify your investments, or generate relatively higher income, opt for commercial real estate (CRE).nn n

What is Commercial Real Estate (CRE)?

nBasically, commercial real estate properties are those that generate income. These are pretty much business infrastructures, such as stores, warehouses, restaurants, office buildings, accommodation spaces, leisure and entertainment buildings, and others.nnCREs are considered to have a higher-risk, but take note that in the world of investments, the higher the risk, the higher the reward is. It may sound overwhelming at first causing some hesitation, so here are 8 reasons why you should consider pursuing investing in commercial real estate.nn nnBigger ProfitnnLet’s talk money. Commercial real estate properties are commonly rented out or sold at a higher price, often tenfold higher in comparison to residential real estate properties. As a matter of fact, *the commercial real estate industry in the US alone accumulated a whopping total of $27 billion in annual revenue from year 2020. **If we are to reference the report from the National Council of Real Estate Investment Fiduciaries (NCREIF), 12.7% of that, or more than $3 billion dollars, goes back to investors as profit. This is in comparison to the 8.8% annual return of investment in residential real estate properties.nn nnMore income stabilitynnResidential real estate properties are often limited to a one-year lease agreement. While this is a good thing for tenants, the concern this entails for investors is the high turnover rates. With these one-year lease agreements, investors are only assured a year in each tenant, as they are free to decide whether to stay or move out after a year.nnMeanwhile, commercial real estate properties have longer lease agreements of three years in minimum, generating a more stable income flow for investors. Another great thing about this is that it also reduces the hassle that goes with finding new tenants.nn nnLess CompetitionnnCommercial real estate properties are commonly fewer in number as compared to residential properties. This means that your CRE property has a higher chance of being sought out and can be easily accessible to business owners. Businesses aspire to grow and expand their market reach and they typically do this by branching out. With this, they will be in search of commercial real estate properties. That is when you enter the picture.nnOn the other hand, residential real estate properties are growing in number. Therefore, the competition is tight and challenging. Needless to say, the presence of numerous competitors reduces the chances of profit.nn nnFreedom on scale of investmentnnWith commercial real estate properties, you have full liberty to decide whether to invest in full-scale establishments, such as malls, hotels, and casinos, or choose to put your money on small-scale individual facilities. It is all up to you.nnIf you are a beginner in the industry, it is recommended that you start with small-scale establishments or infrastructures. It can be your way of testing the waters. Once you get a hold of it, you can start increasing and diversifying your investments.nn nnProperty Maintenance isn’t Always on YounnCommercial real estate properties are often rented out by business owners. Regardless if these are large-scale or small-scale businesses, there are investment opportunities, like absolute net investments where the tenant takes care of the building, maintains their space, even improve the property since space maintenance and appearance is tagged crucial in generating customer sales and customer retention. This is good news for you, as an investor, since a well-maintained and improved property increases in value over time and reduces the investor’s total cost.nnIn instances where renovations are needed or maintenance concerns are encountered, most commercial real estate properties operate on triple net leases. This means that majority of these property-related expenses, such as utilities, insurance, and taxes, are taken care of by the tenants.nnThis is contrary to residential real estate properties which must be maintained at all times. Otherwise, tenants would complain of maintenance concerns.nn nnProfessional tenant-renter relationshipnnAnother advantage of having business owners as tenants is a more professional dynamic in tenant-renter relationship. Business owners maintain a certain image of credibility. With this, concerns are typically settled in a more professional approach; whereas, residential tenants often cause concerns on payment, unnecessary demands, and policy compliance.nnThis may seem a simple advantage in text but in reality, residential clients are more likely to demand more and cause stress over time as compared to commercial clients.nn nnMore time to rest and relaxnnImagine getting a phone call from your residential tenant in the middle of the night, complaining about a leak in the property you are renting out. Even just the thought of it stresses you out, right?nnThis is one of the reasons why you should opt for commercial real estate properties. As mentioned, CRE clients generally require less attention. If they do, they are typically requested in the day since businesses operate in the standard 9-5 schedule.nnLess demands from clients means less time to tend to your commercial real estate property. Consequently, you have more time to spare, which you can use to spend with your family, in venturing out to other investment options, or a quality time for yourself to rest and relax.nn nnCRE Can Generate Great Wealth nnIf you’re still in doubt of the CRE’s ability to generate income for your investments, remember that it has produced billions across the globe. This is a testament of how established this investment platform is. The initial investment is bigger as compared to residential real estate properties. However, the pay-out is also bigger. When pursuing investing in CRE be sure to seek advice and help from those professionals associated with CRE. You can opt to work with smart and experienced commercial real estate brokers or ask advice from real estate lawyers. This way, you can reduce any risks of income loss and instead maximise your investments to reap great results.nnWith such high income return and numerous advantages, CRE is a good option when looking to diversify your investment dollars. People have already taken their share from this great investment option. Of course, you want to make the most out of your money, and from the advantages you just read, where best to invest but in commercial real estate.  Planning to invest in commercial real estate? Read our article 5 Steps to Buying Your First Commercial Property that will walk you through the steps on how to get started investing in CRE.nn

