For the last few years, it has felt as though the future of commercial real estate (CRE) investment is uncertain. In 2020, we saw the sale or lease of many office and retail spaces that transitioned to remote operations. Last year, we watched interest rates and inflation rates increase. And through it all there has been supply chain disruption that stalled the construction of new buildings and renovation of old ones.

However, in 2023, commercial real estate prices are expected to decline, strong job growth will likely put organizations and employees in better financial positions, and investment strategists project to see a decrease in inflation rates throughout the year.

The projected economic shift will change how commercial real estate investors manage their portfolios this year. To get a better idea of how the coming months will affect your investments, let’s look at 10 commercial real estate trends for 2023.

10 Commercial Real Estate Trends to Watch in 2023

Smaller properties with shorter leases are preferred

Many organizations that previously required multiple floors of office space have transitioned to remote or hybrid work structures. As such, they now need space that can meet their flexibility requirements.

Instead of tens of thousands of square feet for offices, conference rooms, break rooms, “bullpen” space, kitchens, waiting rooms, and more, tenants now seek just enough space for the necessities. Additionally, because flexibility is key, many organizations will prefer to rent from landlords that offer short-term leasing options

Cost-cutting technology

Although we expect to see a brighter financial future in commercial real estate, investors will continue to seek opportunities to cut costs. Technology that automates manual processes, controls building operations (HVAC, security features, etc.), and tracks spending/income will become non-negotiables in commercial real estate investments.

Prioritizing ESG considerations

Sustainability is at the forefront of our society, permeating all sectors of business. Savvy commercial real estate investors are making it a point to consider environmental, social, and governance (ESG) when purchasing, building, and operating properties.

According to PIGM survey data, an estimated two-thirds of CRE investors and fund managers have implemented ESG criteria into their investment strategies. PIGM expects that number to increase in the coming years.

Capital recycling

Rising interest rates and increasingly strict lending requirements have made it difficult for some investors to find financing opportunities. The H1 2022 Cap Rate Survey found that these CRE investors are concerned that tighter underwriting and lending assumptions will continue to stunt their portfolio growth.

As a result, capital recycling, or the process of using existing assets to fund new investments, has become more popular in the CRE investment industry. For investors without much liquid capital, this can be a good method of maximizing returns.

Repurposing malls

The decline of malls certainly is not a recent trend. However, it appears that CRE investors are beginning to get creative with these stagnant retail spaces housed in massive buildings. According to NAR’s 2021 Q1 survey, nearly 40% of respondents said that local malls are being repurposed into multi-use properties, including office, retail, and residential spaces.

Furthermore, a quarter of respondents said that malls would make suitable fulfillment centers or industrial spaces. As we continue to see an increase in online retail sales, especially from Amazon, cities throughout the United States will likely need these vacant malls to store goods, pack boxes, and ship orders.

The return of urban multifamily housing

During the pandemic, millions of people felt uneasy in crowded cities or simply didn’t need to live there anymore because their organizations transitioned to remote work. So, they flocked to the suburbs.

As companies return to work, public health concerns subside, and strong job growth persists, we see that workers have the desire to move back into urban areas. Investments in multifamily properties have been increasing by 56% year-over-year to reach $63 billion in Q1 of 2022, which is the strongest first quarter the sector has ever seen.

A rise in ghost kitchens

Ghost kitchens are facilities that prepare and deliver food with no intention of serving customers in-house. This was many restaurateurs’ answer to strict dining guidelines brought on by the pandemic – they can still make and serve food without the cost of hiring a staff, decorating and maintaining a restaurant, etc.

This allows commercial real estate investors to lease smaller buildings to restaurant owners because there is no need for a dining room.

More operational real estate

Operational real estate, like student housing, senior living facilities, and storage units, is growing in demand. Total CRE investing in operational real estate nearly doubled from 2020 to 2021, taking just over 12% of the Annual Global Investment Volume pie.

As a growing number of Americans need healthcare, student housing, and storage options, operational real estate will continue to be a popular and profitable sector.

