by Phill Tomlinson | Nov 23, 2021 | Blog
As a tenant or a business owner looking for a commercial real estate (CRE) property to lease, you are often on the advantage of being sought out by CRE property owners or landlords. These property owners typically employ strategies to entice potential tenants, like you, to sign with their property, or in the case of their existing tenants, to renew their contracts. These strategies include incentives that you can enjoy as perks.nnIn a competitive market, incentives are used by landlords to put their best foot forward. However, as encouraging as these incentives may be, they also require careful studying and examination to ensure that they do not cause major drawbacks. It is still wise to hire a real estate broker or lawyer to have the agreement examined before you ink your signature in.nnNow, before you explore the numerous incentives in the market, you need to understand the two types of rent: face rent and effective rent.nnFace rent refers to the baseline payable amount of rent, excluding incentives, whereas effective rent is the total amount of rent after all incentives are taken in. Effective rent pretty much sums up the amount of money you will be spending on the property, and is the amount subject to comparison with the properties in your option list. These two are also often used to compute the total savings a tenant can generate over the period of time indicated in the agreement.nnThere are numerous incentives in the market, but the three (3) most common ones are the rent-free period, rental rate reduction, and fit-out contribution.nn n
LEASE INCENTIVES
nRent-free periodnnAs the name suggests, rent-free periods, also called abated rent, are incentive schemes that allot a specific time period when tenants do not need to pay for rent. Rent-free periods are often employed in the first few months of the lease. This, indeed, is a cost-saving incentive, making it particularly popular in the market and relatively effective in enticing potential clients.nnRent-free periods are not only beneficial to tenants in terms of saving money within a specific time period, but also in allowing tenants, especially newly established businesses, to generate sustained cash flow in their initial operations in the property in a time when they are still establishing their presence at the spot.nnNote that tenants must still remain cautious when working on these incentives. Make sure that you study the lease agreement and hire professionals to examine its technical elements to ensure that the scheme bears no unnecessary drawbacks in the long run.nn nn Rental Rate ReductionnnRental Rate Reduction is part of the negotiation to pay a lower lease rate distributed within a period of time or all throughout the lease.nnEssentially, deciding whether to opt for a rent-free or rent reduction is a matter of calculating whichever can provide more savings in your end. In calculating these, also make sure to consider some factors that come in play, such as rent increase per annum, market stability, negotiations with the property owner, etc.nn nnFit-out contributionnnA fit-out contribution incentive, also called tenant improvement allowance, allows the tenants and the property owner to share identified charges, which may include maintenance costs, installation of fixtures and other decorative elements to the property, and other space improvement costs.nnThis incentive may transpire using reimbursement basis on a certain percentage of total costs identified. Before signing up for this, the tenant is typically required by the property owner to secure the following:n
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- Duly signed commercial lease contract or agreement
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- Required insurance taken out
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- Submission of all the necessary receipts of identified expenditures for reimbursement
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- A bank guarantee or security deposit
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- Detailed plans for the works subject to the landlord’s approval, including quotes/price
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nIn a fit-out contribution, the tenant and the property owner must negotiate clear and specific terms, such as:n
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- Ownership by tenant or landlord of completed fit-out, either full or partial
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- Whether the landlord is required to provide ‘incentive guarantee’ to cover the incentive
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- Mode of payment, either reimbursement basis or other mechanisms
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nAside from these three, here are other commercial lease incentives that may be offered by a property owner:n
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- Cash payments
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- Cash-convertible benefits, such as cars, equipment, etc.
