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Commercial Real Estate

36 Tips to Go From Selling Residential to Commercial Real Estate

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36 tips and tricks

hurdleIs it not amazing how you start out on one simple path and end up going in a completely different direction?   I’m referring to my last sarcastic post about staying away from Commercial Real Estate.  I think my intent was to encourage people to look at Commercial Real Estate in different ways and look at it as an opportunity. 

I have been asked many many times over the years, “so, how do you get into commercial or how do I do both residential and commercial?”  Some may debate the correct answers to this question.  Some of the answers may seem obvious or redundant.  I decided to make up a good basic list.

Property Information and Research:

Niches you can dominate with lots of data and industry connections to help:

Education and Resources Available:

  • CCIM 101
  • National Association of Realtors intro to Commercial Real Estate
  • Research the top 5 firms in your market
  • Mentors. Contact them and ask for meeting- they are more hungry for talent than you could ever imagine.  They want to get next to people who are trying to create business. Send them an e-mail to introduce yourself. Start with, “I would like to possibly send biz to you”. What are they going to say?  NO.

Learn These Terms and Find the Forms:

  • Exclusive Tenant Rep. Agreement
  • Exclusive Buyer’s Rep. Agreement
  • Exclusive Listing Sale and Lease Agreement
  • Letter of Intent
  • Purchase Contract
  • Master Leases
  • Representations & Warranties of Seller
  • Zoning/Governmental Approval

Most all forms are online and were created and or maintained by a state commercial board.  The cost is surprisingly affordable.  I have forms that are used throughout my entire state.

Social or Online Commercial Real Estate Networks- Get Connected and Learn:

What do you have that they don’t?  Simple:

Your connection to the street and your community. Your database it is your gold mine.  Think of everyone in your database that has a connection to a business owner, property owner, restaurateur etc. Ask them, who are you doing real estate business with now?  Who is their go to Commercial Real Estate person?  I bet if you ask, they won’t have a name or they probably haven’t done any biz with whoever they may think of in a LONG time.

Referral business- how much money are you passing up by not thinking Commercial Real Estate?

Here is one last big thought:

You don’t need a special license to sell, practice, refer, learn, get into, look at, buy, own, rehab, lease, or just make money in Commercial Real Estate.

What’s holding you back?  What are you doing now to get your piece of the Commercial Real Estate business?

Broker/Owner in Lafayette, IN, whose passion is Commercial Real Estate with focus on Technology, Social Media, and Networking.

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20 Comments

20 Comments

  1. Joe Loomer

    March 18, 2010 at 7:12 pm

    Duke,

    You scratched a big itch here buddy – great post. I’ve reposted on Facebook and emailed it to two agents in our area who’ve dabbled in both but haven’t taken the Commercial plunge. Like the book “Shift” tells us about how to tackle tough times and explode our business in the residential sector – the same tactics can be employed during this implosion in the Commercial realm to carve out a significant piece of market share. Very timely info – Well Done!

    Navy Chief, Navy Pride

    • Duke Long

      March 18, 2010 at 7:28 pm

      Thanks for the comments Joe…oh and let’s ease up on the Navy stuff….AIM HIGH AIR FORCE!!!

      • Joe Loomer

        March 18, 2010 at 9:38 pm

        Yeah. Not happening Duke. Here I give great props to your post and all you got is “Aim High?”

        Stand Navy out to sea!
        Fight! Our battle cry!
        We’ll never change our course
        so vicious foes steer shy-y-y-y
        Roll out the T.N.T,
        ANCHORS AWEIGH!
        Sail on to Victory
        and sink their bones to Davey Jones HOORAY!

        NAVY CHIEF, NAVY PRIDE, NAVY CHIEF, NAVY PRIDE

  2. Steven Ladin

    March 18, 2010 at 7:21 pm

    Duke,

    It always amazes me how intimidated residential agents are in attempting to make the transition into commercial. We’re recruiting heavily right now for CRE agents and see the intimidation factor firmly embedded into the residential agent’s psyche, which is very difficult to break. Over the years, the CRE industry has done a good job in keeping most of its nuances tight chested and exclusive to “the good old boys club” which actually suppresses the innovativeness of the industry as a whole. It’s up to passionate and persistent folks like us to rip off the wrapping paper.

    Keep up the good fight!

  3. Benjamin Bach

    March 18, 2010 at 7:31 pm

    Terrific, just terrific.