nnEven after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.nn nnNeed help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!nnn nnPhill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns. nn nnBookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCREnn nn n

Sources:

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*https://www.firstresearch.com/Industry-Research/Commercial-Real-Estate-Management.html?fbclid=IwAR2mYwSyWc68eMoNpsXq1xZtSKTv528d2LNk0u1p9TJpGcYwvq7bxRwKwes

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**https://www.fortunebuilders.com/commercial-vs-residential-real-estate/?fbclid=IwAR3WajMYzM1B0xCog6m1QwqTz7J-ppm1PrSy_lLWoD252mM456duho5S7WA

8 Steps In Leasing Commercial Real Estate

by Phill Tomlinson | Sep 17, 2021 | Blog

Leasing commercial property is one of the critical engagements in which a business owner must take into consideration. Hence, getting there and knowing the steps for leasing serves as guidance essential to every business owner, especially in attracting investors or tenants alike. And while leasing commercial lease estate is confusing and intricate, here are the following steps that will guide potential lessees through the critical stages of the lease process.nn n

Eight (8) Steps in Leasing Commercial Real Estate

n nnSTEP 1: KNOW AND DETERMINE YOUR NEEDSnnIt is essential to have an idea of what specific needs and wants you have in mind. This is so because knowing the particular details of your wants and needs narrows down the search for spaces that will work for your business. There are three significant factors in helping you make the right decision: location, rent budget, and type of space. nn nnLocation is essential since this affects the viability, quality, and value of your space. Considering the area, the environment, where the customers are located, is the place accessible, what other businesses offer a synergistic relationship, and most importantly, where is the competition found? nn nnCost or Rent budget is another factor that must be considered. Monthly rent is determined by various variables, such as lease rate per square foot, utilities, additional tenant improvements that are amortized into the rent, and annual rent increases as provided in the lease contract. nnType of Space. The kind of space is going to be determined by the type of product or service provided. Various types of commercial properties fall under the umbrella terms: Industrial Office, Office Properties, and Retail Properties. Getting to know these different commercial spaces is integral before beginning the search for the commercial space to lease. nn nn nnSTEP 2: RUN YOUR NUMBERS nnBefore you start looking for a commercial property to lease, you must first determine the costs thereof. Therefore, you should always bring a broker into the discussion to assure and provide detailed results concerning the estimated costs of leasing a commercial property since your overhead might be going from zero to a million. Hence, it is always important to be realistic and confirm that the business can weather the change. nn nn nnSTEP 3: TOUR THE SITESnnBrokers will most certainly prequalify sites for you based on your specified requirements. They will bring together as many properties as possible to help you narrow the list. As such, it is your responsibility as the lessor to tour the optimal sites, preferably on the same day, since you will be able to make a reasonable comparison based on the specific criteria you have set up. It is rather vital to be reserved while touring the spaces to keep your negotiation leverage in the properties and the brokers. nn nn nnSTEP 4: WEIGH THE OPTIONSnnAfter you have toured the sites, varying options will now be put before you. To make a better result that caters to the preferences of your tenants and employees, you must be able to make all the proper choices that will guide you in choosing optimal property—the competition, accessibility of the place, the ambiance, and the environment where the property is located. You are not opening a house but rather a business. Hence, while there are always properties that cater to your needs specifically, you must also consider certain factors that will affect your business as a whole. nn nn nnSTEP 5: CREATE A LETTER OF INTENTnnOnce you have chosen the property that suits the criteria of your needs, have your commercial real estate broker create a letter of intent (LOI) on your behalf to send it to the owner of the property. This LOI will state your eagerness or desire to enter into a lease agreement along with your expected terms. The LOI is not the actual leasing agreement; instead, it is heads of terms to start the conversation. Heads of terms refer to those terms which the brokers/agents will engage to facilitate and inspect field questions and agree on the critical points for any inclusion on the lease. And while the heads of terms are not legally binding, they form the basis on which any lease document is ultimately prepared. nn nn nnSTEP 6: BEGIN LEASE NEGOTIATIONSnnMany sections of a lease establish the terms of an agreement between you and the owner. Lease negotiations is comprised of several factors including, namely:n

