How To Value Commercial Real Estate

How To Value Commercial Real Estate

Knowing how to value commercial real estate will help you determine if a property is a good investment.

When searching for commercial real estate to invest in, it’s usually pretty simple to find out how much a property costs. You will likely be able to see the listing price online, call the listing agent, or contact the property owner. However, the listing price doesn’t always accurately reflect what the property is really worth.

For example, a brand-new, state-of-the-art building may be listed at a seemingly fair price, but what if that building is in an undesirable area without any prospective renters? In this case, the property would be practically worthless to a commercial real estate investor who is looking to capitalize on multiple leases in a single building.

To ensure you don’t get stuck in a situation like this, we’re going to share how to value commercial real estate when searching for your next investment property.

How to Value Commercial Real Estate – Glossary

Before we dive into how to value commercial real estate, specifically, let’s cover some important terminology. Understanding these definitions will have you stay in control of the process.

  • Cap Rate: A property’s annual rental income divided by the current value.
  • Cost Per Unit: A property’s total cost divided by the number of units.
  • Gross Potential Rent: The amount of money you can collect from each tenant if all rents are paid in full and on-time.
  • Net Operating Income: How much income you make after subtracting expenses that are required to own and operate the property (excluding taxes and financing).
  • Price Per Square Foot: A property’s total cost divided by the building’s square footage.
  • Return on Investment: How much income you make after debt service divided by the final cost of the property.
  • TUMMI:  Taxes, Utilities, Management, Maintenance, Insurance.
  • Vacancy and Collection Loss: The amount of rental income you lose due to vacant units or unpaid rents.

How to Value Commercial Real Estate – Methods

There is more than one way to determine value for commercial real estate. The best method will likely depend on your unique situation – your goals, the type of building you’re interested in, the size of your investment, and other investors should all be considered when deciding which method of valuation to use.

That said, you can use more than one method to determine the approximate value of a single property. This may help you gain a more complete view of your potential investment.

Here are 6 commercial real estate valuation methods:

Cost Approach
The cost approach considers how much it would cost to build an identical building on the same amount of land. For example, if a plot of land costs $50,000 and the price of constructing a small office building is $1,000,000, the cost approach will value the property at $1,050,000.

This is a good approach to use if you’re interested in a commercial property that doesn’t have many (or any) comparable properties in the area. This is also good to use if your prospective investment property has unique improvements, additions, or features.

Sales Comparison Approach
The sales comparison approach is very similar to doing market research. This method determines the approximate value of a property by assessing recent data for comparable commercial properties in the area. This tends to be the best way to understand the fair market value of your investment.For example, let’s say that you are interested in buying a 10-unit building of salon suites.

To find the approximate value of this investment, you could find a similar property in the area that has been operating for at least 3-years, see how much it sold for, discover each unit’s rental price, and determine the approximate yearly rental income.

The downside to this method is that it isn’t usable in every area. If this is the first building with multiple salon suites in your city, you won’t be able to find any comparable properties.

Income Capitalization Approach
This method considers the yearly gross potential rental income. To find the number, you would simply determine how much each unit generates in one year, add them all together, and subtract losses from maintenance, inefficiencies, repairs, etc. You can use rental prices from comparable nearby properties to estimate your income.

For example, if you purchase a commercial property for $1.5 million and expect to see a 7% yield, based on market research, you can expect to see $105,000 in rental income each year. However, you may be able to increase that number if you figure out how to decrease the amount you lose to maintenance, inefficiencies, repairs, etc.

You might place certain responsibilities on tenants (water and electricity), upgrade to more efficient appliances, windows, and doors, or conduct monthly inspections to catch maintenance/repair issues before they become extremely expensive.

Value Per Gross Rent Multiplier
This valuation method takes the purchase price of the commercial property and divides it by the yearly gross income. This is a good method to use for properties that are listed at a relatively low price compared to how much income they could generate.

For example, if you purchase a property for $1.5 million and you know that it has been generating $105,000 in yearly gross income, your Gross Rent Multiplier (GRM) would be 7%.

Value Per Unit
This method is typically reserved for multi-unit apartment buildings, and it determines a commercial property’s value with the number of rental units. The value is determined by dividing the property’s listing price by the number of units.

For example, if you purchase a building for $5 million and there are 10 units, the Value Per Unit would be $500,000. This method doesn’t take each unit’s size, features, upgrades, or bedrooms into consideration.

Cost Per Rentable Square Foot
This method adds together the square footage that tenants can occupy and common areas that they can use and benefit from. The idea here is to place value on each square foot that tenants can use, compare it to the average lease price per square foot, and, therefore, estimate the entire building’s value.

For example, say the building you want to purchase has 17,000 rentable square feet and the average rent per square foot is $18, annually. You purchase the building for $2.1 million and expect it to generate a 7% gross rental yield. However, after market research, making a few upgrades, and offering attractive tenant benefits, you know that you could charge $21 per square foot, annually. Therefore, that building could potentially generate over $4 million per year.

Final Thoughts

Commercial real estate investment can be tricky to navigate on your own, especially if you’re just beginning your career in the industry. It’s recommended to work with a partner who has plenty of experience with commercial real estate investment, property valuation, and all the small details that go into a successful investment career.

Speed Commercial Real Estate has serviced the Metro Jackson area for many years. Our real estate investment consulting is renowned for helping local investors make smart decisions, grow their portfolios, and invigorate the economy. When you’re ready to invest in your next commercial property, let our experts at Speed Commercial Real Estate be your guides. Contact us today to set up an initial consultation.