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- Fixed rent rates which do not arise during the lease period
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- Reimbursement of relocation costs
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- Reimbursement of a penalty
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- Reimbursement of legal fees
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- Free provision of furnishings and equipment
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- Lease incentives for exceeding lease liabilities
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- Lease incentive on a low value equipment
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- Incentive for the inconvenience generated by refurbishment works
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- Interest-free loans
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- Holiday packages
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- Pay-out of tenant’s pending lease commitment to another property
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n nnOther important reminders on commercial lease incentivesnnIncentive taxationnnCase laws often consider cash incentives given to tenants as taxable income. However, if such incentives are provided at the initial stages of a business, the incentive may be declared as capital, and is therefore voided of tax. Incentives in the form of reduced rent and entertainment incentives, such as holiday packages, are also spared from being taxed.nn nnRepayment clausesnnOne of the most important reasons as to why tenants must study the lease agreement before signing is due to the repayment clauses that are indicated in the contract. In some cases, a sub-clause is included which requires tenants to repay an identified portion of the incentives in the occasion of assigned, surrendered, or terminated agreement before the lease expiration.nn nnFit-out ownershipnnTenants must clarify ownership mechanisms of the agreement when it comes to fit-out, especially when specifying the roles and duties of both parties in fit-out taxation and ownership, particularly in the event of lease expiration.nn nnIncentive disclosurennFinally, never hesitate to employ professional help to carefully examine the inclusions and exclusions of lease agreements and in negotiating for better terms.nnAs cliché as it may sound, it is indeed better to be safe than sorry. After all, a lease agreement is a legal document, and your signature binds you and the landlord to the law. These incentives are nevertheless enticing, but never let that spur of excitement lead you to sign an agreement without careful consideration, which might lead you to undesirable consequences and loss in the long run.nn
nnEven after outlining all the information above, knowing your commercial lease incentives when leasing CRE can still seem daunting. That’s why the Leveraged CRE Team at Commercial Properties, Inc. is here to help you achieve your business and leasing 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!
nn 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 nn
by Phill Tomlinson | Nov 19, 2021 | Blog
A crucial part in leasing commercial real estate (CRE) is the lease agreement, These agreements sum up all the terms and conditions that will govern the lease within the period of occupancy.nnBusiness owners and tenants can negotiate a number of provisions. This allows the landlord and the tenant to customize the provisions according to their needs. Since a lease agreement is a legal document that determines the finances and the duties of both tenant and landlord, a tenant is recommended to always employ the help of a commercial real estate broker or lawyers in reading through the document to ensure that provisions are fair and justified.nnFrom your end, as a tenant, here are the provisions that must be present in your lease agreement.nn n
Commercial Lease Provisions
nRENTnnA rental rate is the obligation of the tenant to fill at the agreed number of days or months. Regardless of the lease type (full-service (FS), modified gross (MG). or Triple Net (NNN)), the rental or lease rate can be negotiated, depending on the length of the term, strength of the tenant, the amount of tenant improvements needed and demand for the space. Most lease agreements include annual increases, causing the rental rate to go up each year, depending on the lease agreement.nnFor instance, as a tenant, you should be wary of how your rental obligations may affect your overall rental amounts over time. This primarily happens due to what’s called a base-year in both full-service and modified gross leases. This unexpected increase in the rental amount is the difference from what the operating expenses were when you first signed the lease to where they end up each year after the accounts have been reconciled. Typically, this increase is no more than 1% or 2%, but it’s worth noting so there are no surprises. nnLease incentives can also affect the lease rate, and if this is offered by your landlord, you must ensure it is stated in the lease agreement.nn nnREPAIRS, MAINTENANCE, AND IMPROVEMENT CLAUSEnnThis part of the agreement explains the improvements made in the property before you take possession of the space, along with the terms identifying who is required to pay for the improvements made. For this reason, this clause is a crucial entry-level consideration as this involves money. Always check for this clause in your agreement to make sure that you are in a fair position within the agreement.nnAdditionally, this clause in the agreement covers the improvements you are allowed to make in the CRE property. This is significant if you wish to do some renovations in the space to cater to the type of business that you have.nnIf there is no improvement clause and you wish to renovate your space, you can negotiate to include one or write a letter to your landlord or the property manager asking for permission.nnIn leasing commercial real estate properties, you