Commercial Property Management

Things to Consider When Deciding Between Short And Long-Term Commercial Real Estate Leases

Posted on August 20, 2011

While some small scale businesses may still be productive even if they are home-based, some businesses need to rent their own commercial space to be able to accommodate employees and customers better. Having an office makes conducting business more professional and can open up a number of more professional opportunities for you as an employer.

There are several factors to consider when renting an office space for your business. One is whether to rent the unit for long term or for short term. This decision can have a substantial impact on your finances and how you choose to budget your business.

Each option has its own advantage and disadvantage that will mainly affect your budget. Choosing between the two may also depend on the kind of business you have.

Some businesses are reliant on customer loyalty and may be well off to stay in one place for a long period of time. Businesses such as restaurants and cafés build their business around the location to build a strong consumer base over time, and often choose short-term commercial leases.

Renting long-term commercial space usually translates to smaller monthly dues. However, locking the place means a business expansion and additional space might be trickier to have than when renting short-term spaces.

Short-term leasing usually means larger monthly fees, but it gives the businesses an easier way out should it need to expand or additional space. It will also make it easier for the business to relocate should the area be less profitable than what was expected. Long-term leases are difficult to get out of, and a breach of contract can result in legal implications and steep penalties or payments for damages.

Also, should the business fail to meet the targeted ROI, moving to a smaller space will be easier for short-term rentals than those renting long-term. That is why start-up businesses are advised to choose short-term leasing for at least the first three years, or until the ROI becomes stable and long-term leasing is more reasonable.

Should you still be hesitant on renting long term or short term, then seek the advice of a commercial real estate broker or a business consultant. Getting an expert's advice will help you get the right first step for your business' future. The professional expertise of a commercial agent will take away much of the burden that you may feel when trying to make this decision on your own.

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Commercial Industrial Property Basics

Posted on August 19, 2011

Knowing commercial industrial property basics is knowledge one should definitely have before investing. Learning about the different types of commercial industrial properties is key to making wise investment choices in this arena. Different types of commercial industrial property include the following:

  • Bulk Warehouse- Very little or no office
  • Office Warehouse- Less than 3-5% office
  • Office Service-Typically ground height to bring trucks in and out of a building
  • Freestanding- Single tenant
  • Multi-tenant- Multiple tenants
  • Large manufacturing- Very specialized and tend to be owned by occupant
  • R & D I Flex- Warehousing people who rent out office space with easily movable walls in a warehouse situation. This phenomenon has slowly come from California across country and by the time they get to some states, it is often illegal
  • Industrial Park- Not a building, but land that usually needs to be re-zoned and developed

NOTE: Some of these we will focus on in this manual more than others, because they are more appropriate and easier to break into for the kinds of students who would be purchasing this course.

Bulk Warehouse

Bulk warehouses are usually the larger warehouses that you see. Normally, a bulk warehouse is single tenant as opposed to multi-tenant. The standard bulk warehouse is usually 5% to 10% office space for running the company office, but the rest of the building is basically warehouse. If you invest in small individual buildings, they will be relatively inexpensive to buy or build and easy to rent.

Office Warehouse

An office warehouse is a great place to start commercial real estate investing, if:

  • You're going to be investing in warehouse space
  • You want to become involved with warehousing and the warehouse type of business. In this instance, let's say you're building an office warehouse. Your first step would be to review zoning and any other legal issues.

Most counties only allow a specific footprint that is the actual area on which the building sits, which takes into account environmental impacts associated with constructing the store. This may include any related site characteristics, such as a transportation footprint, operation footprint, or the waste footprint.

There may be other zoning restrictions, such as the percentage of land that can be built upon, versus what percentage must remain unused. In our case study example, you will be allowed a footprint for this property of 12,000 square feet. This is calculated as a percentage of the total square footage that you're buying. So, you're going to develop a building with 12 units of 1,000 square foot units. The building will be an office warehouse.

Normally, you would probably design your building with roll-up doors at the front. Your office space is about 10% of the overall floor space. So, with a 1,000 square foot unit, that calculates into 100 square feet of office space. You want to build 100 square feet of office and one bathroom, with drywall in the office area. This is a steel building that costs $40 a square foot, which is very inexpensive.

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Finding The Right Commercial Real Estate Broker

Posted on August 18, 2011

To find a commercial real estate broker, you could look in the yellow pages under the heading of "real estate", you'll see the all the familiar 'big' national names and national franchise names. However, if you're looking to do the commercial real estate investment business like we do then you don't want to head in their direction.

Instead, seek out the smaller local private commercial brokerages. Instead of 100 agents, they usually have 10 or less. Of those 10, although they can all handle any type of commercial deal, they each often specialize in one commercial area like apartments or the office sector that's their particular specialty.

If you are thinking about entering this marketplace, make some calls to these private commercial brokerages. Ask who specializes in the commercial area in which you will be investing. Take that agent to lunch and pay for it. What are you doing? You are buying an education. Don't forget to ask them for packages on current properties they are representing.

Most of the time in the commercial area, when agents or commercial brokers have listings, they put together a lengthy comprehensive package, which includes the usual listing information, traffic counts, zoning, profit and loss analysis, best-use information, and perhaps a current appraisal of the property. In addition to the standard information on the land and the location, they usually include the area demographics, in an effort to convince you that their listing is in a great location.

If you were investing in the residential marketplace, they would have information regarding the school districts in the area. However, since you're in the commercial field, the demographics they'll put into your package will help you determine if this would be a wise commercial investment for you. So, they'll include information about other businesses that are already in the area, or what kind of profit margin they're currently reaping.

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