 

Is Commercial Real Estate a Good Investment?

Is commercial real estate a good investment? Some investments can be considered risky because there is no guarantee that you will make your money back, let alone see a significant return. When choosing where, when, and how to invest your money, you’ll want to choose an avenue that has a long history of being generally safe and profitable. 

Throughout the years, and even the volatility of the pandemic, commercial real estate investment has remained one of the most profitable industries. In fact, Forbes recently published a list of the top 10 industries that produce the most billionaires. Investing holds that #1 spot, while real estate jumps in at #7!

Also, real estate investing positioned John Jacobs Astor as the first American millionaire and the richest person on the Titanic! Although the markets have changed considerably since the 1800s, this just goes to show that commercial real estate is a good investment then and now. 

What is Commercial Real Estate Investment?

Before we dive into what makes commercial real estate a good investment, let’s describe what commercial real estate is. 

According to Investopedia, commercial real estate is “property that is used exclusively for business-related purposes or to provide a workspace rather than as a living space, which would instead constitute residential real estate. Most often, commercial real estate is leased to tenants to conduct income-generating activities. This broad category of real estate can include everything from a single storefront to a huge shopping center.”

Commercial real estate buildings include:

  • Retail buildings
  • Office buildings
  • Warehouses
  • Industrial buildings
  • Apartment buildings
  • Mixed-use buildings (buildings that include a combination of property types, i.e., retail, offices, and apartments)

 

What Makes Commercial Real Estate a Good Investment?

Here are 7 reasons commercial real estate is a good investment:

 

1. Passive income

Investing in commercial real estate can provide a strong stream of income that is collected regularly. In most cases, investors collect income while a property management company takes care of the property and the details that come with being a property owner, like rent collection, evictions, and tenant screenings. 

If done properly, you can see a steady stream of income while you sleep, travel the world, spend time with your family… whatever your heart desires! 

 

2. Diverse portfolio

A diverse investment portfolio is a strong portfolio! If you want to be serious about investing your money, you must have a portfolio that includes more than stocks and bonds, mutual funds, and crypto. Not only does this prove that you’re an experienced investor, but it protects your investments whenever the market turns down.

The real estate market doesn’t have a strong connection to the stock market. Therefore, if the stock market crashes, there’s a good chance that your commercial real estate investment will be unaffected. Your income from commercial real estate will be able to make up for losses until the stock market evens back out. 

 

3. Tangible assets

Commercial real estate will always hold value because it’s a tangible asset. Even if the real estate market has a dramatic downturn, your property will never be completely worthless. Unfortunately, the same cannot be said for the stock market. 

While it’s absolutely possible to become extremely wealthy from investing in the stock market, you always run the risk of investing in a business that won’t exist in a few years. Commercial real estate properties will hold value as long as they are habitable. Therefore, there is always the possibility of profitability. 

 

4. Tax breaks

Many commercial real estate investors get into the industry because it has incredible tax benefits. Investing in stocks and bonds requires investors to set aside some of their profits to pay for capital gains taxes.

When it comes to commercial real estate investing, however, investors can write off property depreciation value even if their property increases in value year after year. As such, capital gains can be reduced or completely avoided. 

Additionally, commercial real estate investors can reduce their taxable income after selling a property by filing a 1031 tax-deferred exchange. The only stipulation is that you are required to purchase another property of similar value within a given time period.

 

5. Inflation-proof

Consumer prices have risen over 8% in the last year. This concerns many people because their incomes haven’t risen to match – it makes it difficult to keep up. When you invest in commercial real estate, however, you have much more control over your income. 

As consumer prices rise, you can increase how much rent you charge. Theoretically, you could absolutely increase your rent prices by 8% to make up for inflation, and you won’t lose a penny. If you own commercial real estate in a high-value area like New York City, Los Angeles, or Miami, you may be able to raise rents more than the inflation rate. Business owners are often willing to pay premium prices to settle into a prime location.

 

6. Business relationships

When it comes to business, it’s all about who you know. Getting into commercial real estate investing opens you up to a whole new world of networking opportunities. Not only can you meet other investors, but you can connect with dozens of business owners who sign leases with you. 

These business relationships could lead to other great investment opportunities and make you a well-rounded business professional. As a result, you may find it easier to make smarter investments in the future and close deals faster. People enjoy working with others who have a good grasp on the industry and seem like they have “been there, done that” already. Every investment can essentially be seen as a networking opportunity that will take you further and further in your career. 

 

7. Assistance opportunities

There’s no reason you should have to get into the investing industry alone. In fact, many people branch into commercial real estate with business partners or co-investors. If you have the capital and a desire to learn, you may be able to find a co-investor who is willing to go in on an investment property with you. 

This type of relationship works because it’s mutually beneficial. Your co-investor will get to make income on the property and you get to learn how to be a great commercial real estate investor – while also making income! Even some of the most successful real estate investors partner up with other people to obtain new properties. Most of the time, it provides a safety net and makes for smart investments. 

 

There’s no doubt that the answer to the question “Is commercial real estate a good investment?” is “yes!” 

When you’re ready to start investing in commercial real estate or grow your investment portfolio, Speed Commercial Real Estate will be here to support you. 

 

Allow Speed Commercial Real Estate to Find Your Office Space

Speed Commercial Real Estate can help you find an investment property that is perfect for you, whether you’re a seasoned investor or buying a property for the first time. Contact us today to discuss commercial real estate investment properties!