A rise in digital economy properties

Digital technologies, such as cloud computing and storage, are in high demand. With businesses in every sector adopting such technologies en masse, there is a growing need for data centers that can house servers and networking equipment.

Although the current semiconductor shortage could impact the operations and new development of data centers, the United States is currently working to become a leader in microchip manufacturing. Plans to build semiconductor factories in Arizona, Ohio, and New York are already underway.

Prioritizing cybersecurity

Real estate investment transactions have always required significant due diligence before closing on an asset purchase or lease agreement, but cybersecurity concerns add another layer of complexity for investors looking to protect their interests going forward.

Kaspersky found that a cybersecurity breach cost enterprises an average of $1.4 million in 2021. While this is bad news for large corporations, small businesses can be completely devastated by such an attack. Investors must prioritize the use of best-in-class security standards to protect themselves, their tenants, and their portfolios.

Commercial Real Estate in Jackson, MS

As you can see, several changes that should make their way into the commercial real estate investing market over the next year. If you’re looking to sell or buy commercial property, it’ll be worth keeping an eye on these trends to understand how they might affect your business.

Speed Commercial Real Estate is here to help first-time commercial real estate investors navigate the coming changes in the industry. Contact Speed Commercial Real Estate if you are interested in investing in commercial real estate in the Jackson, MS area.

Knowing how to buy commercial real estate opens your world up to incredible investment opportunities. Many people around the world, including Shark tank mogul Barbara Corcoran, attribute their high net worth to real estate investing. In Corcoran’s case, she grew her real estate agency into a multi-million-dollar empire, which began with $1,000 she secured with a loan.

Buying commercial real estate can be a tricky business. It involves a lot of research and negotiation and often requires professional advice from an expert consultant or attorney.

In this article, we’ll take a look at some of the things you need to know before you decide to buy commercial real estate in your area.

Reasons to Buy Commercial Real Estate

Before you learn how to buy commercial real estate, you should understand the benefits of doing so. This will help you find your motivation for buying, which can drive passion into your career.

There are many reasons why so many people choose to invest in commercial real estate:

• The potential for high returns. Commercial property values tend to appreciate more quickly than residential property values, which means you can make more money as an investor.
• The ability to diversify your investment portfolio. Investing in commercial real estate offers a way to diversify your investment portfolio with an asset that has different risks and rewards than stocks or bonds.
• An alternative source of income. Commercial real estate investments can offer income from rents, leases, and other sources such as tenant improvements, leasing commissions, and management fees from property management companies.

Buying commercial real estate is a great way to provide for your family, achieve personal financial freedom, retire early, and leave a legacy behind for your family.

How to Buy Commercial Real Estate

After you understand your motivation behind commercial real estate investing, you can learn how to buy! Here are a few steps you can take to purchase the right property and see the best return:

Choose a Market

The five main commercial real estate markets are office buildings, retail spaces, industrial properties, multifamily housing, and hospitality.

• Office buildings commonly have conference rooms, private spaces, and common areas so employees can interact with each other while they work on projects. There are small office buildings that can house one tenant or business, mid-sized buildings that can hold a few different tenants, and high-rise buildings that can host dozens of tenants at once.
• Retail spaces are one of the most common types of commercial real estate investments because they can be bought in many different sizes and price ranges, from small mom-and-pop shops to large shopping malls with multiple tenants and lots of foot traffic.
• Industrial properties include warehouses and manufacturing facilities.
• Hospitality buildings host restaurants, entertainment centers, hotels, and short-term rentals (like Airbnb).

Get Pre-Approved for Financing

If you want to buy commercial real estate, it’s important to have a lender who knows your credit profile and has approved your loan application before you begin looking at properties. The lender will run a credit check and verify your income and assets to make sure you can afford a loan payment that’s larger than what you currently pay on your home mortgage. This will also let you know what you can afford to buy.