must always understand the nature of your lease agreement. More importantly, and we cannot stress this enough, you must always read the terms in the agreement before signing. If you deem some terms in the agreement unfavorable, never hesitate to negotiate. As a tenant, it is your prerogative to do so in the appropriate means, and as an entrepreneur, it is a crucial step that can determine the success of your business venture.nn nnSUBLEASE CLAUSEnnEntering the world of business means you are ready to take risks. As a business owner, you should be ready to encounter failures and losses just as you are ready for success. In case of troubling times, one should be ready for a back-up plan. A sublease clause can protect you from bankruptcy and debt.nnThe sublease clause in your lease agreement must be reviewed. It is stated in that clause, whether or not, you – the existing tenant, can sublease the space to another tenant. This clause will be able to protect you from having to continue to pay rent for unused areas of your property or from having to terminate your lease in case you want to relocate your business or entirely stop operations.nnHowever, not all lease agreement has a sublease clause. That is why it is important for you to consider your long term need and future plans. Landlords, typically, have certain pessimism on this clause in leasing agreements. However, you can always negotiate for a sublease clause to be included to also secure your business and finances.nn nnPERMITTED USEnnAs a tenant, you should be aware of the allowable or permitted uses of the commercial real estate you are eyeing. Permitted use means the enumerated activities allowed in the property. These activities are usually described in the terms of the lease agreement, the CC&R’s, or on a larger scale the zoning requirements. Be sure to call your city and verify if your business use is allowed at the CRE project you want to lease at. A permitted use may still require permission. Take for example – a dog grooming use may not be allowed in the CC&R’s, while a welding company is required to be in a project with specific zoning. nnThis is something you need to check on prior to signing a lease agreement as there may be a chance that the property you are considering to lease will not allow your business use. This can be a deal-breaker, especially if the nature of your business requires a lot of activities that are limited by the landlord.nnBut the good thing is, as a tenant, you can always negotiate the permitted use provision of your lease agreement to be as broad as possible.nn nnRENEWAL CLAUSEnnIt is always a possibility for a tenant to forget to renew the contract and might lead to consequences, such as eviction. In this case, a renewal clause can save you all the worries. A renewal clause in the lease agreement gives the tenant the right to renew and/or the right to extend the agreement, but in totality, the particulars of this clause may vary from contract to contract.nnA renewal clause should be able to include the steps needed for a tenant to renew their lease agreement when their term ends. There are also instances requiring tenants to write to the landlord of the former’s intent to renew the agreement.nnNevertheless, when it comes to renewing contracts, negotiate for convenient methods for both tenants and landlords to make sure that both parties are spared from inconveniences.nn nnThis article serves to introduce you to the basic clauses that need to be included in your lease agreement. This said, you are still recommended to employ professional help as you negotiate your way to business success.nn
nnEven after outlining all the information above, dealing with commercial lease provisions can still seem daunting. That’s why the Leveraged CRE Team at Commercial Properties, Inc. is here to help you achieve your leasing 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!nn 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
by Phill Tomlinson | Nov 16, 2021 | Blog
There are a lot of investment opportunities to choose from in these times. From stocks, bonds, trust funds, commodities and gold, cryptocurrency, to real estate. It all depends on your risk tolerance, preferences, and long-term goals.nnIf you are an investor, first-time or not, who prefers to invest in real estate among other investment opportunities then this article will be of interest to you. As you may know, real estate is classified into two (2) categories – Commercial Real Estate, and Residential Real Estate. Read through this article to know the four (4) reasons why you should invest in commercial real estate (CRE) over residential.nn n
Higher Income Potential
nThe income you can generate in a commercial property is much greater than their residential counterparts. Generally, commercial tenants cover many of the costs for the upkeep of the property. They pay CAM (Common Area Maintenance) charges to maintain the building, insurance, administrative fees, etc. of the commercial property they are leasing. Because this pass-thru cost is covered by the tenant, landlords do not have to worry about these expenses on the back end. On residential real estate, these expenses are not usually covered by the tenants; and if these charges are indicated in the lease contract, most of them are being negotiated. nn nnThis simply means that investing in commercial properties shows a greater value of income returns when compared to residential properties. Not only do the maintenance charges, administrative fees, and other expected fees being covered by the tenants making commercial real estate a reliable source of income over residential, but also commercial tenants tend to sign on for longer leases to avoid the hassle of changing their business location. This gives commercial landlords a sense of security that their properties will be occupied for longer periods of time. So if you are an investor, consider this – instead of making a few hundred dollars on a rental home every month, you could make thousands of dollars or even more if you choose the right commercial properties to invest in.nn nn n