How to Choose an Office Space for Your Business

There are a lot of things to consider when deciding where to find office space for rent. A great office environment will make you and your employees more productive, strengthen your brand image, and provide a sense of comfort and security. 

Studies show that 97 percent of workers feel that their office space directly represents how their employers feel about them. Further research shows that only around 10 percent of workers are satisfied with their work environment. 

Carefully choosing the office space for your business will ensure that you see a great return on your investment and build a business that you – and your employees – can be proud of.

 

10 Steps to Choosing the Right Office Space for Your Business

 

1. Determine how much space you need

A business that requires space for 100+ employees will have drastically different space requirements than a business that only needs one or two desks. While large enterprises will likely need an entire floor in an office building, smaller businesses may be perfectly comfortable in a studio or co-working space. Either way, here are a few questions that will help you estimate how much space you need:

  • How many people are on your team?
  • Does your business require employees to sit at their desks every day? In other words, can you offer remote work or a hybrid option?
  • Do you need to leave room for growth?
  • How much space do you need for each person? (It’s recommended to allow for about 70 square feet per employee. However, you know your business best! Consider everyone’s job requirements and day-to-day activities)

 

2. Think about the amenities you want and need

What kind of things are absolutely necessary for the function of your business, what would take your office environment to the next level, and what kind of things would be nice to have? Also, take into consideration what your clients need. While some offices don’t invite clients in at all, others may need to provide a waiting area, snack bar, etc.

Here’s a list of amenities you might want to look out for:

  • High-speed internet capability
  • Fully-furnished offices
  • A property management team
  • Printing, scanning, and copying services
  • Private conference rooms and offices
  • Mail service
  • Beverage bar or kitchenette
  • 24/7 access

 

3. Compare the types of offices in your area

There are many different types of offices available to business owners, and each has its own set of benefits. Understanding what’s available in your area will help you decide which is best for your business.

  • Office suites. This is a great option for businesses that require large teams. Office suites offer enough space to collaborate and typically can be customized to your unique needs. Some suites offer private entrances for business owners and their employees, as well as full kitchens.
  • Private office. Private offices are usually great for teams of about a dozen people. This option might be best for start-ups, an office in a brand-new location, freelance teams, or teams that prefer to stay small and tight-knit.
  • Dedicated desk. A dedicated desk is the best option for a business of one. This might be a small business owner who runs an online store, an entrepreneur who wants a place to network with other entrepreneurs, or a freelancer. Dedicated desks are typically seen in co-working spaces, but business owners can certainly rent a single studio and customize a dedicated desk space for themselves.
  • Virtual office. If you are comfortable operating your business from home or have a team that works remotely, you may just need a space to hold occasional meetings and pick up business mail.

 

4. Check out the area

Once you’ve located a few areas that have the office space you’re looking for, it’s time to get out there and explore! Check out the other local businesses, places to grab a bite to eat or something to drink, the parking situation, and scope out some relaxing outdoor areas that would be nice for mid-day breaks. You might also want to see if the location is accessible using public transportation, so you can accommodate employees and clients that use those services.

 

5. Carefully consider lease options

You don’t want to get caught off guard by lease terms that you weren’t aware of before you signed on. Pay close attention to the lease duration, what your renewal options are, what would happen if you need to break the lease, and what actions would give your landlord grounds to evict you.

Also, you should have a clear understanding of what is included with your rent. Are you only paying to use the space or does the rent payment include property taxes, insurance, and maintenance? Are there common areas you have access to?

 

6. Determine what you can afford

Office space can a valuable investment that leads to more business and, therefore, more revenue. However, you don’t want to pour too much money into leasing a space that your business can’t afford. Sit down with your finances (we recommend hiring a professional accountant to help with this) and see what your business can afford.

 

7. Keep an eye out for leases with flexible terms

As we saw in March of 2020, you never know what’s going to happen! If there’s another life-disrupting event, you want to be sure that you’re not stuck paying for something you don’t need anymore. At the same time, you want to see if there are opportunities for lease discounts. For example, if you commit to a 3-year term, can you pay less per month than you would for a 12-month lease? 

 

8. Consider health and safety features

Health and safety are top priorities these days. Does the building offer a security team or secure entry? Are there automatic doors, locks, and bathroom fixtures that reduce touchpoints? What’s the protocol in the event of an emergency, like a fire or earthquake? When was the last time the building was inspected? Not only are these things crucial for peace of mind, but they can help keep you and your business out of legal trouble.

 

9. Personalize your space

As we stated at the beginning of this article, employees care about their work environment and many don’t think their offices are up to snuff. So, involve your employees in curating a workspace that everyone loves! Talk to the building owners or management company and see what your customization options are – can you paint the walls? Move desks around? Are dogs allowed? These things can make a huge difference to employee happiness!

 

10. Consider business growth

Does your office space and lease duration support business longevity? In other words, is this space you can grow into or will you quickly grow out of it? What would happen if you expect to grow a certain amount and you end up with more space than you need – can you transfer to a smaller space with a different lease? What if you grow faster than expected – can you get into a bigger space? These are great questions to ask before you sign!

 

Allow Speed Commercial Real Estate to Find Your Office Space

Speed Commercial Real Estate can get you into an office space that is perfect for your business and employees. We will take the time to sit down with you, understand your unique needs, and offer a property that exceeds expectations. Contact us today to start your office space search!

What Are Cap Rates in Commercial Real Estate?

Cap Rates in Commercial Real Estate

If you’ve been looking into investing in commercial real estate, you’ve probably wondered “what is capitalization rate?” at least once!

