Tips for Purchasing Your Own Stake in the Commercial Real Estate Industry

While most people know and widely understand the residential real estate investment approach, the commercial end of the industry sometimes gets overlooked due to the nuanced nature and opportunity of the sector. Having said that, the diverse opportunities within the commercial division should drive investors toward it. You have options, and before you dive into a residential rental property, you may want to consider different, often times larger fish with a bigger profit opportunity. Sound interesting, but don’t know where to get started? You aren’t alone, so I decided to put together a few tips for dipping your feet in the commercial real estate pool.

Ask Questions

Like the age-old saying, there’s no such thing as a stupid question so don’t be afraid to ask them. The more you know, the more likely you are to make a sound investment. If you find yourself asking what questions you should be asking, Kyle Pennell compiled a few questions to get you started like what kind of property and do you have a location in mind? You can find the full list here.

Find Professionals

This is where commercial real estate professionals like myself and the staff at SVN Northco come in. Because the industry is so varied, you want to find a realtor or advisor that has experience with your type of property. One usually doesn’t assume that because someone can sell a house Minneapolis, they can sell a house in New York City or Dubai. They need to have an understanding of the industry, property type and location. Large real estate firms have diversified portfolios that often span the globe, and as a result, they have more experience with major transactions like selling a resort or even a private island.

As described by Inc., you don’t have to know everything. That’s why you seek help from others who make it their mission to know the ins and outs of the commercial real estate sector. “They can help you determine the right time to buy or sell, the right locations to consider, and the nuts and bolts of closing the deal.” Don’t be afraid to seek counsel from a lawyer, broker, accountant or all three.

Do Your Due Diligence

After you asked the questions and determined the property with help from your team of professionals, you now need to check the bones of the deal. Even if a property seems picture perfect, you want to ensure that it is a sound investment. If there are problems – you want to find them now rather than six months down the line when you already bought into the venture.

Once it passes inspections and your own personal expectations – it’s time to take the plunge.

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Vancouver’s Commercial Real Estate Selling Market

According to Realty Today, commercial property owners have gained the upper hand in Vancouver’s world of commercial real estate as it has turned into a seller’s market. The time is right for owners to take control over the market and command a higher price because of the low inventory of properties. Vancouver’s real estate is slowly becoming a global market too as interest from outside of the country peaks.

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Two major commercial properties have already recently been listed: the Molson brewery and the Bentall office towers. The brewery is located on a large stirp of land beside the Burrand Bridge while the Bentall towers are located in the heart of Vancouver’s financial district. More owners are preparing to list, hoping to capitalize on the market too. Maury Dubuque, managing director at Colliers International, commented, “There’s a lot of discussions in a lot of boardrooms throughout Vancouver on real estate strategy. Many of our clients are having those conversations.” Commercial brokerage firm, Cushman & Wakefield’s senior managing director Hendrik Zessel also spoke out on the matter , “Today, there’s a lot of money in the system. People want hard assets and Vancouver is safe.”

When it comes to the Bentall towers, Ivanhoé Cambridge (the main owner) believes that now is the best opportunity to sell the property to the highest bidder. Spokesperson Sébastien Théberge said, “There is great appetite from global institutional investors for core assets in key cities and there is limited inventory that is accessible. Bentall Centre offers a centre-ice location, long-term value and opportunity for more development.” Typically, when a property is sold, minority co-owners are offered to purchase a larger share in the property first, but the towers are such a hot property, smaller companies such as Great West Life were overlooked though they were informed about the listing.

Unlike the Bentall towers, the Molson brewery is taking a different approach by testing the waters of the market. It is still currently occupied and being used to produce beer and kegs. Depending on whether they receive the price they’re looking for will determine how badly they would like to sell and relocate the brewery.

Each owner has their tactics and their motivations, but all can agree that the market is hot for sellers, and now is the right time to take advantage of it.

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Commercial Real Estate Boom

Frank Jermusek commercial real estateCommercial real-estate has taken another leap recently, with prices reaching records highs the market hasn’t seen since 2009. This recent boom in activity is being attributed to a great many things. Some feel that low-interest rates and a massive injection of capital explains the surge in business, while others feel that an uptick in foreign market activity is the reason for this shift. Whatever the case, everyone is holding their breath for fear that the crash of mid-2000 has returned to rear its ugly head.