Quality Tenants
nCommercial properties usually have stronger tenants than residential ones. If you are a residential property investor or a residential landlord, you will encounter a lot of calls from tenants requesting some issues or problems be fixed with their rental homes. Although you are responsible to cater their needs and address their issues, many of them end up calling in the middle of the night and on weekends causing a higher level of inconvenience.nn nn
nn nnThese scenarios are rare and do not usually happen in commercial properties. Tenants leasing in commercial spaces tend to be much more professional. If they happen to encounter some issues, they have their own maintenance team to take care of it. Also, commercial tenants usually work normal business hours, so any calls you get from them will be at a normal time of the day. Therefore, investing in commercial real estate gives you better and quality tenants, and it also saves you from receiving calls in the middle of the night to address an issue or help a tenant get into their house.nn nn n
Less Competition
nThe competition in commercial real estate is lesser compared to residential. Residential properties are very common and widespread which makes any commercial property appreciate differently due to the fact that a lot of investors often overlook the value and potential of CRE. Since financing is more difficult in CRE, available buyers will be lesser in comparison to residential real estate market. Hence, those who qualify are able to look at more options with less competition.nn nnWith that being said, choosing to invest in CRE not only gives you higher returns but also more income opportunities and profit potentials on your side!nn nn n
Property Value Appreciation
nA good investor carefully chooses what, where, and when to make an investment. Investing in a commercial building is a better and secure option when compared to a residential property. Why? Because when you invest in a commercial real estate, it appreciates quicker than that of residential.nn nnOne of the most significant distinctions between residential and commercial real estate is how property values are calculated. While comparable properties have a big influence on residential real estate, revenue has a big impact on commercial real estate. Moreover, commercial real estate properties are less susceptible to fluctuation making them a safer and stable investment.nn
nnEven after outlining all the information above, buying and selling 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!nn 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
by Phill Tomlinson | Nov 12, 2021 | Blog
nnClosing the real estate transaction is essentially the completion of an investigation made or actions taken by either a single agent or title attorney before the actual issuance of the title insurance policy. While it is not the job of the title attorney or agent to cure any defect or complications with the title to the property, title attorneys and title agents nonetheless assist in this area regularly. Get to know more about the closing process of Commercial Real Estate (CRE) through the following steps:nn nn n
Commercial Real Estate Closing Process
nEstablishing a plan – Developing a transaction plan is the foremost step. Such a plan must guide contract negotiations and the actions necessary for closing and post-closing. For example, in the instance that there are (a) zoning requirements, (b) availability of utilities, or (c) the confirmation of structural elements of a building, the plan as well as the purchase agreement must address those issues and be included as part of the closing requirements.nn nnAssess the issues – It is essential to be prepared for problems that can arise during a commercial closing. Failure to understand and resolve these issues is one of the causes of transaction missteps. Risk shifting techniques, such as insurance with appropriate use of available commercial endorsements, can effectively mitigate transaction risks. An experienced commercial real estate attorney accustomed to available commercial endorsements can most often overcome title obstacles through effective contract drafting and the assistance of a professional title underwriter.nn nnOpening an Escrow Account – An escrow account is one that a third party holds for the buyer and seller. As per practice, a commercial property sale involves multiple steps and is typically completed between fifteen (15) to ninety (90) days. Thus, to prevent fraud, it is necessary to bring a neutral third party. This third party can hold all the money and documents associated with the transaction until everything is resolved. Once all procedural and substantial formalities are over, the capital and records are transferred to the seller and buyer to an escrow account, guaranteeing a secure transaction. nn nnTitle Search and Title Insurance – A title search and title insurance provide peace of mind and legal safeguard. Title search and insurance ensure that when a person purchases a property, nobody can claim it afterward. nn nnTitle search refers to examining public records to ascertain a property’s legal ownership and discover what claims are on the property. And on the occasion that there are claims, they may be settled before the buyer gets the property. On the other hand, Title Insurance refers to indemnity insurance that guards the holder against financial loss sustained from defects in a title to a property. Thus, it protects real estate owners and creditors against the uncertainty of loss or damage stemming from claims or title defects. nn nnCoordinate all closing requirements – New issues often arise towards the end of closing, frequently because of the necessity of relying on independent third parties and providing certifications and property tours dated near conclusion. As the closing approaches, CRE brokers, CRE counsel, and all necessary buyer and seller representatives should