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• Length of the term;

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• Lease rates; 

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• Concessions,e., a reduction in price, rent, or other benefit provided to a tenant or buyer as an inducement to buy or lease;

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• Rate bumps or Rate increases; and 

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• Renewal options

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n nnThese negotiations can take anywhere from a few days to several weeks or even months to complete, depending on the complexity of the lease.nnAn owner will also want to establish your financial credibility as a tenant. In other words, you’ll need to develop your trustworthiness to pay the rent due to the owner as a part of your agreement. Again, financials and other documents are used to establish this credibility.nn nn nnSTEP 7: IDENTIFY TARGET DATE OF OCCUPANCYnnThe date set for occupancy may be subject to change depending on the aggregate amount of Tenant Improvements that may be made. These improvements come in many forms, such as simple paint, carpet, constructing or demolishing walls, plantation improvements, landscaping, etc. The more complex the Tenant Improvement, the more likely the date will be adjusted. The important stage in the operation is when the tenant improvements are completed, and a Certificate of Occupancy has been issued for space. nn nn nnSTEP 8: MOVING IN nnAfter signing the lease, you are ready to move in unless, of course, a “build-out” is necessary. A build-out occurs when the space is not designated to suit your needs, a build-out is required to get it to working condition and be ready for the occupant. After the build-out is finished (if needed in the first place), you are prepared for business. However, it is essential to remember that there is a continuing responsibility to comply with the lease terms. If you are in default, you could get evicted from there. So be careful and read the terms and conditions lest you are ousted from the property leased.      nn

nnEven after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.nn nnNeed help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!nnn nnPhill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns. nn nnBookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCREnn 

The Commercial Real Estate Market: Is Rebound Possible In 2021?