Find a Team of Real Estate Professionals

Finding the right team of real estate professionals involves balancing three factors: expertise, experience, and trustworthiness. You need to find people who are knowledgeable about the industry and can advise you on how to make an investment that will pay off. You also need people who have been in your shoes before — they know what mistakes to avoid, what pitfalls to avoid, and how to get through them if they do happen. Finally, you need people who are trustworthy — if something goes wrong with your investment, you want someone on your side who will go above and beyond for you.

Search for Investment Opportunities

Once you know what kind of building you want to buy, you know what you can afford, and you have a great team of real estate professionals behind you, it’s time to shop around! Search through online listing portals, the classifieds section of the newspaper, Craigslist, and Facebook Marketplace, and talk directly to property sellers.

Although these are all great methods for finding available commercial properties, your best bet will be to utilize your brokerage. Commercial real estate brokers have access to listings and data that you might not be able to find on your own. Additionally, they will listen to your unique needs and find a property that perfectly aligns with what you’re looking for.

Speed Commercial Real Estate Consultants

Speed Commercial Real Estate is here to help first-time commercial real estate investors navigate the tricky industry. We can make our best recommendations for properties, help you secure financing, assist with negotiations to get you the best deal, and even help you manage the property after you buy!

Contact Speed Commercial Real Estate if you are interested in investing in commercial real estate in the metro Jackson, MS area. We will stand firmly by your side to provide critical support.

Finding commercial real estate for sale in Jackson, MS can be a difficult task – unless you know where to look! There are so many different types of commercial property, so many different neighborhoods, and so many different people also looking for the right property to meet their needs.

In the last decade, Jackson, MS has become a destination for commercial real estate investors. The city is home to the state capital and numerous medical facilities, universities, and colleges, making it an ideal location for businesses in any industry. Jackson is located along the Pearl River and has many young and eager real estate investors looking to capitalize on lower real estate costs, as compared to other US cities.

Tips for Finding Commercial Property for Sale in Jackson, MS

There are many ways to find great Jackson, MS commercial real estate. Here are a few methods that will provide insight into available properties:

Online Commercial Real Estate Platforms

Online commercial real estate platforms (also known as CRE portals) are websites that allow sellers to list properties for rent or sale to a wide audience at once. These sites often have their own listing formats that allow buyers and sellers to interact directly, though they can also be used simply to advertise properties.

The advantage of using an online platform is that it gives you access to thousands of investment opportunities in the Metro Jackson, MS area and beyond. Using a platform like this also makes it easier for investors who aren’t local to find commercial real estate, like office space for rent in Jackson, MS.

Classifieds

If you’re looking for commercial property for sale, the classified section of the local paper is a great place to start. You can find everything from a vacant lot to an entire shopping center in the classifieds! They’re also a good source for short-term rentals and vacant units that may be available for lease.

Although you might assume that newspapers are too old school to find valuable modern listings, there are many property owners who have been in the business for decades. This is a tried-and-true method that still works for people who aren’t used to the internet!

Online Marketplaces

It’s becoming more and more common to list commercial real estate on online marketplaces, like Craigslist and Facebook Marketplace. You can search for properties by location, price, and type of property (apartments, homes, land). You’ll see the number of days that the ad has been posted (or “active”), which tells you how recently it was posted. You can search by location using an area code or zip code. Or if you already know where you want to buy property, enter that address into the search bar at the top of the page.

When searching on Craigslist and Facebook, keep in mind that the listings are not vetted by professionals and may not be accurate. If you find something you like, set up a meeting with the seller to verify legitimacy before making any commitments.

Directly Contact Property Owners

If you know exactly what type of property you want to buy and your price range, one of the best ways to find commercial real estate is by contacting owners directly. This can be done by attending auctions or other events where properties are being sold by their current owners.

You could also check with local banks, mortgage lenders, and other financial institutions to see if they have any foreclosed properties that they need to sell quickly. Finally, if you see a property for sale, you can walk into the building and see if the owner is available for a meeting.

Commercial Brokers

In general, the best way to find a property is through a commercial broker. As the name suggests, a commercial broker is someone who helps people buy and sell commercial properties! The broker has access to a large database of properties that they can search through and find matches based on your criteria. In addition to searching through listings, they may be able to help you connect with sellers who want to sell their properties quickly and at a fair price.