remain available and ready to respond to the changing demands and circumstances. nn nnNegotiate Closing Costs – Costs incurred from opening an escrow account to hiring a real estate attorney. These costs can, unfortunately, accumulate from zero to a million if you aren’t cautious. Unfortunately, however, many services take advantage of consumers’ lack of knowledge by charging exorbitant fees. Moreover, even fees for legitimate closing services are often subject to inflation.nn nnLenders most often charge junk fees, i.e., fees which the lender imposes upon the borrower at the closing of the mortgage. These fees are not expected by the borrower and are not clearly explained by the lender. As a result, these fees can accumulate to an enormous bill. Junk fees include administrative fees, application review fees, appraisal review fees, ancillary fees, processing fees, and settlement fees.nn nnEnsure proper Interest Rates – Interest rates – including those offered on the mortgage – are often unstable and often subject to change. In addition, these interest rates are subject to multiple factors, namely: geographic region, property type, type of loan applied for, and the applicant’s credit score. And so, it is advisable to lock in the interest rate for the loan in advance. This prevents you from being at the mercy of market fluctuations, which could cause rates to rise before you finalize your property purchase. Even a small rate hike can significantly increase your monthly payments and the amount of time it takes to repay the mortgage.nn nnAccost the Funding Requirements – You most likely deposited earnest money when signing the purchase agreement. Earnest/option money is a deposit made to a seller to reserve the item for the given period. It indicates the buyer’s good faith, seriousness, and genuine interest in the property transaction. On the chance that the buyer backs out, the earnest money is forfeited in the seller’s favor as payment for the period within which the seller may sell the property. Conversely, if the seller backs out, the money is returned to the buyer.nn nnTo complete your purchase, you’ll have to deposit additional funds into escrow. Failure to do so can lead to the sale getting cancelled, with the earnest money going to the seller. nn nnTitle and Closing Paperwork – Before the transaction is finalized, the buyer and seller must accept the title report and complete the closing documents. These documents may include the assumption of leases, deeds, environmental reports and assignments of liability, zoning disclosures and warranties, and anything else that has been agreed upon to close the transaction. nnIn the sale process, the title company will provide a report of the current state of the property’s title. After this report is made, the buyer needs to review it and file any objections carefully. The seller is also under a limited timeline to respond to these to go through with the sale. nnWhen all issues with the title are cleared up, a final title report is made. Both parties will need to analyze for final approval before moving forward with other closing documents, such as Zoning/ Building Jackets, Environmental Reports, and Deed transfer with title affidavit, as well as assignment and assumption of any leases. nn nnUnderstanding the Paperwork – Paperwork is essential to closing the property deal. Despite there being a plethora of legal terms, one should read it themselves. And on the instance that one does not understand any legal terms, he/she should hire an attorney for their review and help smooth out any issues with the transaction. nn nnIn conclusion, while it may seem that the closing process is a lot of work, it is worth the time and effort to get things in the proper order before signing anything that one does not understand. While real estate brokers and other entities can and will help during the process of the transaction, they can’t ensure that the transaction is problem-free. Hence, it is up to you to ensure that the transaction is free from possible one-sided transactions and dealings before closing the Commercial Real Estate Transaction. nn
nnEven after outlining all the information above, buying and selling 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!nn 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
by Phill Tomlinson | Nov 9, 2021 | Blog
Bustling skyscrapers and offices cramped and crowded with workers could be a fragment of the pre-COVID-19 world.nn nnThe COVID-19 Pandemic Health Crisis has forced millions of Americans to abandon their offices in favour of working from their homes. However, there are sure signs that this may not be a short-term phenomenon; rather, it is more of a permanent shift in lifestyle, day of life, especially remote work even after the COVID-19 pandemic has settled. nn nnAccording to a survey released by KPMG, a global network of professional firms providing Audit, Tax, and Advisory services, more than two-thirds (68%) of prominent company CEOs plan to scale down their office spaces[i]. The COVID-19 pandemic has demonstrated that employees don’t need to work in cubicles or offices to be successful. And that, in turn, begs the question regarding the value of offices and expensive office space, especially in high-end and high-priced cities like New York, San Francisco, and Los Angeles[ii]. In fact, according to KPMG’s CEO, Paul Knopp, that home-based work or virtual working environments have proven to be somewhat effective and productive. Moreover, a survey of companies with an approximate total revenue of $1 billion held that shifting to a more adept and ready virtual model is not going away. In fact, it is going to be the norm. Corporations are accelerating their investments to accommodate and pioneer a shift to a virtual working environment. Corporations will be planning to spend more on the digitalization of workplaces and the accommodation of work-from-home employees lest they be left behind in the arms race of virtualization of operations and creating the next generations