by Prince Licaylicay | Dec 2, 2021 | All Articles, Leasing
More often than not, investors in the commercial real estate sector are looking for net leases. Here, we have rounded up everything you need to know about Single Tenant Net Lease as well as some tips and strategies to give you an edge in the game.
What is a Single Tenant Net Lease?
Simply put, a single net lease is a commercial real estate lease agreement in which the tenant agrees to pay property taxes in addition to the rent. It is a form of pass-through lease in which the taxes associated with the property become the tenant’s responsibility instead of the landlord’s. However, under a single net lease, the landlord is still responsible for the operating expenses involved with the property.
Understanding Single Net Lease
A single net lease is a type of net lease where the tenant takes on some or all of the operating costs of a building. However, it should not be confused with a net lease. Net lease refers to all types of leases, e.g., Single net lease, double net lease, and Triple net lease; whereas, the single net lease is a specific type of lease where the tenant shoulders only one operating expense (primarily property taxes).
How Does a Single Net Lease Work?
As a landlord, you can collect rent for all your commercial tenants, and depending on the type of lease, and you may also be able to bill them for any additional expenses incurred. These expenses are (a) Property taxes, (b) Insurance costs, and (c) Repairs and Maintenance costs. In a single net lease, the tenant is responsible for paying one of the expenses mentioned above: the net property tax. The amount to be paid, however, will ultimately depend upon the agreement between the parties. For example, the agreement may include paying the property taxes as part of the rent, or it may be a separate payment that changes depending on the flow of the current tax rates.
Insofar as multi-unit buildings are concerned, the payment of the taxes will depend on the size of their unit. Hence, if a tenant rents half of the property, they will pay half of the property taxes thereon, and the other tenants will pay the remaining balance.
What are the Pros of Using a Single Net Lease? A single net lease provides you with two main benefits:
- Increased Profits. In a single net lease, you do not have to use the tenant’s rent to pay the property taxes since the tenant pays for them. As such, you can keep more of the rent as profit; and
- Protection against Tax Increases. If there is an increase in property taxes, you are not affected because you merely pass the responsibility of paying these taxes to the tenant(s). This ultimately means that while property taxes do indeed go up, your income from the collection of rent will be unaffected.
What are the Cons of Using a Single Net Lease? While a single net lease may have its benefits, it also has its downsides, such as:
- Hands-on approach. While the tenant shoulders the property taxes, there are still costs that should be taken into consideration. Moreover, this type of lease also requires you to manage the property proactively.
- Expenses for Maintenance and Repairs. Probably the most time-consuming part of owning a commercial building is handling all the maintenance costs and repairs. In a single net lease, you may either manage all of this yourself or hire someone to do it for you. In either case, payment of maintenance and repairs are almost always present.
- Sudden Increase in Expenses. It should be noted that the tenant only pays for the property taxes, you must still pay for the other costs such as maintenance, repairs, insurance, etc. Insurance hikes and unexpected or sudden repairs sometimes happen, and the burden of paying these extra costs rests on you. Hence, proper budgeting is needed; otherwise, these costs will negatively impact your earnings.
When to Use a Single Net Lease
As a landlord, if you negotiate a lease contract with a tenant, you may wonder what the best type of lease you should use is.
If you desire more control over how the property is run, then a single net lease might be the best for you. Indeed, looking after the repairs and maintenance is a big responsibility since it allows you to control how things are done according to your schedule and are done your way. Furthermore, if you want to have your property taxes covered and paid for you the single net lease is the best choice. Since the tax rates are covered, you need not worry about any fluctuations in the payment of these taxes and how it affects your property; you transfer its charge to the tenant. Conversely, suppose you want to take an active role in managing your property. In that case, a double net lease is probably the better choice since this allows you to control how the property is managed whilst providing the additional benefit of having your property insurance covered for you.
When Not to Use a Single Net Lease
If you do not want to be responsible for the day-to-day property management, then a single net lease is not a good idea. This is because, in a single net lease, you still have to collect the payments, pay the property insurance, schedule the maintenance, and deal with sudden and unexpected repairs. You will either do this all by yourself or hire someone to do it for you (which is another expense), but the fact remains that this type of lease requires day-to-day management of the property.