  4. Lorraine Beato

    March 18, 2010 at 9:22 pm

    Thank you! I have been nervous about getting into Commerical and have had a friend of mine beating me over the head saying “What are you afraid of! You are a numbers person!” I think I have been “stuck” in residential for too long and need to Shift into a new market. Thanks again for making the decision easier.

  5. Jason Sandquist

    March 19, 2010 at 12:28 am

    ahh Steven (see what I did there Steve-O). Do you not remember how easily I was to recruit? Came in inquiring about starting my own property management biz only a month later to be a commercial real estate agent. If you need me to stand by the door before the wimps leave, just ask 😉

    I made the jump from residential to commercial at the beginning of the year. It’s about the story you tell yourself. If you go in thinking it is going to be hard, then it is. CRE is a big opportunity for some, including myself. Let them quit at it before they begin if thats the thought they have, they can be mediocre in something else because average is for losers.

    Great starting point Duke ::fist bump::

    • Steven Ladin

      March 19, 2010 at 12:39 am

      See there Jaz (Yes, I called you Jaz). You are the exception and that is why I hired you. ; ) Spread the love. Spread the word. Spread the wealth.

      BTW Duke,

      ::Double Fist Bump::

  6. Candice In AZ!

    March 19, 2010 at 2:53 pm

    NICE post, Duke.
    I’d add subscribing to a commercial/industrial forms program such as AIREA’s
    airea.com/HOME/Home.aspx
    which provides more comprehensive CRE specific forms than I’ve seen in the ‘Res RE world’.

  7. Tim McDonald

    March 20, 2010 at 11:47 pm

    Duke,
    While I do residential, I found myself involved with or following more than half of the sites/groups you suggest being involved with for commercial. My apprehension, other than fear of the unknown, is that commercial doesn’t seem to have a clear cut coop commission structure in place. With residential it’s almost always very clearly defined on the front end what you will get from the deal. Am I missing something on the commercial side?
    Congrats on being in the top AG posts for the last couple weeks!

    • Duke Long

      March 21, 2010 at 9:16 am

      Tim,
      The one part of my post that did not make it in. Negotiation with Commercial Brokers. Most will not be offended if you ask up front. Most will be more than happy to sign some from of commission agreement. My standard response is that I will split the total commission. I also reveal the percentage I have on the listing agreement. Having said that…Beware..and cover your ass…the minute you reveal your client…you better know what your position is..period. I would say that my experience over the years is has been incredibly upfront, transparent and professional…..with a little caution thrown in. Oh, and you could kick ass in CRE BTW. You are way ahead of the curve!!!

  8. Benjamin Bach

    March 21, 2010 at 9:44 am

    Yea, full discoluse up front re: commissions. I split all commission when ppl bring me offers, i love win-win

    But Tim, there are agents who say ‘i only have the listing side compensated here, get your buyer to pay you’ – and in the end, the buyer is the one paying commission anyways (they’re writing the cheque for the purchase price, right?).

    If you rep the buyer, and you’re doing a great job representing them, you’ll get paid. YMMV

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Commercial Real Estate

Pace of commercial real estate improvement is slowing

(Commercial Real Estate) The commercial real estate sector has improved substantially since the economy crashed, but is now showing signs of slowing, but data does not indicate lost ground.

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commercial real estate

commercial real estate

Commercial real estate outlook is positive

According to the National Association of Realtors’ (NAR) quarterly forecast, commercial real estate is continuing to improve, but the pace is slowing.

Dr. Lawrence Yun, NAR chief economist, said that fundamentals are still on an uptrend. “Growth in commercial real estate sectors continues at a moderate pace from a very slow pace of absorption, despite job additions to the economy. Companies appear hesitant to add new space,” he said.

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“Office demand is expected to see only slow and gradual improvement,” Dr. Yun added. “Demand for retail space is benefiting from improved household wealth, while industrial real estate is stable with increasing international trade, which requires warehouse space. Of course, the apartment market fundamentals are the strongest, as nearly all of the new household formation in the past 10 years has come from renters, and not homeowners.”

Forecasting the future

Overall, national vacancy rates in the coming year are forecast to drop 0.2 percentage point in the office sector (the sector with the worst vacancy rates) to 15.6 percent in the first quarter of 2015.