There is a lot of real estate jargon that is important to understand so you can make the best decisions for your business. Capitalization rate (cap rate) is a term that is very important for making smart purchases. The cap rate on a property can make the difference between a good investment and a bad investment. 

If you’re just starting out with commercial real estate investing, you might find yourself getting lost in conversations with brokers and other investors who have been in the industry for a while. We want you to feel confident in a room with your peers, so we’re going to tell you everything you need to know about cap rates in commercial real estate.

 

What is Capitalization Rate?

What is capitalization rate? According to Investopedia “The capitalization rate (also known as cap rate) is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property.”

Essentially, a cap rate tells you how much money you’ll be able to make on your investment. The number is determined by dividing net operating income by how much the property is worth, and then it is expressed as a percentage. For example:

Say a $500,000.00 property has a net operating income of $75,000.00. The cap rate would be 75,000.00/500,000.00 = .15, or 15%.

This is a good way to measure how profitable a piece of commercial real estate might be, but it should not be the only deciding factor. You should also consider leverage, inflation, the condition of the property, future income from property improvements, and the real estate market. 

Cap rates are used almost exclusively in commercial real estate. In residential real estate, the value of a home is generally based on the price per square foot of comparable properties in the area. In commercial real estate, however, cap rates are used to tell an investor about how much money they can expect to make on a property, per year.

 

What is Cap Rate in Commercial Real Estate?

As we mentioned in the previous section, cap rate in commercial real estate helps estimate how much income an investment property will generate. It can also measure how risky an investment property might be. 

Properties with higher cap rates tend to have higher risk, and vice versa. Moreover, property prices tend to be inversely related to capitalization rates, and vice versa. 

Capitalizations rates are a simple way to compare prospective investment properties before you dive in and start spending money. It’s a great place to start, but it should not be considered as the extent of your research efforts. An investment property should be examined from many different angles before you decide. For example, you might want to look into the Levered Internal Rate of Return, which considers debt. 

Cap rates are a good way to feel out the market and begin to decide where and how you want to invest. If you’re investing in other cities/states, calculating a cap rate can help you decide which area is most deserving of your money, time, and effort. For example, say the average cap rate for a large apartment building in Miami is between 4.5%-4.75%, while those in Phoenix are closer to 3.9%. 

A building with a 4.6% cap rate is not out of the ordinary in Miami, but it’s higher than average in Phoenix, which suggests higher risk. Similarly, a large apartment building with a cap rate of 5% would look normal compared to these examples, but it could be outside the average range for the city it’s located in.

Here are some things to keep in mind when considering a property’s cap rate:

  • Tenants. The net operating income of your property can change when you change tenants. For example, if you have a valuable tenant (for example, the only pharmacy in the area), you will have a high cap rate while they’re settled in. This is great news… until their lease expires, and they leave. If an investor jumps in right before the ending of the lease because they are excited about that 8% cap rate figure, they will likely find themselves struggling to make the same return when the pharmacy moves.
  • Timing. Cap rate calculations are typically done yearly. Many factors can change within a year to affect a property’s expenses and revenue. 
  • Vacancies. If a space is not fully leased, you, the investor, could lose out on a significant net operating income. Some investors might think that an investment is safe because it has a low cap rate, only to discover that it is quite unstable.
  • Location. The location has everything to do with perceived property value. You might see lower cap rates in expensive neighborhoods and higher cap rates in up-and-coming neighborhoods. 

 

What is a Good Cap Rate in Commercial Real Estate?

There is no cut and dry answer to the question “what is a good cap rate in commercial real estate.” That said, certain factors go into a ‘good’ cap rate. 

Different properties will have different cap rates. Generally, you can use a cap rate to determine how long it will take for your business to make back the amount of money that you invested into it. For example, a property with an 8% cap rate will take about 8 years to see a complete return on investment. 

Here’s another way to determine a good cap rate:

Imagine two investment properties are almost identical except for their location. One is in an upscale downtown area, while the other is located in the suburbs. It’s known that the building in the downtown area will generate more income because it’s in a highly desired area, but that income will be partially offset by higher maintenance costs and higher tax rates. Therefore, the downtown property will have a lower cap rate than the one in the suburbs, although it has a higher market value.

This goes to show that a cap rate with a lower value corresponds to a better valuation of a property and a better-expected return on investment with less risk. Whereas a cap rate with a higher value corresponds to a relatively lower expected return on investment and a higher level of risk.

Speed Commercial Real Estate

Speed Commercial Real Estate serves the Metro Jackson Area by offering comprehensive services in development, commercial brokerage, property and asset management, investment sales, and property owner and tenant representation. We can help you start building your investment portfolio today. Give us a call to set up an appointment and we will begin by covering the most important real estate terms that are necessary for your success.

Buying vs Leasing Commercial Real Estate

Buying vs Leasing Commercial Real Estate

Is it better to buy or lease commercial real estate? There are pros and cons to both, and there’s not a one-size-fits-all answer. Here’s what you need to know about the difference between buying your own commercial space vs. renting or leasing from a landlord.

What Does It Mean to Buy vs. Lease?

When you go the route of buying commercial property, you are paying for full ownership. An upfront payment, at least 10% down, is required. Once purchased, you will have complete control of the property. 

When you go the route of leasing commercial property, you are renting the property from a landlord. You will be responsible for monthly rent and associated costs. You have temporary rights to the property until your lease ends. 