Hence, a triple net lease is the better choice and typically the preferred lease type for those interested in investing in properties rather than managing them. Since this type of lease leaves almost everything to the tenants, therefore, it frees up your time to be allotted to other areas of your business.
Tips for Investing in a Single Net Lease
If you are looking at a property that has a single net lease, here are some things to take into consideration:
- What’s included in the lease. Since every lease type is a little different, there may be additional clauses on the lease that may have been agreed upon. Therefore, you have to make sure that you read through the “fine print” of the lease and understand your responsibilities to avoid unnecessary misunderstandings that could ultimately lead to litigation.
- The Condition of the Property. Since you will be responsible for all the repairs, maintenance, insurance, etc., it is imperative to understand what you are getting into. Hence, you have to inspect the property to have an idea or a good understanding of the amount of expenses for repairs and maintenance that you will eventually have to incur. This can be done through an ocular inspection of the property or a tour thereof. But no matter the inspection modality, it is rather essential to keep in mind that as a general rule: “The older the property, the more repairs and maintenance costs will be incurred; conversely, the newer the property, the less repairs and maintenance is required”.
- How much work are you willing to take on? Since a single net lease requires the active management of the property, you have to ask yourself then how much effort of work you are willing to give/do. If you can handle all the repairs and maintenance costs, repairs, and the payment of insurance, then this lease type is for you. It must also be remembered that you need not manage or take the necessary property taxes as the tenant covers these.
Summary of the key benefits of a Single Tenant Net Lease:
- A single net lease is a commercial real estate lease agreement where the tenant agrees to pay the property taxes in addition to rent.
- A single net lease is a form of pass-through lease wherein the taxes associated thereto become the responsibility of the tenant instead of the landlord.
- Under a single net lease, the landlord is still responsible for overhead costs related to the maintenance of the property.
- The landlord is not affected by the fluctuations of property taxes since the tenant handles them.
- Due to the landlord not considering the property expenses, the landlord can fully utilize rent income and, therefore, increase his profit.
Even after outlining all the information above, leasing commercial real estate 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.
Need 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!
Phill 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.
Bookmark 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. #LeveragedCRE
by Prince Licaylicay | Nov 24, 2021 | All Articles, Buying, Investing, Leasing, Selling
In a leasing project, it is likely you will come across a Letter of Intent (LOI). In this article, we have rounded up everything you need to know about a Letter of Intent.
A Letter of Intent (LOI) is a written non-binding document between two parties that serves as the basis for a contemplated future agreement. It is a preliminary agreement that is negotiated between a tenant and landlord or buyer and seller. The Letter of Intent stipulates the dominant economics and key points with proposed terms in a lease agreement. They are designed to describe or draft the essential items that both parties can assess to decide whether to proceed or continue to an official contract. Thus, a letter of intent is a nonbinding document that encapsulates the basic terms of the offer and the initial goal of the parties without the extensive legal norms included in a real estate contract. This gives the seller or the landlord a concise picture of the scope and terms of the real estate purchase or lease agreement. It is rather important to note that a letter of intent could be binding if the parties decide that it is binding.
When is LOI used in real estate?
A letter of intent is submitted by a serious soon-to-be tenant, buyer, or representing broker in a commercial real estate transaction as an initial offer. It is planned based on basic preparatory information furnished by the landlord as well as the introductory due diligence of the property. Negotiations and formal due diligence begin after the Letter of Intent has been conveyed and prior to a formal purchase or lease agreement is entered into. It is not infrequent for Letter of Intents to be submitted and agreed upon, only to have the terms and conditions subsequently changed or even withdrawn altogether. This is so because a Letter of Intent, at its core, is a nonbinding document that merely states the buyer’s intent subject to verification and due diligence, all of which can be amended or changed any time.
A letter of intent is used in commercial real estate to put the major points of a proposed lease into writing. The party submitting the letter of intent should research, inspect, or even tour available properties on the market before submitting a letter of intent to the landlord. Generally, a letter of intent will be drafted by a commercial estate broker representing the buyer or tenant after the inspection or tour of the property and conducting a spontaneous discourse or conference with the owner or landlord. The Letter of Intent will, therefore, serve as a vehicle to outline the key points of the deal, such as but not limited to: (a) the rent; (b) due diligence period; (c) financing; and (d) the close of the escrow date or date of possession.