Vacancy rates are projected to fall 0.1 point in industrial to 8.9 percent, and 0.3 point for retail real estate to 9.9 percent.

With rising apartment construction, the average multifamily vacancy rate will edge up 0.1 percent to 4.1 percent, but this sector continues to experience the tightest availability and strongest rent growth of all the commercial sectors.

Rental rates for various sectors

Office rents are projected to increase 2.3 percent in 2014 and 3.2 percent next year. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 44.6 million square feet this year and 50.0 million in 2015.

Annual industrial rents should rise 2.4 percent this year and 2.6 percent in 2015. Net absorption of industrial space nationally is seen at 106.1 million square feet in 2014 and 110.6 million next year.

Average retail rents are forecast to rise 2.0 percent in 2014 and 2.3 percent next year. Net absorption of retail space is likely to total 14.6 million square feet this year and 20.9 million in 2015.

Average apartment rents are projected to rise 4.3 percent this year and 3.5 percent in 2015. Multifamily net absorption is expected to total 204,900 units in 2014 and 112,500 next year.

Regional performance varies

The markets with the lowest office vacancy rates in the first quarter are New York City, with a vacancy rate of 9.5 percent; Washington, D.C., at 10.2 percent; Little Rock, Ark., 11.6 percent; Birmingham, Ala., 12.7 percent; and San Francisco and Nashville, Tenn., at 12.8 percent each.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 3.7 percent; Los Angeles, 3.8 percent; Miami, 5.8 percent; Seattle at 5.9 percent; and San Riverside/Bernardino, Calif., at 6.1 percent.

Markets with the lowest retail vacancy rates include San Francisco, at 3.1 percent; Fairfield County, Conn., 3.8 percent; Long Island, N.Y., 4.8 percent; San Jose, Calif., 5.2 percent; and Northern New Jersey and Orange County, Calif., at 5.3 percent each.

Areas with the lowest multifamily vacancy rates currently are New Haven, Conn., at 2.1 percent; Minneapolis and New York City, 2.3 percent; and Oakland-East Bay, Calif., and San Diego, at 2.5 percent each.

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Commercial Real Estate

Should you buy or lease office space? 5 questions to consider

When considering whether you should lease your office space or buy, an industry expert outlines the questions you should ask yourself.

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office leadership

office leadership

Should you buy or lease an office space?

Many people set up shop and lease office space, assuming this is their best, and often only option, but there are some instances where buying office space is a better option. Many blindly make this decision based on a gut feeling, and we’re not saying that is a bad thing, we’re saying that in addition to that instinct, these five questions should be asked when considering whether you should lease or buy an office space.

Stan Snipes, senior advisor, Sperry Van Ness Investec Realty of Nashville notes that the two options depend on several variables, as he outlines below:

1. Is your business well-established?

If your business is still in the startup phase, I rarely recommend buying. During the next 5 to 10 years you’ll experience employee count fluctuations, client and customer oscillations and even business direction and strategy adjustments. That is, you’ll need to be flexible, not tied to a certain space. Additionally, any leftover capital should most likely be recycled back into your budding startup. You don’t want to stretch yourself too thin.

The only exception that applies some of the time — not every time — is if your startup is in the technology space. Oftentimes tech employees can work remotely, or the technology is automated and won’t require more employees in the future. Additionally, clients of many tech startups can successfully access the company’s offering without visiting a physical office space.

2. Will you endanger your business with a property purchase?

Yes, buying can be a great investment and add a source of revenue, but even well-established business owners need to think about the stress that buying a property can put on their bottom line. Oftentimes your time and money is best spent on what you do best, running your enterprise. If buying means you won’t be able to focus essential resources to your first priority, your business, then you might want to hold off on buying.

Further, because commercial real estate can be a great investment, business owners are sometimes so eager to get in the game that they sell off portions of their business to finance the purchase. This is a bad idea. You should not let real estate decisions determine how you run your business. You’ve worked long and hard to build a successful company — don’t give it away. Another deal with always come along.

3. Do you have heavy, difficult-to-move equipment?

If you have machinery or specialized equipment that make it difficult for you to move, buying may be a great option for you. Two primary reasons: 1.) Lugging dense equipment from leased space to leased space is annoying, cumbersome and costly.

Plus, you increase the chances of damaging it every time you move. 2.) When a landlord knows it’s difficult for you to relocate, he or she is holding the cards when it’s time to renew your lease. If your lease doesn’t have a stipulation to remediate this, leasing office space will cost you more money than it should. More often than not, buying a custom space for your specialized equipment is the way to go.