Benefits of Buying Property

Gaining Equity

When you own your property, you gain equity with each mortgage payment. This could be a good investment for your business. Typically, over time, property value increases. Most commercial properties experience a notable increase in value from inflation rates, higher supply and demand, and similar factors. Marketable renovations will also increase your property value. With a higher property value, if you choose to sell your property, you could make a considerable profit.

Leasing Potential

When you have full rights to a property, you have the choice to lease a portion or the entirety of the property to another business. This is especially helpful if you are only using a portion of the real estate property or if you outgrow it after a few years. You’ll not only be making a profit from your own business but from rent as well.

Tax Benefits

You’ll receive yearly tax benefits for interest, depreciation, and many expenses that aren’t related to your mortgage. Talking to an expert will help you understand what tax benefits you qualify for. 

Why You May Not Want to Buy 

Pricey Upfront Costs

When you are buying commercial property, you have considerable expenses. Purchasing properties requires paying a down payment, which ranges from 10-40%, closing costs, inspection fees, and due diligence. If you choose to buy, you need to have a large budget. 

Liability and Insurance

Owning commercial real estate means that you are responsible for several things. First, you are responsible for anyone on your property. This requires liability insurance to protect against emergencies or injuries. Your insurance additionally needs to protect the property from any damages or losses that can occur. Insurance can be expensive and requires extensive research to find the best option. 

Maintenance Fees

Property owners are also responsible for all maintenance. Regular and unexpected maintenance can become very costly. 

Risk of Lower Property Value

While property value is normally projected to rise over the years, that’s not always the case. You run the risk of your property value lowering significantly over time. This can make selling the property difficult. 

Permanent Location

If you no longer like where your business is located, it is a long and difficult process to sell your property and find new real estate. You need to be confident that you have the perfect location,  preferably one that will continue to suit your needs for years to come.

Benefits of Leasing

No Expensive Upfront Costs

Leasing may require a down payment, but this payment is typically returned to you at the end of your lease term. You aren’t responsible for other expenses, like closing costs. Depending on the lease, you could have common area maintenance charges and other fees, but the tradeoff is that your landlord will take care of maintenance so you don’t have to worry about it. 

Tax Benefits

When leasing, you may receive tax benefits for lease payments, property taxes, utilities, and more. Talk with an expert about what tax benefits you qualify for from leasing a commercial property. 

Nonpermanent Location

Leasing a property is flexible. You may choose to stay there for just one or two years, or you may choose to remain there for many years. This is an excellent advantage if your business may need to expand or relocate in the near future. 

Easier to Get into Existing Developments

Existing developments typically bring in more profit, especially if they are in a high-traffic area. Purchasing properties in these desirable developments can be difficult. Renting commercial property in desirable areas is often easier.

Why Leasing May Not Be the Best Choice

Higher Monthly Payments

Depending on your situation, commercial lease payments could be costlier than a mortgage. Your monthly rent may be fairly costly, especially if it is located in a desirable existing development. Plus, you’ll have to pay for things such as utilities, parking, and maintenance. 

Limited Control of Property

Your landlord is completely in control of your property. This includes renovations, maintenance, and changes to any part of the property. Depending on the lease, you may have limited ability to change the property to suit your needs.  

Payments Aren’t Fixed

Leasing a property runs the risk of your monthly payments being raised when you renew your lease. If the property value of the building increases or supply and demand change, your landlord may increase your rent. This could potentially make the property unaffordable for your business. 

In a Nutshell, Should You Buy or Lease?

You should choose to purchase commercial real estate property if:

  • You’re positive this is where you permanently want your business to be located
  • You want full ownership of your commercial real estate, such as making renovations and receiving tax benefits
  • You can handle expensive upfront costs

You should make the decision to rent commercial real estate property if:

  • You want to be in a desirable existing development or location that’s expensive to buy
  • You can’t afford upfront, pricey fees
  • You want flexibility with your location
  • You don’t want all the responsibilities of owning the property

Get Advice on Buying Vs. Renting Commercial Real Estate

Consulting an expert will get you the advice you need to choose the right option and navigate the whole process. Speed Commercial Real Estate’s team of experts is prepared to help you with buying and leasing commercial real estate. Contact us for more information!

What Is a Commercial Real Estate Broker?

What Is a Commercial Real Estate Broker?

Are you considering buying, selling or leasing commercial real estate? If so, you’ll need a commercial real estate broker. These professionals are distinct from real estate agents, although they often share responsibilities and are both licensed. Here’s the main difference:

  • Real estate agents come in many forms. Whether they are a listing agent, buyers agent, dual agent or transaction agent, they must operate under a broker. 
  • Real estate brokers are licensed to do everything a real estate agent does and then some. Depending on the state, brokers are required to have a minimum number of years of real estate experience, additional licensing and take continuing education courses throughout their career. Brokers are qualified to manage their own business and supervise a team of real estate agents.

A commercial real estate broker is an expert in non-residential properties. Commercial properties include retail space, office space, healthcare, apartments — anything where an investor either collects money for rent, or buys/sells the property for business purposes. The broker acts as an intermediary between the seller and buyer or landlord and tenant. 

What Does a Commercial Real Estate Broker Do?

As with any real estate professional, a commercial broker is responsible for acting in their client’s best interest. This could mean analyzing finances to secure the best deal when purchasing a property, soliciting potential tenants or buyers, or negotiating a lease to avoid any hidden fees or unwanted clauses.

Read on for more detailed explanations of the typical responsibilities of a commercial broker:

Acquisitions

A broker dealing with acquisitions helps their client find and purchase a property. This includes every step of the process: from researching the market and weighing the risks of each investment, to negotiating the best price and terms of purchase.