of operating systems and models. There will be no question that corporations will invest in creating a workforce model, the increased use of automatons, and artificial intelligence to work alongside humans to accommodate the changing tides. This is the modernization and effect of the COVID-19 in the workplace. It forces corporations to shift their focus on the modernization and digitalization of their workplace, preceding expensive office space in favour of a virtual working environment.nn nnEven before the COVID-19 pandemic, a growing shift towards remote work offices across America has organized this movement at a rapid pace. The declaration that expensive office spaces to be dead have evolved from whispers to shouts. People are beginning to realize – especially in light of the pandemic – that the old concept of office space may no longer be useful for many industries as they entail high overhead costs. This, however, does not mean that it is entirely gone; instead, it has merely changed; evolved. The concept of the rebirth of office spaces through its virtualization and digitalization has paved the way for companies to rapidly grow and take opportunities for certain companies to capitalize on this trend. That being said, while some businesses have thrived in the realm of remote work, others have toiled or have had to shut down completely. With COVID-19 cases continuing to rise, remote work will be the focal point of companies if they wish to stay afloat. A downside of these remote working conditions is due to the seemingly unending confinement and isolation caused by the pandemic. Many employees are missing the human element and camaraderie that comes with an in-person workplace. For the forward-thinking investor, both of these competing forces create an attractive opportunity for investing.nn nnHowever, there is no situation that offices will ultimately die. For example, let us take the experience during mid-2021 where states lifted the stay-at-home order and gradually let business re-open. Companies gingerly allowed white-collar workers to return to office buildings despite weighing how much they needed the space. While about half of U.S. employees worked from home during the COVID-19 pandemic during shutdowns, many companies – including Facebook, Google, and Morgan Stanley – plan to continue allowing at least some staffers to telework at least some of the time even after the vaccine and the health crisis is over. Analysts, moreover, do not predict an abandonment of office spaces. More office spaces will be needed in the short term to accommodate social distancing requirements until the lingering effects of the coronavirus will be totally controlled or even eliminated. There could be a very likely scenario where leasing and construction activities in less expensive suburbs would increase with this premise in mind. Over the long term, companies will most likely still want most workers in the office to promote collaboration and morale. nn nnThe home isn’t an office and shouldn’t be treated as such. Late in May of 2020, Google had given their employees an allowance of $1,000 to purchase the necessary equipment and office furniture. The question is whether this allowance is enough to make one home a truly adequate office space. There is, therefore, an uneven playing field, as one’s own home is not like another’s. While some may already have the necessary equipment, furniture, appliances equipped with expensive technology from printers to coffee machines and an internet connection, others will be struggling to find a place to stay or a desk to place their equipment. In addition, the sudden shift to virtual working has had some hierarchal hurdles. Rank and file employees are more likely to be in a house with minimal workspace, and therefore their productivity will be hindered. In stark contrast, managerial or supervisory employees will undoubtedly have the funds and space to make virtual working as comfortable and as easy as possible. Hence, it can be reasonably said that office spaces will never be phased out and will never cease to exist as technical, physical, emotional, and people problems will exist. nn nnIn summary, while office spaces might be, at first glance, at the brink of extinction due to the COVID-19 pandemic, further analysis into the circumstances would tell otherwise. There are many advantages that office space tends to offer, from a moral standpoint to a worker’s productivity. Consequently, while virtual office space has emerged in light of the COVID-19 pandemic, this does not spell disaster nor the end of office spaces. In fact, it will be a catalyst for office spaces to be as affordable and essential as ever. nn nn
nnEven after outlining all the information above, if you have questions around leasing or buying commercial real estate (CRE), please reach out to our Team at Commercial Properties, Inc. We’re here to help you achieve your CRE 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!nn 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 nn[i] https://home.kpmg/xx/en/home/media/press-releases/2021/03/nearly-half-of-global-ceos-dont-expect-a-return-to-normal-until-2022-ceo-outlook-pulse.htmlnn[ii] https://home.kpmg/th/en/home/media/press-releases/2021/03/press-release-ceo-outlook-pulse-2021-en.html
by Phill Tomlinson | Nov 5, 2021 | Blog
There are two types of tenants in the market: the good ones and the bad ones. While great tenants can provide you a good experience, with minimal concerns, the bad ones can be really problematic in many aspects, such as payment, maintenance, demands, and many others.nnTherefore, finding the right tenants can feel like treasure hunting. The process can be time-consuming, draining, and complex, especially if you are new to the entire experience. But with patience and the right strategies, the outcome can be rewarding.nnThere are definitely ways you can reduce these concerns. Here are the 3 best ways you can find good tenants for your commercial real estate property.nn n
Study the market