Good brokers know how to negotiate on behalf of their clients, which is why they’re able to close deals quickly — often within days or weeks! They’ll also be able to answer any questions you might have about the property or neighborhood, such as local amenities and transportation options.

Speed Commercial Real Estate Consulting

Commercial real estate is a highly specialized field. You need to know how to find commercial properties for sale, negotiate contracts, and manage the business end of things. There are a lot of decisions that go into buying a commercial property, and you can’t afford to make any mistakes. That’s where we come in.

Speed Commercial Real Estate is here to help you find commercial properties for sale in Jackson, MS, and make sure you get the best deal possible. We’ll help you set up meetings with sellers and answer any questions you have about pricing or negotiating terms.

We also work with contractors who can finish remodeling projects or other improvements once your new building is complete.

Contact us today if you’re ready to invest in Jackson, MS commercial real estate!

Many people come to us with the question, “What is commercial real estate?” Often, the people who ask this question are interested in this industry because they want to grow their investment portfolio.

If you’re looking to venture into the world of commercial real estate, knowing what it means and how it can help you grow your business is a good idea. This article will explain a bit more about the industry and how you can find success.

What is Commercial Real Estate?

Investopedia defines commercial real estate (CRE) as “property used exclusively for business-related purposes or to provide a workspace rather than a living space…Most often, commercial real estate is leased to tenants to conduct income-generating activities.”

Commercial real estate can be broken down into several subcategories, which typically are defined by the type of tenant who will occupy the space. The four main types of commercial real estate are:

Office Buildings

Office spaces typically offer larger floor plans than retail properties and may include amenities such as conference rooms, onsite cafeterias, and fitness centers. Office spaces are ideal for companies that need to house large numbers of employees under one roof or require specialized space for meetings or training sessions.

There are three subtypes of office space:

• Class A. These are the best buildings in the office space sector. These buildings rank highly in aesthetics, age, quality of infrastructure, and location.
• Class B. This commercial real estate investment is typically for business owners who want to restore an office building and turn it into a profitable property.
• Class C. These buildings are the oldest (typically 20+ years old), need significant restoration, and are located in undesirable areas.

Retail Spaces

Retail spaces are used by companies that sell products directly to consumers or directly to other businesses. This type of commercial property can range from boutiques with small floor plans to large department stores, making this a good option for investors with any size budget.

Industrial Properties

Industrial properties are often located on large parcels of land with easy access to highways or rail lines. These properties are designed specifically for companies in the manufacturing industry who need lots of space to build equipment or store inventory, but don’t need much else besides power and sewer hookups.

Commercial Real Estate Investment

Commercial real estate investment can be a very lucrative career. There are two ways to make money in CRE:

Direct Investment

When you invest directly in commercial real estate, you purchase a specific piece of property and then reap the benefits. You can own all or part of the building and have control over how it is managed or leased. You can also rent it out yourself or have an agent handle the process for you.

Commercial real estate can be purchased from private owners, banks, or other investors. In some cases, an investment bank buys up large portfolios of properties and sells them to investors. These may be individual pieces (i.e., one retail store) or larger packages (i.e., an entire strip mall).

In other cases, private investors may pool their money together to buy a single building or several buildings at once (known as syndication).

Indirect Investment

Indirect investment in commercial real estate is when you invest through a type of market security, like a real estate investment trust (REIT) or exchange-traded fund (ETF). An indirect investor typically doesn’t deal with the property owner or tenant. Instead, they buy shares of ownership in a company that owns commercial real estate assets across many different locations. The company then pays a portion of its net income based on your ownership share.

Indirect investments are a good way for investors to get exposure to real estate without taking the time and effort to learn about property management or investing in individual properties.

How to Find Commercial Property

There are several ways to find commercial property for sale. Here are the most common methods used by real estate investors and professionals:

Local Publications

Local newspapers and magazines often have articles about new developments and available properties. If you’re looking for a particular type of business space — such as retail or industrial— seek local publications that cover those topics, specifically.