Dispositions

On the other side of acquisitions are dispositions. A broker working in dispositions helps their client sell a commercial property. In other words, a broker helps the investor liquidate their assets in order to have cash in hand. Disposition can occur in three ways: selling the property in a traditional sale, selling the property with owner financing or facilitating a 1031 exchange.

Leasing Transactions

More often than not, commercial brokers are involved in leasing transactions. They may either represent the landlord in finding a tenant for their commercial space or represent the tenant in securing the best deal for a rental space. The next section contains more information on the types of brokers involved in these transactions.

Types of Commercial Real Estate Brokers

Commercial real estate brokers come in four forms:

  • Listing brokers work on behalf of the landlord to find tenants, negotiate with tenants and set up lease terms. They earn a commission on rent during the lease — typically three to six percent.
  • Tenant reps work on behalf of the potential tenant in order to find them the best value and suitability in a commercial space. Their commission is also paid by the landlord. If there is both a listing broker and tenant rep involved in a leasing transaction, the brokers will typically split the commission. Most brokers represent landlords or tenants, depending on the situation. This doesn’t necessarily mean that they are trying to lease one specific property for a landlord or find a space for a specific tenant. An example client in this situation would be an investor seeking to add a commercial property to their portfolio. Even though they don’t work exclusively for one side or the other, this type of broker is still legally required to act in their client’s best interests. 
  • Dual agents represent the landlord and tenant simultaneously. This can be tricky when it comes to conflict of interest. As such, a broker acting as a dual agent will typically take on a more neutral role during negotiations, tending to focus more on the technical and legal side of the transaction rather than an advocate for a specific party. Dual agency is illegal in eight US states, although it is permitted in Mississippi.

When Do You Need a Commercial Real Estate Broker?

The short answer is: all the time.

If you are entering a commercial real estate transaction, it’s wise to have a broker on your side. The main reason for this? If you are a tenant, any potential landlords will most likely be working with a commercial broker. The same goes if you are a landlord, buyer or seller. Most people utilize a broker for commercial transactions, and you’ll definitely want a level playing field.

Commercial real estate is an entirely different level from residential real estate. In addition to the sheer amount of time it takes to research the market, browse through listings, schedule appointments, negotiate rates and contracts, commercial properties also involve extra zoning laws, tax requirements and other complications. A commercial broker has spent years becoming an expert on those areas so you don’t have to.

In addition, many commercial property listings are inaccessible to the general public. While you will be able to view some listings, a commercial broker will be able to access the best properties that are hidden behind a hefty paywall.

A broker will also work with you to understand the exact type of property you need for your business — or the type of profit you desire from selling a property. They’ll have an instrumental network of contacts in the real estate industry at their disposal. In the long run, working with a broker will save you time, money and a lot of headaches.

Work with Speed Commercial Real Estate on Your Next Commercial Transaction

Speed Commercial Real Estate has been serving the Jackson, Mississippi area for over 17 years. We are industry leaders specializing in property sales, management and leasing. Our team not only includes experts in the commercial real estate field, but experts in the Jackson area. At Speed Commercial Real Estate, we pride ourselves in using innovative strategies and unmatched commitment to service to achieve the greatest outcome possible for our clients. Contact us via our website or give us a call at 601-987-0202 today!

Top Mississippi Commercial Real Estate Trends in 2021

This article does not constitute financial or investment advice. For proper commercial real estate investment advice, send us a message or give us a call.

A new year means you have 365 days of opportunity ahead of you! As a commercial real estate investor, it’s important to stay on top of the latest trends, so you can take advantage of all the opportunities that are about to come your way. 

Life changed drastically in 2020 and we all spent 2021 recovering and adapting to that “new normal” everyone spoke so much about. We will definitely feel the effects of these last two years in 2022, but trends predict that we’re going to be inching toward our “old normal” again. 

Understanding the top Mississippi commercial real estate trends will help you make the best decisions so you can invest your time and money well and see the biggest return on your investment.

Top MS Commercial Real Estate Trends

1) Low Interest Rates

As recent as September 2021, the Federal Reserve predicted that interest rates will stay near zero throughout 2022 and for the rest of the foreseeable future. Unfortunately, the same can’t be said for mortgage rates because commercial real estate is selling for more than the asking price, in many cases, but it still means overall financial savings.

Lower interest rates mean more people will be able to take out investment loans, which typically have higher rates than other types of loans. With more people able to secure an investment loan, we may see a boom in the commercial real estate industry – especially for first-time investors. 

2) Changes in Retail Properties

We’ve seen drastic changes in retail real estate these past two years. Many brick-and-mortar stores shut their doors during the pandemic and transitioned to operate fully online. In 2022, we are going to see the effects of that massive shift:

  • Ecommerce

The recent surge in eCommerce has affected retailers, wholesalers, and third-party logistics companies. These players are now expected to keep up with low prices, fast shipping, and personalized customer service the way companies like Amazon have. 

As a result, projects that involve converting retail space to industrial space will accelerate in 2022. In addition, there will be a large demand for warehouses that can house inventory for eCommerce stores. 

  • Stockroom priority

Now that there are more online retailers than ever, the need for local warehouses is increasing. Not only will small, local businesses need a place to store and manufacture their products, but international companies are also opening warehouses in other countries to fulfill orders faster. Plus, Amazon warehouses are popping up all over the country (including Mississippi) to offer same-day shipping. 

This gives real estate investors a chance to jump on the trend early, secure a few warehouses, and rent them out at competitive prices. 