nIf you are still on the first stages of vacancy and still preparing your proforma, or your property’s financial statements which can determine its projected profit and lease rate, then one of the best things to do, at this point, is to first study your market.nnThis is particularly helpful to first-time property owners looking for tenants or those who are still new to the entire business of leasing. Study the market for the standard rates and the inclusions of provisions and amenities. This way, you can evaluate the quality of your property, as well as the amenities you plan to provide. You also get to adjust your lease rate, if necessary, based on the current market trends to either line the rate with your inclusions or lower the rate to create an advantage.nn n
Present a well-groomed property
nAs a CRE property owner, you must never take for granted the power of a first impression and how this influences potential tenants to choose your spot for business. And perhaps there is nothing more effective in attracting tenants and eventually landing on the best one among all the applicants than improving your property and making it more attractive and convenient to your target market. This includes improved maintenance to make the grooming efforts very apparent, considering your property design and how this can align to potential businesses that your lessee may partake, securing available and useful amenities, and promoting your location as hub of the consumer population.nnWith this being said, you should work on the overall package of your property. More than just the clean and crisp aesthetics on the outside, ensure that all utilities are also well-taken care of. This is considered a standard protocol in marketing your property but taking it to another level definitely elevates your chances of attracting more potential tenants. This way, you can turn the tables and be the pursued, instead of the pursuer.nn n
Employ a Commercial Real Estate Broker
nBy the time you settle your proforma, decide on your lease rate, and prepare all your necessary documents, the next step is to hire a commercial leasing broker. There is a reason why these brokers exist in the industry, and their purpose is to serve as intermediaries between CRE owners and their prospective clients/tenants. Hiring one is among the easiest ways to find good tenants for your CRE property once the urgent need arises.nnBasically, your broker will do the legwork for you, such as advertising, cold calls, canvassing, gathering potential tenants, and helping you screen them.nn nnAdvertisingnnYour broker may initially post your property online as part of the first phase of finding tenants. There are free-listing sites available that they can use, but a good leasing broker will have premium paid sites they use to market your property. Since these sites are a magnet to potential tenants, targeted market is already a guarantee. However, these sites also pose competition since your property is posted against other lessors.nnYour broker can also use social media to advertise your property. After all, majority of online users spend most of their time in these sites. Brokers just need to filter the audience to target your desired market.nnAs mentioned earlier, a good leasing broker will also cold call, canvass existing tenants within a 5-mile radius to drum up activity. They will also book tours with prospects to visit the property, manage the transactions and negotiations with potential tenants through these online venues.nnOn the other hand, you must note that advertising your property online is a game of patience. Depending on the amount of available space near your property and the average time space is staying on the market, patience is something that’s needed. In addition, your broker also has to answer all queries via phone or email to be able to identify potential tenants who are most likely to commit to your property.nn nnMatching clients to your preferencesnnWorking with a professional broker helps give you the privilege of declaring your preferences on tenants. While the goal of finding potential tenants is to gather as much interested applicants there are, it helps to discuss your preferences with your broker so he/she can efficiently work around these terms and conditions in discussing with potential tenants and getting them interested. This saves much time for both the lessor and the potential lessee.nnNeedless to say, these commercial real estate brokers are in contact with numerous potential tenants and work hard to find the right properties for these tenants. Therefore, this simplifies the entire process since your broker can promptly match you with a potential lessee that fits your preferences.nnThis will save you much time and stress since majority of the procedures are taken care of by your broker. You might as well leave the entire transaction to your broker while you tend to your personal or work matters while waiting for occasional updates.nn nnMore efficient negotiationsnnIf you are also employing a commercial lawyer, both of them can actually work together to ensure that the entire process will be seamless and convenient for both parties. This includes efficient negotiations on payment and commission. Having two professionals on your side is a huge advantage.nnRemember that you can always get all the help you need but in deciding on the eventual lessee of your property will be significantly based on your personal judgment. Take note that as a CRE property owner, you are looking for a long-term and committed lessee with no negative leasing history, and most of all, negotiates with you until you both settle on a fair agreement. That’s when you know you got a good one.nn nn
nnEven after outlining all the information above, finding good tenants can still seem daunting. That’s why the Leveraged CRE Team at Commercial Properties, Inc. is here to help you achieve your business and 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
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