Commercial Real Estate Brokerages

Most cities, especially metro areas, have organizations that specialize in commercial real estate services. Here in Jackson, MS, Speed Commercial Real Estate helps investors with everything from finding the best property, asset management, investment sales, property owner representation, and more.

Speed Commercial Real Estate

Speed Commercial Real Estate is proud to work with real estate investors in Jackson and throughout Mississippi. Our experienced professionals apply market knowledge, cutting-edge technology, and industry expertise to each venture. We strive to keep our clients front and center, which allows us to stay focused on your goals and exceed your expectations.

When you’re ready to invest in commercial property, contact us at Speed Commercial Real Estate. We will walk you through the investment process, explain the nuances of the industry, and help you maximize the return on your investment.

If you are looking to invest in commercial real estate, one of the most overlooked markets may be Jackson, MS. The city of Jackson, and the surrounding areas, have some unique attributes that make it one of the best places to find undervalued, yet very profitable properties.

Jackson has faced some well publicized infrastructure problems in the past, but our research shows that the local real estate market has been vastly undervalued for several years and the outlook for steady, sustained growth looks very promising.

Local Economy in the Jackson Area

The Jackson area economy is a significant hub for commerce, manufacturing, healthcare, government and education. All of these factors combined means that regardless of the ebbs and flows of the economy, Jackson’s diversified economy will always present opportunities to growth oriented real estate investors.

Major industries include food processing, electrical equipment and heavy machinery manufacturing, and fabricated metal production. In addition to these industries, Jackson is home to several major hospitals, universities, and the State Capitol, giving the local economy a steady inflow of capital from numerous and well paying healthcare, education and government jobs.

The mix of diversified industries in the Jackson area makes the local economy recession proof, as well as a place where new businesses are constantly starting and more well established businesses are constantly expanding. Jackson is one of the few markets in the country with such a broad array of businesses that has not yet seen a massive spike in real estate prices.

Population Trends

While the population of the city of Jackson itself has fallen slightly, that is mainly due to a massive influx of population growth in the suburbs surrounding the city. The surrounding area has grown due to both an overall migration to the area as well as an exodus of city dwellers to the suburbs.

Well over half a million people live in the metropolitan area, which has experienced a roughly 10% population increase in the past decade. The slow, and steady growth means that prices have not shot up to unsustainable levels like they have in other well publicized cases such as trendy Austin, TX or San Francisco. This population trend means that investors have the opportunity to buy properties with long term sustainable growth prospects without the problems associated with unsustainable population growth.

Retail and Office Space

Jackson and the surrounding area presents a great opportunity for commercial real estate investors looking to buy retail and office space. As of now, prices are relatively low by national standards, but as the population continues to grow in the suburbs and surrounding areas, prices, as well as rents, are expected to increase substantially.

Cities such as Pearl, Madison, and Ridgeland have experienced a population growth but have yet to see much development in the retail and office space areas. These new residents need new areas for shopping, and the relatively higher paying jobs in the area means opportunities for niche shopping centers as well as staples such as grocery stores and gas stations.

The office space market is in good shape as well. The work from home trend is still intact nationwide, but the type of industry in Jackson does not work well with employees working from home. Tech and marketing type companies can still thrive with employees working from home, but not many of those companies call Jackson home.

The manufacturing and heavier industrial companies that make up the backbone of Jackson’s economy still need their white collar workers to be in the office daily, which means the office space rental market is still very much intact in the Jackson area. Those looking to invest currently are able to pick up properties that are inexpensive by national standards and have high capitalization rates.

Warehouses and Industrial Space

The Jackson area is also one of the premier places for commercial real estate investors. Warehouse and industrial space is relatively inexpensive and demand from tenants is high. In our experience, industrial space investment in the Jackson area is one of the best markets in the country for high capitalization rate properties.

Apartment Buildings

Apartment buildings in Jackson, and especially in the surrounding areas are currently especially lucrative for real estate investors. Again we have seen a real need for housing in the cities of Pearl, Madison and others as the population has increased.