3) Office Versatility

When the pandemic forced people to transition out of their offices and into their homes, we saw 2021 call for an increase in flex spaces – rooms that could double as a home office, hobby room, etc. 

Now that vaccines have become widely available, and required by certain employers, we see that workers are starting to head back to the office. However, many companies are adopting a hybrid system while others only have necessary personnel in the office. 

As a result, many companies throughout Mississippi and the rest of the country have different office requirements. Companies that once rented out entire floors are only going to need a few rooms. Those who previously occupied entire buildings will only need a floor or two. Massive call centers will be transformed into collaboration centers.

In addition, companies will be looking for office space with versatility and touchless technology. Versatile spaces will allow organizations to customize their new office environment to be more conducive to their needs. This might look like extra space for a comfortable lounge area, a secure room with cameras for a daycare center, a room made specifically for video conferencing, doors that open automatically, and upgraded bathroom sinks and toilets.

4) More Renters

In 2021, we saw renters all over the country wrap up their leases and move in with their families. Now, they are getting ready to hunt for apartments again.

Remote work has made living arrangements more flexible for renters than ever. Now that many people are working from home, they have the freedom to move wherever they please. In addition, more job opportunities mean that renters can increase their salary and say goodbye to the roommate lifestyle. 

Investing in rental properties will only become more lucrative in 2022. However, it must be done right. With more time spent at home, renters are not going to put up with spotty internet, outdated fixtures, or absent landlords and property managers that don’t return calls promptly.

Instead, renters are going to be looking for apartments that implement upgraded technology, including high-speed Wi-Fi capabilities, office space, touchless technology, improved indoor air quality, and attentive personnel that can remedy issues as they arise.

A picture containing indoor, floor, wall, kitchen

Description automatically generated

5) More Suburban Dwellers

When the pandemic hit major cities like New York and Los Angeles, we saw people move to the suburbs in droves. Not only was it safer in the suburbs where there are fewer people, but it’s more affordable. Plus, workers didn’t have to commute to their office buildings anymore, so they could move out of the city and keep their jobs. 

In 2022, buyers and renters are going to be more interested in living in small towns just outside of metropolitan areas. This will allow them to commute to work if and when they must and have a comfortable place to call home, away from the chaos of the big city.

This could have an interesting effect on urban housing prices, however. With people at the typical home-buying age (Millennials) moving to suburban areas, this could drive the real estate cost down in big cities. 

Taking Advantage of Mississippi Commercial Real Estate Trends

If you are interested in taking advantage of Mississippi Commercial Real Estate trends, it’s best to start planning now. The sooner you have your investment plan laid out with a budget and timeline, the sooner you can secure your next piece of property. 

The above trends depict a strong demand for suburban housing, eCommerce inventory storage, flexible office spaces, and upgraded rental accommodations. With this information, we can predict that some of the most profitable commercial real estate in Mississippi in 2022 will be:

  • Industrial spaces
  • Retail
  • Data centers
  • Multi-family apartment complexes in the suburbs
  • Self-storage

Getting a head start on your 2022 commercial real estate investment plan will position you to make the smartest choices with your money.

When you need help developing your investment plan, the advisors at Speed Commercial Real Estate will be right by your side. 

Commercial Real Estate Investing with Speed

Speed Commercial Real Estate is a top real estate firm in Mississippi. In addition to buying, selling, and managing properties, we offer consulting services to help you make the best investment decisions. Contact us today to get a jump start on your plans for 2022.

What is Facility Management? – Everything You Need to Know

It takes a lot of work to ensure a large residential property runs smoothly. If you have a multi-floor building with dozens of apartments, amenities, and grounds to take care of, they all must be properly managed to function properly and keep residents happy. 

Facility management is not a new concept. In fact, it’s not even exclusive to residential property management. Hospitals, manufacturing plants, hotels, and more also require facility management!

Before you decide to bring on a facility manager, you should have a complete understanding of their role and how they can impact the quality of your business. In this article, we are going to completely answer three questions:

  • What is facility management?
  • What does a facility manager do? 
  • How much does it cost to hire a facility manager?

This will give you a comprehensive understanding of facility management so you can go ahead and hire the best team for your facility.

What is Facility Management?

Before we define what is facility management, we should give you a clear understanding of what a facility is. The dictionary definition of a facility is “something designed, built, installed, etc., to serve a specific function affording a convenience or service.”

Facility management will look a little bit different across different industries, but there are general responsibilities that apply in all cases. 

According to the International Facility Management Association (IFMA), facility management is “A profession that encompasses multiple disciplines to ensure functionality, comfort, safety, and efficiency of the built environment by integrating people, place, process, and technology.”

Essentially, facility management refers to the management of everyday operations that are required for an environment to support a business’ needs. Facility management helps make a business more valuable by tending to short and long-term needs.

In the real estate industry, facility management is designed to help reduce maintenance costs, keep employees and residents safe and happy, protect the owner from liabilities, and increase business growth. 

Facility managers are helpful in a variety of ways, which we will discuss in-depth in the next section. For example, if you own a large apartment building a facility management team can keep eyes and ears on all the components that are necessary for a healthy living environment and successful business, including (but not limited to):

  • Plumbing, electrical, and HVAC
  • Leasing
  • Preventative maintenance
  • Planning, construction, and design
  • Security, mail management, groundskeeping, waste management
  • Janitorial services

The facility management industry is growing faster than ever. As technology advances and our living standards change, facility managers are taking on new responsibilities and learning innovative skills. We are living in a unique time when our living spaces operate as more than a place that we call home. In many cases, ‘home” is now synonymous with “work,” “school,” “office,” and “gym.”