And while a letter of intent is a non-binding document, the act of furnishing one certainly demonstrates that the buyer or tenant is committed to moving forward on a deal and intends to advance in good faith the deal. However, there are instances where a party may change the terms of the Letter of Intent or even withdraw from the deal altogether based wholly on desired terms not being agreed to, new information after performing due diligence and after verifying information provided by the parties.
All in all, a Letter of Intent is used to convey the key points of the parties from the lease price to the close of the escrow date or date of possession. To this end, the potential tenant must be diligent in researching or inspecting the properties since new information may serve as a basis for continuing or even withdrawing from the potential deal. In the same vein, the landlord must likewise be diligent in taking care and preserving its properties so that potential lessors will not be discouraged.
What is the importance of the Letter of Intent?
A letter of intent is one of the essential documents in commercial real estate leasing/buying. This is because buying, selling, or leasing commercial real estate is, most often than not, a tedious, convoluted, and costly process even to the most experienced investors and tenants. Hence, a Letter of Intent guides the parties to ensure that they have a meeting of the minds or that the contract conveys what they genuinely intend before going into the intricacies of contract making regarding leasing commercial real estate.
A letter of intent will serve as a stepping stone between introductory discussions with the property owner and the drafting of a legally binding lease contract. The Letter of Intent serves as a modality for the parties to put their key points and provides them with a quick and easy way to familiarize themselves with the basic terms of the proposed transaction. This is crucial before negotiating the contract terms and before paying a real estate attorney to draft or review a lease agreement.
Likewise, letters of intent are an excellent way for the landlord to determine who the prospective tenant is. Furthermore, making a letter of intent does not entail any costs; hence, a prospective lessee or buyer may submit as many Letters of Intent as possible, expecting that at least one is accepted. However, suppose the terms of the prospective lessee significantly deviate from that of the property owner’s. In that case, this could be a tell-tale sign that such prospective lessee submitting the Letter of Intent may not be a good fit for the owner to move forward with or be serious about completing the proposed transaction.
What are the contents of an LOI?
A Letter of Intent generally includes:
- The parties: (a) the name of the tenant; (b) the address of contact information; (c) the party authorized to execute a final sales or lease agreement.
- The property: (a) the address and the suite number of a lease of the negotiated lease; (b) the building description including lot size and square footage; (c) Type of rent, whether Full Gross Service (FSG) or a Triple Net Lease including any Common Area Maintenance (CAM).
- The offer: (a) The lease price as well as any down payment thereof; (b) Due diligence period and general description of documents that the landlord will provide; (c) Lease Terms, including rent and any annual increase; (d) rent abatements or tenant improvements; (e) length of lease; (f) target for signing the purchase contract or lease agreement; (g) Expiration date of the Letter of Intent.
- Any Disclaimers: (a) that the Letter of Intent is not binding, and any (b) preconditions in signing the lease.
How To Write an LOI
The typical structure of a Letter of Intent is as follows:
- Introductory paragraph. The preceding paragraph serves to describe the purpose of the LOI, such as your interest in leasing the property;
- The parties to the proposed transaction. This includes entities which are involved, the legal and home state to reduce the risk of the wrong information being used in the lease agreement;
- The key points in the deal. This includes the description of the property, the terms of the offer, and the disclosure of any commercial real estate brokers involved in the lease transaction, as well as any other key terms and conditions specific to the proposed transaction.
- The Closing Paragraph which includes whether or not certain parts of the LOI are binding, a non-disclosure agreement of confidentiality clause, remedies for breaching any binding provision in the LOI, as well as a request that the party receiving the LOI to sign and return a copy thereof proper to the expiration date of the LOI.
Conclusion
A letter of intent is a non-binding document that serves as a guiding light for the parties before entering into any formal lease or purchase agreement. It details the key points the parties want to convey to the other party to the end that they would have a meeting of the minds. Furthermore, considering the letter of intent is not binding, it is not infrequent that the offer may be withdrawn before the commencement of the formal agreement.
Even after outlining all the information above, writing a letter of intent (LOI) can still seem daunting. That’s why the Leveraged CRE Team at Commercial Properties, Inc. is here to help locate commercial space for lease and assist in using a letter of intent to land such space. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need 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!