In cities around the world, valuations of prime real-estate are hitting record highs. With overall dealings increasing 36% from prior years, the commercial real-estate market has already reached $225.1 billion in annual transactions. This level of activity has many concerned, as its kind hasn’t been experienced since shortly before the crash.

Foreign markets are lighting up, too. China’s Anbang Insurance Group recently acquired New York’s Waldorf-Astoria for $1.95 billion, and rival Chinese insurer, Sunshine InFrank Jermusek commercial real estatesurance Group, purchased the Baccarat Hotel for $230 million.  European buyers recently joined the real-estate mania, with U.K. firm M&G Real Estate acquiring a vacant office building for €90 million.

A massive turnaround from the days of the crash, investors are using more of their capital in real-estate than from the past few years, combined. U.S. pension funds that suffered greatly during the crash are investing more in the market. Analysts have noted that an average investiture of 6.3% in 2011, has grown to 7.7% of assets invested in commercial properties.

Whatever the case may be, this unexpected rise in market activity has many jumping with joy. With the valuation index reaching record heights, blowing past the 2013 high and setting a record at 118 last week, analysts are torn between ecstatic hopefulness and concern or the potential threat of an interest rate hike. For more on the story, click here.

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Twin Cities Commercial Real Estate News

The Twin Cities has become an increasingly popular location for commercial real estate investors, especially for those from out-of-state. Though many REITs, pension funds, private equity firms, high-net-worth individuals, and institutional groups are known for buying properties on the coastlines throughout the economic recovery, the twin cities are seen as a great alternative that can result in large profits for investors.

Frank Jermusek Twin Cities

According to a recent article published by the Star Tribune, “commercial real estate investors who come here are realizing higher yields than more expensive top-tier markets like New York or Los Angeles,” (Twin Cities Commercial Real Estate Draws Out-of-State, Foreign Dollars). In addition, the ratio between the net operating income produced by an asset and the original purchase price is significantly higher in the Twin Cities (6%) in comparison to coastal properties rates for cities like San Francisco (3.5%), for example.

Although the Twin Cities are marked as second-tier investment cities, the ability to earn returns from properties purchases in the Twin Cities is far greater than those coastal markets. According to the Star Tribune:

“Groups with capital ‘first prefer the gateway cities, but when they’re priced out of those markets, and their ability to earn appropriate returns goes away, they’ll check into markets in second tier-cities, and we would fall into that category,’ said Scott Pollock, executive director of Cushman & Wakefield/NorthMarq’s Capital Markets Group. ‘You have to be patient in this market, and capital is not always in abundance, but you can see better returns in the heartland than on the coasts,’” (Twin Cities Commercial Real Estate Draws Out-of-State, Foreign Dollars).Frank Jermusek 04202010goldmansachs
That being said, many corporate companies have been seen investing in commercial properties in the Twin-Cities area. In recent news, an office deal was made between New York-based Goldman Sachs and the TractorWorks Building and parking ramp, which sold for $54.8 million. Goldman Sachs is one of the country’s largest and most well-known institutional investors, who bought the property. Because of Goldman Sachs’ recent investment, many smaller-scale companies will likely follow their lead in investing commercially in the Twin Cities, particularly in the downtown Minneapolis central business district.

For more information about recent commercial investment deals within the Twin Cities, read this article published by the Star Tribune.

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Tips for Investing in Commercial Real Estate

Commercial real estate assets, if managed in the right ways, can offer stability and serve as good hedge against the stock market. Investing in office and retail space, restaurants, warehouse, golf courses, etc., is a great way to increase the amount of money you make annually – when it is done right.

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According to an article published by Investopedia, “Investors in commercial real estate can make money via appreciation when they sell, but most returns are generated through rents collected from tenants. Long lease terms can help mitigate economic fluctuations and their impact on income,” (Top Tips for Investing in Commercial Real Estate). This means it’s crucial to study market trends and know where and when are the right times to invest in such opportunities.

