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Commercial Real Estate

I sell houses. So I can handle commercial properties too, no problem!

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Residential vs. commercial agents

In the state of Pennsylvania, we have one category for licensed real estate salesperson, one for licensed associate broker (a broker who is NOT the broker of record), and licensed broker of record. We don’t have categories for residential agents vs. commercial agents — yet a huge gap exists amongst real estate licensees.

So any licensed agent can sell any property, anywhere in the state. Legally, that is. Practically, that is not a true statement. I — in northeast Pennsylvania — am certainly not going to list or try to sell a property near Pittsburgh, on the other side of the state. I don’t know the area, the properties, or anything about the region. I will find a good agent out there and refer the deal, but I won’t list the property.

So why is it that agents who are trained and sell almost exclusively residential properties think they can adequately represent a seller or buyer in a commercial transaction? The same analogy follows, I believe. Selling a $150,000 house, 3 bedrooms 2.5 baths, is not at all similar to selling a $1.2 million gas station or strip mall.

Why can’t we all just get along?

To paraphrase a famous news quote, “Why can’t we all just get along?” Residential vs commercial agents seems to be an agelong dilemma.

Residential agents think they can handle the most complicated deals, even when they truly are out of their league.

Commercial agents get annoyed at all these “amateurs” playing in their sandbox.

I have seen both sides sniping at each other and their “right” to be in the deal at all.

It doesn’t have to be that way. What’s the goal? Seller finds a buyer, buyer finds a property. We should be able to work together to get the deal done, whether that means referring it out to an expert or working side by side with one. The two sides don’t have to be enemies or combatants.

I was told recently by someone that commercial agents have their own circles, and they only talk / share info with other commercial agents. That’s just silly. But at the same time I can see their side, that residential agents get in the picture and the deal becomes 10 times harder, because of all the extra work the commercial agent has to do to make it happen, because of the residential agent’s lack of expertise.

CAN legally sell vs. SHOULD try to sell

I once overheard an agent “on duty” take a phone call from a consumer, who asked if the agent could handle a large commercial listing. “Of course! I can sell any kind of property at all in this state!” she replied, confidently.

Yet I knew that she had rarely handled any commercial deals at all, and probably had no business taking that listing, which did indeed turn out to be over her head / capabilities. She was out of her league, but would not tell the seller that.

In fact, I watched her spend hours spinning her wheels trying to get a handle on the property, fielding calls she had no clue what the answers were. That listing expired, and a commercial specialty firm picked it up after her failure.

“But my license says I am legally allowed to list and sell commercial,” the argument goes. Yes you are. But are you truly capable? Do you understand the financing, the nuances, what a Phase I environmental study is? Maybe, but maybe not. Are you representing the sellers adequately if you do not know these things?

Just because legally you CAN list a property out of your realm of expertise (location, type, etc) does not mean you SHOULD. Period.

What do you do?

So if you get a lead on a commercial property — a large deal. A big fish. That property that other agents salivate over and it lands in your lap… yet you feel in your gut that you may be stretching. What should you do?

You want the listing. You can taste it! You don’t want to lose it all. But you don’t want to screw this up either.

Refer it out

Is someone in your office a commercial guru? Refer it to him for a fee. Or go out of office to a commercial brokerage, and give it to someone who CAN handle it. At least you’ll get a piece of something, rather than zero when it expires.

Find a partner

This is what I have done. I am the broker of record, own my own office, and have listed and sold commercial properties over the past 10 years. Yet I admit I don’t know it all, and sometimes I have too much on my plate to devote to a single large commercial parcel.

My solution was to find a partner. Someone I trust, and work well with side-by-side. I found that in a commercial agent from a nearby city. When I list a “good” commercial property, I bring him in and we tag-team the deal. We split the commission, and co-list the property. Both of us work the deals and we complement each other’s strengths.

I am the local angle, he works national. When someone needs to be on site, quickly, it’s me. When someone needs to push out marketing materials nationally, it’s him. I enter it on local MLS’s and he does it with the commercial websites. And we share the proceeds of whatever we sell.

Sometimes I feed him buyer or tenant leads, other times we’re listing commercial properties side by side. It works. But you have to find someone who works well with your personality, and someone who you trust implicitly. Any doubts and it doesn’t work — kind of like marriage. It is sort of a business or work marriage. Trust is the key.

Want to work commercial? Get help.

Commercial is indeed a different animal. It is not another house that you can just pop a sign on and put in the MLS. There are different skill sets needed and if you want to get your feet wet in it, just get some help.

Ask someone to be your mentor, or to share deals with you. Find a partner, someone who will help you get started. Just get help, because especially in today’s economic environment, you’re going to need it.

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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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10 Comments

10 Comments

  1. Joe Loomer

    June 2, 2010 at 10:25 pm

    Erica,
    Overdue and on-point. A common conversation I have with agents is about how to best serve their clients. Fortunately, when it’s put in terms of “what is in your client’s best interests?” My experience has been a referral works best in everyone’s interests.

    This may be the most lucid post I’ve seen on this topic in quite some time – and I agree that perhaps the time for a separate licensure requirement is at hand.