Right now land for new construction is below the national average, current buildings sell at a discount compared to national averages, yet market rents and low vacancy rates means a high capitalization rate for most of the apartment buildings in the area.

Many out of state investors are starting to buy properties in the area as well, so it is unclear how long this opportunity will last. Coupled with the rising interest rates, the time to invest in low risk, high cap rate residential properties may be coming to a close, but currently there are many opportunities so investors would be wise to act sooner rather than later.

Mixed Use Buildings

Mixed use building in the city of Jackson as well as the surrounding suburbs is also an excellent investment opportunity. Housing and retail are needed in the suburbs, and within the city many older but up and coming neighborhoods are ripe for redevelopment opportunities. There are many opportunities for new construction as well as existing properties with current rent paying tenants in and around Jackson.

For Interested Investors

For those investors seriously thinking of purchasing property in the Jackson area, whether you are local or out of state, we highly recommend finding a trustworthy and professional local commercial real estate agent. Someone who knows the market will be able to help you find the best deals as well as negotiate on your behalf to get the best terms possible.

Negotiation is less about being tough and hard nosed than many people think. Successful negotiation means communicating with skill and tact in order to find a solution that works for all parties involved. In addition, a well connected agent will be able to refer you to other professionals in the area such as lenders, insurance agents, vendors and even prospective tenants

Speed Commercial Real Estate has been in business for many years and has helped literally hundreds of investors find profitable commercial property in and around the area.

Property Management in the Jackson Area

For local or out of state investors looking to expand into the Jackson area, finding a trustworthy and professional property manager is one of the most important factors in finding and sustaining a profitable investment.

Speed Commercial Real Estate can help manage your property, or if you are a prospective tenant looking for commercial space, we can help you find the right property for your needs as well.

Our property managers can help you do everything to make the most of your property. From marketing, leasing, maintenance and even market research, we have the knowledge and experience to help you make the most of your property to maximize your return on investment.

Speed Commercial Real Estate offers other services as well to help you thrive in the Jackson area. We can help assist in the design, construction and management of all types of commercial projects, from retail, office buildings and much more.

We have the knowledge and know how to provide consulting services in asset management and many other aspects of the real estate industry.

Land sales are also an area in which we provide tremendous value to our clients. With our knowledge and experience in the Jackson market, we can help you identify the best available land in the area for your unique needs and help bring buyers and sellers together in a way that serves all involved.

We have been serving the Jackson area for over 18 years in all aspects of commercial real estate. If you are an investor looking for opportunities in the area, or a business owner looking for your next home, whether buying or leasing, we can find the perfect solution for you.

Whether you are looking for retail, office, warehouse, industrial, apartment building or any other type of property, we have the experience in this area to do everything from buying, selling, and property management to help you maximize your return on investment.

Give us a call, we would love to meet you and be a resource for you for all of your commercial real estate needs in our home of Jackson.

What is a letter of intent (LOI) in commercial real estate (CRE)? An LOI is a non-binding document that outlines two parties’ commitment to do business together. It also outlines the most important aspects of the commercial real estate deal.

A commercial real estate LOI has three main goals:

1. Acts as the foundation for contracts and other legal documents that will be drawn up as the deal is closer to closing.
2. Shows that the parties are committed to moving forward together.
3. Helps all parties outline and agree to terms of the deal.

Although a letter of intent is not legally binding, the involved parties may agree that certain points cannot be changed. For example, they may firmly outline the purchase price, financing requirements, and what the building will be used for.

When is an LOI Needed in Commercial Real Estate?

Besides wondering “what is an LOI?” You might wonder when an LOI is needed. In commercial real estate, an LOI is needed when the buyer and seller are prepared to move forward with a deal. Before drawing up an LOI, a commercial real estate investor should have a near-complete understanding of what they’re purchasing, how much the building costs, how they will secure funding, and what they intend to do with the building – all of which will be outlined in the LOI.

A letter of intent is typically drawn up by the real estate broker who facilitates the deal after the investor tours the property, researches the area, and has informal conversations with the seller about the nature of the sale. The broker will draw up the LOI with both parties’ interests in mind.

