Property Types

Office Properties range from small one office spaces to larger multi-story office buildings. Many office users will occupy the space the way that it is. However, in recent years, tenants have been asking for modifications. National tenants have legal departments to negotiate the terms of the leases with several provisions that are unpopular with landlords. In landlord representation, it is the responsibility to help the landlord navigate through the negotiation process the best possible. It is the landlord’s decision regarding hiring an attorney to help with negotiations. The smaller leases may be as short as one year however, most tenants will sign a three year lease.

Retail properties are usually on major traffic arteries which high visibility. Visibility, signage and parking are very important to retail tenants. The tenant mix is also important to help draw customers to the retail stores. Most retail properties are NNN properties. Many landlords require tenants to advertise and provide sales periodically. Demographic information for the areas that are being considered is important as well. It is very helpful to know who the targe market is that will be shopping at the retail store. National tenants will occupy new properties with large NNN free standing tenants who are also National Tenants.

Industrial Properties vary widely among markets depending on what the local needs are and what industries or manufacturing is in the market. Ceiling height, sprinkler systems, fenced stack yards, dock high or grade level overhead doors are all specifics to the local needs. Most industrial properties will have a small amount of office space adjacent to the warehouse. Accessibility to major highways is important to many users as they have trucks coming in with product and going out with product.

Land properties require a lot of due diligence to make sure that the property fits the needs of the buyer. The zoning of properties is very important as well as access to utilities and city services. Land can be rezoned however, it takes applications with the city and help from civil engineers in many instances. Rezoning can take many months so the feasibility to purchase the property is usually much longer. In recent years, the price of land has been continuing to increase with demand.

Commercial Real Estate is a great investment tool.  Investments include vacant properties that can be leased to provide an income stream.  These properties cost less than an occupied property that is already brining in a monthly rent for a set term.  This is the type of investment that will bring the largest return if a lease can be secured.  It is not for the faint of heart.

Investments that have income are valued based on the going cap rate for the market.  The quality of the tenant and the length of the lease term are elements that determine the cap rate value.  The cap rate is figured based on the annual net operating income divided by the asking price. The lower the cap rate, the higher the property price.  Likewise, the higher the cap rate, the lower the property price.  The cap rate can be compared to a CD interest rate.  The cap rate is a good measure of return on investment if the property is paid for with cash and has no debt.  It is always higher and has more risk than a CD interest rate.

An owner/user property is a property that the owner occupies in part or in full.  There are good Small Business Administration loans for properties that are occupied over 50% by the owner.  If the property has tenants, this is additional income for the owner/user.  Should the owner/user be willing to sign a long term lease and would like their investment in the real estate back, they can do a sale/leaseback.  There are many questions that need to be answered to determine if a sale leaseback is in the best interest of the owner.  It is definitely worth discussing.

Build to Suit is the best for owners who are interested in purchasing a property but cannot find a property that fits their specific needs.  These can be any type of property from office, retail or industrial.  It is in the best interest of the owner to team up with a commercial real estate agent in the market who has good working relationship with builders.  They can set up a meeting with a builder who can give location options and get the ball rolling quickly.  Some signs on properties that say Build to Suit is a developer who owns prime land and is willing to build a property but will only lease it.  This happens many times with free standing restaurants.  Once the developer builds it, leases it then many times they will sell the property based on a cap rate and move on to the next development.  Build to Suit are really fun projects to work on because so much information is learned about a specific type of business.  Plan on this taking at least a year from plans to permits to construction. Much of the time is getting the floor plan correct before the architect begins the construction plans.  Alison and I are involved in several of these projects per year and enjoy the challenges with it.