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Commercial Real Estate

Small commercial real estate leases: the forgotten market

When small commercial real estate needs arise, consumers are often left in the dark as they enter the Forgotten Market.

for lease - maybe

for lease - maybe

The panic of sudden vacancies

How often has this happened in your town? A tenant in a little mixed use store front in nowhere, USA had to close down shop unexpectedly, can’t pay the past due rent, and leaves high and dry. In frantic desperation (after all, there is a mortgage to pay), the property owner picks up the phone to call the best local commercial real estate firm. The conversation probably went something like this:

Property owner : “Hello, I need a commercial agent to list my property for lease.”
Agent: “Ok, what kind of property?”
Property owner: “It’s a 600 sqft store front.”
Agent: “……………………umm……..”
Property owner: “I need $350 a month”
Agent: Click.

This happens all too frequently.

Why would an agent turn away business?

Now let’s think about this. Why would a serious professional, in this market, NOT want your business?
Is there a certain type of commercial real estate that they only deal with? Why is it so hard to get a commercial agent to help you?

You have entered into the Forgotten Market. This is the market that sits between the small commercial properties and the large residential properties. Navigating through this market is very difficult because of three things:

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  1. The best local commercial firm doesn’t want to help because the deal is too small for them to make any money on. In fact, it may actually cost more money each month to service the property owner’s needs than they would make.
  2. The best local residential agent really, really, really, wants to help you, but they most likely lack the discipline, tools, and contacts to make a transaction go smoothly.
  3. The property owner does not have the experience and know-how to self-manage the asset or transaction. In order to survive the Forgotten Market, the property owner better get some tools and contacts pronto!

Here’s a quick check list to do just that:

  • The property owner could first consult a commercial real estate attorney and see if they have a lease for use once there is a potential tenant, and if they can review the lease terms.
  • Then I would use every free possible marketing channel available to secure a tenant. Then screen and rescreen the tenants ( there are books written about how bad a result can be by failing at this step) and get recommendations.
  • Ask for business plans, bank statements, etc. etc. Property owners can cut and paste from a mortgage loan application as a cheat sheet. Ask for guarantees on the lease, cosigner, or a bond.
  • If all of this seems like too much work, ask a consultant. Chances are these services are available on a fee base, hourly base, or monthly retainer, just as you would an attorney.

Let me be clear. I do not advocate anyone doing a commercial transaction by themselves, nor do I think a residential agent should conduct a commercial transaction. It’s both dangerous and ignorant.

What I do advocate for, however, is consumers getting quality real estate services from people that know what they are doing. The only issue is what price point do those services come with, and are property owners able or willing to pay for those services? Be prepared, as the Forgotten Market can be a scary place. I would not advise going at it alone.

Written By

With 16 years of industry experience, earning his CCIM designation in 2007, Smith has held various leadership positions from CCIM Chapter President, CCIM Institute Regional VP, to Partner at McFalls & Smith International Development. Today, Smith is a commercial sales expert at Prudential PenFed Realty's Commercial Division, an Advisory Board Member at the University of Baltimore's Merrick School of Business, and a Professor at the Professional Development Institute. Smith has educated hundreds of REALTORS, investors, and small business owners, helping them find success through Commercial Real Estate.

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