    Navy Chief, Navy Pride

    • Nathan Hughes

      June 3, 2010 at 10:04 am

      Great post and I’m glad to see someone else (Joe) thinking about separate licensing. I’m the 2010 Chair of the Commercial Council for the Virginia Association of Realtors and separate licensing is something we’ve pushed for several years. (Technically, we’ve asked for mandatory certification to be able to practice commercial real estate, but if it’s mandatory for both residential & commercial then it’s a matter of semantics.)

      I don’t see any reason there is argument against educating ourselves to be sure that we, as agents and brokers, are competent to practice in the area of real estate that we want to practice. Our Code of Ethics states that we agree not to practice outside of our area of competence (maybe not the exact wording, but something to that effect).

      Also, brokers have a responsibility to understand the types of transactions that their agents are doing. As a sales manager in a firm that does mostly commercial, and a little residential, I educate myself in both types of transactions — and if there were separate licenses, then I would get licensed in both.

      Great post, Erica! I think that if everyone followed your advice, this wouldn’t even be an issue.

  2. Mark Brian

    June 3, 2010 at 10:16 am

    From Article 11 of the NAR Code of Ethics & Standards of Practice:

    REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth.

    Pretty much says it all IMHO.

  3. BawldGuy

    June 3, 2010 at 11:36 am

    The best deals and the most fun I’ve had locally is dealing with a house agent representing the other side. It doesn’t matter whether the income property is their listing, or they have the buyer — I could write a short book about the crazy lopsided transactions involving house agents tryin’ to hang with income properties.

    It’s surprising to me no local brokerage has been sued by an investor represented by one of those ‘agents’.

  4. Ryan Martin

    June 3, 2010 at 1:23 pm

    In our area we have 2 multiple listing services. One is strictly commercial and the other MLS is for all property types, which includes commercial. Some of the commercial only brokers are only members of the commercial MLS because they don’t want residential or cross agents to learn about their listings. IMO, they are doing a disservice to their seller because a large percentage of commercial real estate is sold by cross agents in our market.

    With that said, I agree completely that some residential agents get in way over their head. The biggest two problems that it causes are additional work and headaches for the commercial broker that has to do all of the work and the added liability of the broker of record that is responsible for these rouge residential agents. Providing real estate services beyond your scope of expertise is an invitation for a lawsuit if anything goes wrong and if you don’t know what you are doing when selling a gas station or strip mall (as you mentioned above) there is a good chance that you will do something wrong.

  5. Erica Ramus

    June 3, 2010 at 8:16 pm

    Thanks for the comments! I think a separate certification program would be nice, but don’t see brokers enforcing it. CCIM is an excellent program. But would brokers turn away listings if they or their agents don’t have the CCIM or proper experience?

    I agree the NAR code of ethics quoted above would preclude most residential agents from taking a large commercial listing — or anything out of their realm of experience. But it doesn’t. Brokers 1-2 hours away regularly list properties in our rural area, don’t put them on the local MLS and don’t want to come here to show their own listings. Isn’t that breaking the COE?

    The mighty dollar leads people to take listings they have no business taking.

  6. Mike Bowler Sr.

    June 3, 2010 at 9:24 pm

    Erica, great discussion. Separate licenses will be the key, however as stated above by Mark Article 11 of the NAR Code of Ethics & Standards of Practice has not been enforced by local associations on this age old problem. Today, right within the residential arena we have the same problem with unqualified agents handling short sales, income properties, bank owned properties, etc. I guess it falls back on education. Smart agents will refer the business and focus at what they do best. Thanks for contributing to the education of REALTORS by sharing your thoughts.

  7. Amy

    June 3, 2010 at 11:07 pm

    In our area we have 2 multiple listing services. One is strictly commercial and the other MLS is for all property types, which includes commercial. Some of the commercial only brokers are only members of the commercial MLS because they don’t want residential or cross agents to learn about their listings. IMO, they are doing a disservice to their seller because a large percentage of commercial real estate is sold by cross agents in our market.

    With that said, I agree completely that some residential agents get in way over their head. The biggest two problems that it causes are additional work and headaches for the commercial broker that has to do all of the work and the added liability of the broker of record that is responsible for these rouge residential agents. Providing real estate services beyond your scope of expertise is an invitation for a lawsuit if anything goes wrong and if you don’t know what you are doing when selling a gas station or strip mall (as you mentioned above) there is a good chance that you will do something wrong.

  8. Marc Knight

    June 4, 2010 at 5:52 am

    Great post; the idea of seperate licences is long overdue. Thanks for elaborating!

  9. Jack Chu, CCIM

    January 2, 2017 at 1:56 am

    As a CCIM, I could agree more with you. I believe we all have our niche and we do specialize in our own area. For example although I have an MBA in real estate and a CCIM, I primarily focus on Apartment because I used to developer apartment of 300-400 units. I was also a property manager for the State of Oregon so I have the property management experiences. I am actually are happy to work with residential agents because I believe I can bring to the partnership with my commercial expertise but the residential agent probably have the relationship with his/her clients which together can bring the trust and expertise for the client. I welcome opportunities to work with residential agents.

    Jack Chu, CCIM

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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 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

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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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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