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Commercial Real Estate

Working commercial real estate? All you need is just a little patience



These days, commercial deals are harder than ever to put together. Even if you find a buyer (step 1) who wants the property, your next hurdle is negotiating a price acceptable to the seller (step 2) who may or may not understand that his property is not worth what he THINKS it is worth.

“Of course prices have dropped across the country, but my property is still holding its value, right? What do you mean it’s not worth what I put into it? I can’t sell it for what you’re saying the comps come in at! It’s worth a hell of a lot more than that!”

After the buyer and seller come to a meeting of the minds, then we have the financing hurdle (step 3) and inspections / due diligence (step 4).

It’s a long haul, not a sprint, and many agents don’t understand just how much time and effort all this can take. Residential agents especially see the big bucks exchanged in commercial deals, and think they can dabble a bit in commercial listings, not knowing just how much work they are in for, before the big payback (maybe) comes.

The 11 year payoff

I got an email from one of my commercial clients the other day, praising the patience of one of the participants in a large deal his company just put together.

In this (very large) commercial transaction, the owner of the property worked 11 years before the developer could even start building. Yes, it took 11 years to get phase one of the project off the drawing board and into shovel phase. In that time, the last 7 years were tied up in permitting alone.  The last year was devoted to engineering and final permitting, and the deal closed just a few weeks ago.

Talk about the patience of a saint! If you were the agent in that transaction, would you have had the tenacity to keep going? Would you have given up in year 2 or 3 or 10? How many agents who might have started on this would even be in business 11 years later? Do you think you have what it takes to sell commercial real estate?

The next time you have a rough one, or a deal that seems to go on forever, remember this one!


Flickr photo courtesy It’sGreg.

Erica Ramus is the Broker/Owner of Ramus Realty Group in Pottsville, PA. She also teaches real estate licensing courses at Penn State Schuylkill and is extremely active in her community, especially the Rotary Club of Pottsville and the Schuylkill Chamber of Commerce. Her background is writing, marketing and publishing, and she is the founder of Schuylkill Living Magazine, the area's regional publication. She lives near Pottsville with her husband and two teenage sons, and an occasional exchange student passing thru who needs a place to stay.

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  1. BawldGuy

    July 7, 2010 at 11:43 am

    Erica — Thanks so much for reminding me why I abandoned pretty much all comm’l real estate except for residential income. 🙂 You hit the nail on the head — again.

    As far as sellers who think their property is worth more than the market says, I’ve always asked them ‘innocent’ question while lookin’ ’em straight in the eye.

    “Geez, you feel pretty strongly about that. Would you pay that much for your property today?” Crickets. 🙂

  2. Benn Rosales

    July 7, 2010 at 11:50 am

    11 years? Holy kaw! Everyone involved on the deal would hate me in year 2. Seriously.

  3. BawldGuy

    July 7, 2010 at 11:52 am

    Now THAT’s funny. 🙂

  4. BawldGuy

    July 7, 2010 at 12:05 pm

    That’s why The Boss and Lani were our best moves ever. 🙂

  5. Erica Ramus

    July 7, 2010 at 12:55 pm

    Glad you guys enjoyed the story! This deal lasted longer than many marriages!

  6. Duke Long

    July 7, 2010 at 2:16 pm

    One of the biggest transactions that I have ever been involved with took a mere 13 months. On again Off again. Lawyers, accountants, engineers, zoning, water storage,permits and so on. Dealing with one of the biggest brokerage firms ( JLL) in the world along with one of the biggest companies in the world (Wal-M__). Was it worth it? At that time the experience was invaluable to my career. The client still owns the property, and from conversations it is still a great asset. 11 years…WOW…. I hope it turns out to be great deal for your friend!

    • Erica Ramus

      July 7, 2010 at 7:33 pm

      It is indeed very profitable in the end. And phase 1 is signed and sealed, closed, AMEN.

      Our local townships and municipalities many times are the key problem or bottleneck. They make it very difficult to jump through all the hoops, and even when you do, sometimes they change their minds! It is maddening. The permitting is a nightmare.

  7. Nadina Cole-Potter

    July 7, 2010 at 4:57 pm

    Add to falling values that there is usually another party involved in the negotiations up front (not just at payoff), the lender. That is because, in the Phoenix market, sales made between 2002 and 2008 were overpriced and over-leveraged. And, in many segments, overbuilt.

    Deal structuring, financial acumen, property/market knowledge, and negotiating skills are keys to getting deals closed.

    Side qu3estion — how do I get those stacked up links to Facebook, Submit, Buzz, and Retweet logos off my screen — a key part of my screen!!! I don’t use any of them and I don’t plan to use any of them. And there is no X-close link. Ugh!

    • Erica Ramus

      July 7, 2010 at 7:34 pm

      I don’t know how to remove those icons. I don’t think you can! They don’t bother me because I have a nice big screen, but see how they might take up space on a smaller screen.

    • Benn Rosales

      July 7, 2010 at 7:55 pm

      they’re being moved – if you have further problems, email talk at, thanks

  8. Nadina Cole-Potter

    July 7, 2010 at 10:16 pm

    Thanks, Benn, for the tech assistance.

    Erica — Congratulations to you and your client for hanging in there! It always amazes me how municipalities which say they support economic development, want an enlarged better tax base, support free enterprise, etc. do so much to interfere with it and delay it. I have noticed that public employees at all levels, except those in the dedicated economic development departments whose job it is to facilitate economic development, do not have a clue about the time value of money. Or, they see how much the investors and developers will make on the deals and, compared to their salaries, drag their feet out of envy and/or resentment. They aren’t professionally and emotionally invested in the economic betterment of their community.

    One of the ways that developers and re-developers in our area have found to succeed is to request a pre-submittal meeting with the folks in the economic development department or functions. The E.D. staff have become very good coaches and advocates for developers while at the same time informing the developers of the potholes they should plan for or work around along the way. I have noticed that the programs in urban planning at Arizona State University now have an economic development component which is a good thing.

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Commercial Real Estate

5 questions to consider when deciding to buy or lease an office space

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



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

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.



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.

“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

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.





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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