As a result, facility management impacts, and is impacted by:

  • Emergence of the “Internet of Things”
  • Building Automation/Monitoring
  • Employee Engagement
  • Health, Wellness & Well-Being
  • Evolving IT Infrastructure
  • Evolving Real Estate Models
  • Sustainability & Environmental Impact
Apartment buildings with outdoor walkway and garden

What Does a Facility Manager Do?

A facility manager can go by a variety of different titles and have many responsibilities. At the core, facility managers are responsible for ensuring the different systems within a facility all work together harmoniously. As a result, the facility is a comfortable place to live and work. 

According to IFMA, there are 11 core competencies of facility management:

  • Occupancy and human factors
  • Operations and maintenance
  • Sustainability
  • Facility information and technology management
  • Risk management
  • Communication
  • Performance and quality
  • Leadership and strategy
  • Real estate
  • Project management
  • Finance and business

These core competencies can be divided into two types of services: hard and soft.

Hard Facilities Management Services

Hard facilities management services refer to the maintenance and management of the physical building. This includes assets, space, and infrastructure. Typically, hard facilities management services are required to be provided, by law, and are integral to workplace functionality.

  • Plumbing. Plumbing is a modern-day essential that can have serious impacts on safety when something goes wrong. A facility manager will make sure plumbing issues are tended to quickly and plumbing systems are well maintained
  • Lighting and HVAC systems. Facility managers are responsible for making sure lighting and heating/cooling fixtures throughout the property are in good working condition. This means checking the interior and exterior of the building and responding to tenant maintenance requests in a timely fashion
  • Fire safety compliance. Facility managers will schedule regular checks for fire extinguishers, sprinkler systems, carbon monoxide detectors, and smoke detectors.
  • Mechanical and electrical systems. This involves making sure everything from elevators and key fobs to water pumps and light switches are operating properly.
  • Structural maintenance. Even a building just a few years old requires regular maintenance and repairs. Wind, sun, extreme temperatures, snow, and rain can all affect the structural integrity of a building.

Soft Facilities Management Services

Soft facilities management services refer to services offered directly to employees and/or tenants. These are things that a facility provides to make the environment a comfortable and enjoyable place to live and work. 

  • Waste management. Waste management services ensure tenants’ trash and recyclables are collected on time, meaning the city comes to remove trash from the facility’s receptacles. This could include door-to-door trash collection, tenant drop-off in a specific location, or both.
  • Cleaning services. Most apartment facilities will not provide in-apartment cleaning services, but they will ensure that the grounds and common areas are tidy and sanitary.
  • Space planning. This could include interior design, room remodeling, amenities, and more – anything that will make a facility more comfortable and functional.
  • Pest control. A facility is responsible for removing pests on the property, whether that means regularly spraying pesticides, performing seasonal checks, or managing outbreaks in an apartment.
  • Landscaping. Mowing grass, weeding flower beds, planting flowers and trees, leaf removal, snow removal, etc. are all the responsibility of facility managers and their team.
  • Security. A facility manager will be responsible for things like installing and maintaining security cameras, hiring security guards, and managing restricted areas within the facility.

As you can see, a facility manager has many responsibilities that all come together to make a building run efficiently. A great facility manager can be the difference between an average apartment complex and a high-end apartment complex.

Facility management can be a very lucrative career because it typically requires a degree and a significant amount of experience. Property owners will be expected to pay a salary that matches a facility manager’s skills and experience. However, hiring a facility manager can save tens of thousands of dollars in other costs.

How Much Does It Cost to Hire a Facility Manager?

It’s difficult to give a straightforward answer to the question, “How much does it cost to hire a facility manager?” because many factors go into the final price. The cost of hiring a facility manager depends on the characteristics of a facility and the requirements set forth by the owner or property manager.  

When looking at how much it costs to hire a facility manager, it’s important to look at the life-cycle costs, rather than just up-front costs. Life-cycle costs take long-term goals and budget into account, which are important for the future of a business. 

There are three parts to the overall cost that need to be examined when comparing facility managers to hire:

  • Initial costs: These are the start-up costs that are required to bring a facility manager on. Training, salary, purchases, and installation costs are also included.
  • Future costs: Future costs are sometimes also recurring costs. They include maintenance, operations, financing, and capital replacement.
  • Resale: The resale place is your return on investment. 

When you’re looking to hire a facility manager, it’s important to interview a few different organizations, inquire about their processes, and define common goals. Once you find someone who provides what your facility needs and has plans for improving it, you can discuss tactics, salary, and monthly costs. 

Before Hiring a Facility Manager

There’s one very important thing you must do before you hire a facility manager: list your goals.

To find someone who will come in and take care of your facility exactly the way you want them to, you must be able to tell them exactly what you need.

A security team?

Someone for snow removal?

Someone to maintain the pool?

Someone to install a kitchen in the common area?

An interior designer?

You can really customize the final cost of hiring a facility manager based on your needs. If you start your search with a budget in mind, you will be more likely to find someone within that budget.

Hire Speed Commercial Real Estate for Your Property Management Needs

Speed Commercial Real Estate is the top property management company in Ridgeland Mississippi. We can help you find a facility manager that works well with our team of property managers to flawlessly run your facility. No matter if you are local, a few hours away, or on the other side of the world you can rest assured that your facility is in great hands.

Contact us today to set up a meeting. We look forward to speaking with you!