Phill 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.
Bookmark 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. #LeveragedCRE
by Prince Licaylicay | Nov 22, 2021 | All Articles, Leasing
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.
In 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.
Now, before you explore the numerous incentives in the market, you need to understand the two types of rent: face rent and effective rent.
Face 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.
There 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.
LEASE INCENTIVES
Rent-free period
As 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.
Rent-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.
Note 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.
Rental Rate Reduction
Rental Rate Reduction is part of the negotiation to pay a lower lease rate distributed within a period of time or all throughout the lease.
Essentially, 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.
Fit-out contribution
A 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.
This 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:
- Duly signed commercial lease contract or agreement
- Required insurance taken out
- Submission of all the necessary receipts of identified expenditures for reimbursement
- A bank guarantee or security deposit
- Detailed plans for the works subject to the landlord’s approval, including quotes/price
In a fit-out contribution, the tenant and the property owner must negotiate clear and specific terms, such as:
- Ownership by tenant or landlord of completed fit-out, either full or partial
- Whether the landlord is required to provide ‘incentive guarantee’ to cover the incentive
- Mode of payment, either reimbursement basis or other mechanisms
Aside from these three, here are other commercial lease incentives that may be offered by a property owner:
- Cash payments
- Cash-convertible benefits, such as cars, equipment, etc.
- Fixed rent rates which do not arise during the lease period
- Reimbursement of relocation costs
- Reimbursement of a penalty
- Reimbursement of legal fees
- Free provision of furnishings and equipment
- Lease incentives for exceeding lease liabilities
- Lease incentive on a low value equipment
- Incentive for the inconvenience generated by refurbishment works
- Interest-free loans
- Holiday packages
- Pay-out of tenant’s pending lease commitment to another property
Other important reminders on commercial lease incentives
Incentive taxation
Case 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.
Repayment clauses
One 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.
Fit-out ownership
Tenants 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.
Incentive disclosure
Finally, never hesitate to employ professional help to carefully examine the inclusions and exclusions of lease agreements and in negotiating for better terms.
As 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.
Even 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.
Need 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!
Phill 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.
Bookmark 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. #LeveragedCRE
by Prince Licaylicay | Nov 19, 2021 | All Articles, Leasing
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.
Business 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.
From your end, as a tenant, here are the provisions that must be present in your lease agreement.
Commercial Lease Provisions
RENT
A 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.
For 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.
Lease 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.
REPAIRS, MAINTENANCE, AND IMPROVEMENT CLAUSE
This 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.
Additionally, 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.
If 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.
In 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.
SUBLEASE CLAUSE
Entering 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.
The 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.
However, 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.
PERMITTED USE
As 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.
This 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.
But 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.
RENEWAL CLAUSE
It 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.
A 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.
Nevertheless, 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.
This 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.
Even 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.
Need 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!
Phill 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.
Bookmark 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. #LeveragedCRE
by Prince Licaylicay | Nov 9, 2021 | All Articles, Buying, Investing, Leasing
Bustling skyscrapers and offices cramped and crowded with workers could be a fragment of the pre-COVID-19 world.
The 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.
According 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.
Even 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.
However, 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.
The 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.
In 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.
Even 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.
Need 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!
Phill 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.
Bookmark 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. #LeveragedCRE
[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.html
[ii] https://home.kpmg/th/en/home/media/press-releases/2021/03/press-release-ceo-outlook-pulse-2021-en.html
by Prince Licaylicay | Nov 5, 2021 | All Articles, Investing, Leasing
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.
Therefore, 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.
There 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.
Study the market
If 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.
This 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.
Present a well-groomed property
As 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.
With 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.
Employ a Commercial Real Estate Broker
By 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.
Basically, your broker will do the legwork for you, such as advertising, cold calls, canvassing, gathering potential tenants, and helping you screen them.
Advertising
Your 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.
Your 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.
As 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.
On 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.
Matching clients to your preferences
Working 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.
Needless 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.
This 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.
More efficient negotiations
If 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.
Remember 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.
Even 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.
Need 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!
Phill 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.
Bookmark 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. #LeveragedCRE
Recent Comments