When you are beginning the process of deciding on your broker it is very important to understand what makes a great Commercial Real Estate Broker. The qualities and questions to make sure you know the answer to will help guide you in this process.
1. Top Commercial Real Estate Markets:
Obviously if the broker you are engaging with understands the market that they are currently in then it will help facilitate the transaction smoother. The top markets currently are:
1. Orlando, Fla.
2. Portland, Ore.
3. Dallas, Texas
4. Houston, Texas
5. Minneapolis, Minn.
6. San Diego, Calif.
7. Austin, Texas
8. Raleigh-Durham, N.C.
9. Fort Worth, Texas
10. Denver, CO
Orlando is still one of the top tourist destination in the world, hosting a record 56 million visitors and generating $50 billion in economic impact in 2013. With expansions like Disney’s Avatar, Magic Kingdom, Downtown Disney and The Wizarding World of Harry Potter at Universal, along with the opening of the Dr. Phillips Center for the Performing Arts and an 18,000-seat stadium for Orlando’s new Major League Soccer franchise, visitors are expected to exceed 63 million and bring an additional $1.3 billion to the local economy.
When choosing the right broker for your real estate needs it is important to understand that having a great database of contacts is really the biggest asset a great broker can have. When you are involved in a major market like Florida’s Commercial Real Estate, then you naturally grow a database that can help influence projects throughout the nation.
This database will help in the outreach of potential tenants, buyers, and investors for your project.
2. Influence and Previous Experience in Your Market
A great commercial broker is talking daily to various sellers, buyers, contractors, and city officials. While they are doing this day to day business it becomes natural that they gain a relationship with some of the individuals they are in contact with the most.
This relationship can provide influence over your project. While each transaction is different, you will want to make sure that the real estate firm you are choosing has a credible history and has dealt with transactions that are similar to your piece of property.
Many times you will find that an initial consultation will tell you everything you need to know about a broker. When you sit down and discuss the project in depth you will get a feel for the depth of knowledge your potential broker has.
The second step is to ask for who they will contact in order to make sure that as many eyes are on the project as possible. Your broker can also recommend great resources to help facilitate each step of the transaction. They have a database of tried and true investors, attorneys, and tax consultants.
3. Residential is completely different, especially in Florida!
When you are finding the best commercial real estate broker for your needs then you need to make sure you understand one thing completely. Residential real estate transactions and Commercial real estate transactions are completely different. There is a huge difference.
Make sure you only hire a professional who focuses on commercial real estate. These transactions are completely separate for a variety of reasons.
Commercial real estate is business-focused. It involves property that is sold, leased, or used to achieve a predetermined business objective. It’s used as an investment to achieve an anticipated rate of return on the funds invested.
Residential real estate revolves around the wants and needs of a homeowner and his family. It involves property purchased for individual use, most often to provide housing for families.
Besides the type of transaction that each represents, Commercial realtors are professionals that:
* Representing tenants or lessees by finding, selecting, and negotiating new space for client businesses.
* Representing building owners or lessors by working to lease out building space for the highest possible price and with the most favorable terms. Frequently a commercial agent represents one owner or even one building exclusively in order to ensure the building is leased to capacity.
* Representing investors who want to buy and sell commercial property by finding opportunities that offer the lowest risk to the client, the best return on investment, and the best capitalization rate, which is the net operating income of the property divided by the sales price or value of the property.
There are 3 reasons why commercial real estate is a great choice for most people.
Commercial Real Estate Gives You More Access to More Capital
When a property has a cash flow that already exists and a business that operates in and around it, the investment in that piece of property is inherently safer. The banks and investors see this as well and are willing to invest because of the ease of collateral.
Commercial Real Estate is Less Competitive (Less People)
While competition levels are an opinion there is one obvious point about commercial real estate. There are less people in it. That by nature makes it less competitive. Realize though that the amount of capital invested in a project such as advertising, events, and media are widely different for commercial real estate. There is more return on the investment so there will be more money invested in commercial projects because of that.
Commercial Real Estate allows for “Forced” Appreciation
Residential real estate is typically valued based on other comparable properties that have sold in the area that are similar in features. If the “comps” for a 3 bedroom/2 bathroom house in a particular neighborhood is roughly $100,000, then your property is probably going to be worth $100,000. It doesn’t matter too much that you have additional features, or that your house is getting $900 a month in rent as opposed to the house down the street that is only renting for $700 a month. All things considered, you property will still be valued pretty close to the “comps” of the area.
However, in commercial real estate, the valuation of a property is based on the revenue that the property generates. Now, commercial real estate is still subject to the “comps” of the area as it pertains to “How” that revenue is valued in terms of capitalization rates. But, the overall premise is that, the more revenue a property generated, the more that property is worth.
So, in order to “force” the appreciation of your commercial property, you need to find additional ways to increase the revenue that the property generates. A small increase in revenue can increase the value of a property significantly depending on the “Cap Rates” in the area for that type of commercial real estate. Unfortunately, with residential real estate this isn’t an option as you really can’t force appreciation, your property will be valued in the general range of the market comps.
Other Top Notes about Commercial Real Estate:
Commercial real estate is valued differently. The income that a piece of commercial real estate produces is directly related to its usable square footage. This isn’t always the case with residential.
Commercial property helps diversify risk. For example, if you own an apartment building and you lose one of your 10 tenants, you only lose one-tenth of the income for that property, instead of the entire rent as you would if you lost a tenant in a single-family house.
Cash flow is often greater with commercial real estate. The yield is often higher per square foot and on an initial investment basis than it is in residential. If you lease or rent a multi-unit commercial property, you have more tenants to generate income than you do with a single-family dwelling.
Commercial real estate leases are generally much longer. This helps with the stability of your cash flow.
Commercial property is valued by the bank differently. You’ll need to find a bank that works with commercial real estate (most major lenders do), and it’ll want a higher down payment than for residential property–usually 30 percent or more.
Contact Us To Discuss Your Commercial Real Estate Needs.
We possess all of the traits of a top commercial real estate broker and would love to discuss your project.