4. Does your location affect employees or clients?

If attracting and maintaining top-notch employees means securing office space in your city’s prime business district, finding the perfect space to buy may be difficult. Why? Prime business districts usually have lower vacancy rates, which typically means higher prices plus fewer properties to choose from. Anytime you’re limited to a narrow location, you risk not landing the best deal. This doesn’t mean don’t buy, just understand what you’re up against from the onset.

The other issue you may face in buying location-specific space is when your customers or clients depend on your position for convenience. This is a challenge when and if your city’s submarkets are in transition. The trendy spot of the last five years, may not be in vogue five years from now. A lease allows flexibility to move where your customer and clients need you to be.

5. Are you prepared to be a landlord?

There’s a lot of maintenance that goes along with owning a building. Will you have the ability to hire a maintenance crew or will you tend the bathrooms, burnt out light bulbs and overflowing trash bins yourself?

Furthermore, many landlords have easy access to financing that could benefit you in the form of a tenant improvement package. Even though you may have capital to buy your building, can you afford to build it out the way you want to? The cost of ownership is sometimes underestimated. Make sure you’ve considered all of the possible expenses that go along with buying your office space.

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Commercial Real Estate

Commercial real estate improving modestly, little change to come

As commercial real estate improves across all sectors, the gains have been modest and NAR predicts they will continue to inch forward.

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detroit

detroit

Commercial real estate sector is improving

According to the National Association of Realtors’ (NAR) quarterly commercial real estate forecast, commercial real estate is improving modestly, with little change seen for the near future. Dr. Lawrence Yun, NAR’s Chief Economist said in a statement, “Jobs are the key driver for commercial real estate, and the accumulation of 7 million net new jobs from the low point a few years ago is steadily showing up as demand for leasing and purchases of properties,” he said. “But the difficulty of accessing loans remains a hindrance to a faster recovery.”

NAR reports that leasing activity rose 2.0 percent in the third quarter compared to the second, and sales levels are higher than a year ago.

Yun said there have been some shifts in commercial purchases. “Investors have been looking for better yields, and have found good potential in smaller commercial properties, notably in secondary and tertiary markets. Sales of commercial properties costing less than $2.5 million in the third quarter were 11 percent above a year ago, while prices for smaller properties were 4 percent above the third quarter of 2012.”

Commercial investment in properties costing more than $2.5 million rose 26 percent from a year ago, while prices for large properties were 9 percent above the third quarter of 2012.

National vacancy rates over the coming year are forecast to decline 0.2 percentage point in the office market, 0.6 point in industrial, and 0.5 point for retail real estate. The average multifamily vacancy rate will edge up 0.1 percent, but that sector continues to see the tightest availability and biggest rent increases.

Retail vacancy rates should be going down

Retail vacancy rates are forecast to decline from 10.4 percent in the fourth quarter of this year to 9.9 percent in the fourth quarter of 2014. Average retail rents should increase 1.4 percent in 2013 and 2.2 percent next year. Net absorption of retail space is projected at 11.0 million square feet in 2013 and 18.1 million next year.

Multifamily construction will meet demand

Multifamily Markets
The apartment rental market – multifamily housing – is likely to see vacancy rates edge up 0.1 percentage point from 3.9 percent in the fourth quarter to 4.0 percent in the fourth quarter of 2014, with new construction helping to meet higher demand. Average apartment rents are forecast to rise 4.0 percent this year and 4.3 percent in 2014. Multifamily net absorption is projected to total 239,400 units in 2013 and 211,300 next year.

Office rents should be going up

Vacancy rates in the office sector are expected to decline from a projected 15.6 percent in the fourth quarter to 15.4 percent in the fourth quarter of 2014. Office rents should increase 2.4 percent this year and 2.5 percent in 2014. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is seen at 32.2 million square feet this year and 46.1 million in 2014.

Industrial vacancies on the decline

Industrial vacancy rates are likely to fall from 9.2 percent in the fourth quarter of this year to 8.6 percent in the fourth quarter of 2014. Annual industrial rents are expected to rise 2.3 percent this year and 2.5 percent in 2014. Net absorption of industrial space nationally is anticipated at 97.0 million square feet in 2013 and 104.9 million next year.

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