Once the LOI is finished, the broker will distribute it to the buyer and seller. Because an LOI isn’t a legally binding document, it can be sent via email or on official letterhead. All parties will have time to review the points, sign the document, and return it to the broker. If the commercial real estate deal is simple, the LOI may only be a few pages long. However, if the deal is more complex or involves many parties with a variety of responsibilities, the LOI may be 20+ pages long.

All parties can move on to drawing up the official, binding documents once the LOI is signed.

What is Included in a Commercial Real Estate Letter of Intent?

A commercial real estate letter of intent typically includes the following:

1. Introduction: Every LOI should have a strong introduction paragraph. This section should explain why the LOI is necessary. For example, a CRE sale.
2. Involved Parties: List all parties involved in the real estate transaction. This includes the buyer, the seller, the broker, and any other third parties, i.e., outside investors.
3. Property Description: A strong LOI has a detailed description of the CRE property, including addresses, size, and lot boundaries.
4. Terms: An LOI should include the sale price, land survey information, and other important property details. Buyers should list how they will obtain financing, the closing date, and how they intend to use the building.
5. Disclaimers: An LOI is non-binding, which means any party can exit the deal at any time. Although a letter of intent typically comes when all parties are prepared to move forward, there may be a reason someone wants to back out before legal documents are signed. It’s helpful to, list why a particular party may change their mind, so others can prepare.
6. Closing Statement: Summarize the main points of your LOI.
7. Signatures: An LOI is only valid when signed by all parties. However, signatures do not make the document legally binding.

Why is a Letter of Intent Important?

Although letters of intent aren’t legally binding, they are still a crucial part of the commercial real estate investment process.

First, an LOI is important because it attempts to simplify the most important aspects of a complex transaction. Oftentimes, all parties gain a better understanding of the terms once they see them in writing. An LOI attempts to also simplify the negotiation process. Once everything is outlined in writing, all parties can edit and come together to reassess the terms.

Second, an LOI aims to protect all parties involved. Knowing the major terms of a formal arrangement before the documentation is drawn up allows everyone to prepare for what’s to come. Although the document is not legally binding, it may have certain binding agreements. For example, an LOI may include a non-disclosure agreement (NDA) that has legal consequences if broken.

Finally, a letter of intent allows the investor to show financial lenders that they are prepared to start buying process. This may be necessary for certain financial institutions or other investors to prepare the necessary documentation and financing.

Drawbacks to LOI in Commercial Real Estate

There are a few drawbacks to an LOI in commercial real estate deals. It’s important to understand the benefits and drawbacks, so investors can make the best decisions for themselves and their businesses.

A letter of intent is an additional step in an already complex deal. Some investors may choose to skip this step because they want the deal to move forward quickly. The additional time not only slows down the deal, but it can cost more in lawyer and broker fees.

That said, an LOI can save time and money in the long run. Although it may take an extra couple of weeks to write, negotiate, and sign the LOI, it can prevent large CRE deals from falling through. It can also prevent one party from taking advantage of another, which can lead to lengthy and expensive court processes.

Additionally, any party can back out of a letter of intent. Although these documents are typically drawn up in good faith, no one party has a legal obligation to another. This can be very helpful when extenuating circumstances arise and it allows sellers to consider multiple deals at once. However, knowing that the deal is not certainly moving forward may, at best, cause some anxiety and, at worst, cause one party to be blindsided by another backing out.

Final Thoughts

Hopefully, we answered all your questions about “what does letter of intent mean?” When understanding what is an LOI, it’s important to understand why they are necessary, what they include, and what their drawbacks are. Now, you can move forward to make decisions that will benefit your commercial real estate investment business.

Speed Commercial Real Estate

Speed Commercial Real Estate serves the Metro Jackson Area with comprehensive services in development, commercial brokerage, property and asset management, investment sales, and property owner and tenant representation. When you need a Letter of Intent, we will be at your side and protect your best interests. Contact us today to get started.

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.

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!