by Phill Tomlinson | Sep 10, 2021 | Blog

The COVID-19 pandemic will perpetually clout almost all aspects of our lives; this includes the use of commercial real estate. However, from the black plague to the discovery of penicillin, one thing is clear: there is generally an expansion not only in economic terms but also in technology and innovation. Indeed, the post-pandemic recovery has the potential to accelerate and improve with a focus on social justice, health, remote work, households, workers, and companies. And while the pandemic has negatively affected all classes of commercial real estate, it has also brought about innovative possibilities for Commercial Real Estate, such as affordable rental prices, dynamic online communications, and sending in forms and payments through online platforms. Hence, the future is not all gloom for the commercial real estate market, even in light of the COVID-19 pandemic. nn         nnCommercial real estate will slowly start to recover from the effects of the pandemic. However, due to the lingering effects of the pandemic, this recovery will most certainly have its challenges and setbacks along the way. That being said, the following are commercial trends that could rebound in 2021 and onwards: nn nn1. Asset Class Winners – While retail, hotel, and office prices continually decline in value ranging between five (5) to ten (10) percent, industrial, data center, life science, and single-family homes will continue to have their value increased. Moreover, the volume of transactions in favorable sectors will most likely remain lower than usual, which will support higher pricing due to increased investor competition.            nn nn2. Interest Rates will remain low in 2021 – The Federal Reserve will most likely accommodate a monetary policy, and hence, keep the interest rate low throughout the year. This action will consequentially provide a positive backdrop for commercial real estate borrowers and will inevitably impact the positive recovery of the economy.nn nn3. Major Cities will most likely see population decline – Studies show that New York City, Chicago, San Francisco, Los Angeles, and other cities will continue to lose population. Even before the pandemic hit, people in big cities with rents far exceeding the earning capacity of Americans in the middle class have and will continue to decline. Work-from-home policies and public health shutdowns even further accelerated the decline of the population of these large metros. People are looking for cities that offer a better lifestyle, lower cost of living, and better weather. Some growth cities include Austin, TX, Mount Pleasant, SC, etc. nn nn4. There will be a mainstream rise of alternative assets – Commercial Real Estate exposure will increase among asset allocators, and this is because it offers resilience in an imbalanced recovery. In this case, high equity valuations and negative yields from many government bonds are expected to push more investors toward alternative assets, the commercial real property.nn nn5. Work-from-home offers more opportunities for alternative use of office space – Due to the global pandemic, lockdowns have led more companies to have their employees working from home. At first glance, it may seem like office space would prove useless in 2021, there are several opportunities in the Commercial Real Estate market for commercial offices. Vacancies in high-traffic areas make this the perfect time for commercial owners who are looking to expand.nn nnTherefore, based on the preceding predictions, the pandemic offered a silver lining amidst its adverse effects. It is allowing the slow but dominant increase of commercial real estate in the market. Lawrence Yun of the National Association of REALTORS®’ chief economist said that personal income is up 10.7% year over year, and personal savings is up an astonishing 302% for the same period. As a result, considerable capital will most likely be pumped into the economy, with consumers eager to tap into a year’s worth of savings and what remains of their stimulus funds. According to Yun, “If we look at potential, it’s even greater than we could have expected”. This is, in essence, ‘revenge spending’ wherein people tend to spend what they have saved due to pent-up frustrations due to being stuck at home, saving up money, and now they can go out again. This is, of course, great news for the Commercial Real Estate sector. People will most certainly want to spend their savings on properties whose value has been reduced due to the effects of the pandemic. This is coupled with the interest rate these investors would pay for commercial real estate, which will be relatively lower than previous years. All of these incentives would most certainly be enticing to people who would want to spend their saved-up money – which ultimately would have a remarkable effect on the real estate market. nn nnAnother area of potential benefit to commercial real estate is office vacancies. As previously mentioned, offices have been left empty or, in some instances, only a handful of employees are working in offices. In addition, studies show that there has been a decline in the physical office setting or that more commercial offices are engaging in smaller spaces for lease at a much shorter period. Work-from-home will be the single most prominent question for commercial real estate coming out of COVID-19 since this forces companies to re-evaluate their use of office space. Hence, there is a lot of potential in the office, predicting a rebound in the sector after a period of experimentation. Companies will try out different ways to organize office space and employees. However, industrial warehouses and land remain bright spots for commercial real estate investing, increasing 2% and 3% respectively in sales volume year-over-year in the first quarter of 2021. In fact, funds have been invested in the relatively new digital real estate sector, including cell towers, data centers, and logistics facilities, which have performed exceptionally well. These are offshoots and, ultimately, form part of commercial real estate.nn nnTo summarize, there is still potential in the office sector; with interest rates near zero, unemployment rates dropping, vaccinations increasing, and the potential for infrastructure investments on the way, the future is still bright for Commercial Real Estate. Although this economic potential is dependent on many factors, virus-related included, there are opportunities ahead for commercial real estate investors along with signs that the Commercial Real Estate market can make a rebound in 2021. nn

nnEven after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.nn nnNeed help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!nnn nnPhill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns. nn nnBookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCREnn nn