One main thing to keep in mind is knowing where the best places are to invest in commercial real estate.  According to Investopedia:

“A study by PwC and the Urban Land Institute predicts strong growth in the commercial real estate market over the next couple of years. Some of the industry’s most promising cities according to the survey include Houston, where the energy industry is expected to drive growth; Austin, which has a strong industrial base, low business costs and an influx of millennials seeking housing…”(Top Tips for Investing in Commercial Real Estate).

Knowing these key areas are beneficial for investments across the board. Many areas to look at when it comes to deciphering whether or not a certain city is worth looking at for investment are: industry, job growth, diversity in economy, low business costs, and low cost-of-living.

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Indirect ownership is another category to analyze when looking at investing in commercial real estate. Indirect ownership means that profits or beneficial interests, in this case commercial real estate, are owned by or for a corporation, partnership, estate, or trust that is considered owned proportionately by or for its shareholders, partners or beneficiaries. Commercial mortgage-backed securities are great ways to tap into commercial businesses. According to Investopedia, they are “interest-paying bonds that hold bundles of commercial mortgages. Issuance of CMBS is expected to rise $150 billion in 2017 from an anticipated $115 billion in 2015, according to the Urban Land Institute’s Real Estate Consensus Forecast,” (Top Tips for Investing in Commercial Real Estate).

To learn more about tips for investing in commercial real estate, read Investopedia’s article written by Joseph A. Dallegro here.

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Golf Course Living

For the supporter, there is a number of reasons to live among the scenic tranquility and exclusivity of a golf course. For the critic, there are a handful of arguments against the proposal. It can be argued that many of the appeals carry implicit drawbacks. One, for example, is the independence seclusion brings. Perhaps the most obvious possible incident is a stray ball hitting a house and damaging it. While law states it is the golfer’s responsibility to heed others and his surroundings with caution, it is up to the golfer to own up to his mistakes.

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When a homeowner decides to settle on property included in or near a golf course, he tacitly (or explicitly) consents to the hazard of being injured or having his property damaged by stray golf balls. Players are also given some lenience with supposed “trespassing”, as golfers may need to find their lost balls. Because people like the isolation of a golf course home, strangers in the backyard are often reason enough to consider living elsewhere. Of course, if a golfer is acting recklessly or purposefully damages someone else’s property he will be held accountable.

Living on a golf course offers all the advantages of the expansive lot of land like varied terrains (water from rivulets, sand from bunkers, rough and smooth grasses), remote calm, and, of course, access to the golf course, but it also leaves homeowners less protected than one might think. The golf course itself is generally exempt from legal responsibility to participate in mediating matters between players and residents.

An exception to this would be an obvious or apparent negligence on the part of the golf course designers and managers in situating homes along the course. In this case it could be argued that the homeowner was not made aware of the common threat of damage. If the course managers added to the design ex post facto without sufficient consideration for the homes, a homeowner may seek compensation for the damages.

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Common Mistakes Real Estate Investors Make

Frank JermusekRight now the real estate market is extremely active, which means that bidding is becoming more and more competitive. This is stressful time for investors, so it’s vital that they steer clear from making real estate mistakes, which could lead to overpaying for a piece of property or buying up assets indiscriminately. Those who are new to commercial real estate or veteran agents who are trying out a new investment strategy should especially pay critical attention to their actions.
In a recent interview conducted by National Real Estate Investor with Robert J.M. Occhiogrossi, the managing director of IVI Assessment Services, Christopher Macke of American Realty Advisors, and Nicholas Coo, managing director of Faris Lee Investments, brokers were asked about the most common mistakes in real estate at pivitol market points.Here are a few common mistakes that are generally made at this time of year that investors should make sure to take note of:
The first mistake is performing incomplete diligence, which means that buyers will cut their process short for various constraints like time. When investment processes are cut short, important information can be missed and an investor will be unpleasantly surprised in time. Remember, making a commercial real estate investment is a long process and no amount of details should be missed. According to Occhiogrossi, other mistakes involving this process include performing “‘inadequate level of due diligence to evaluate existing collateral and waiving rights to perform due diligence of vertical components, particFrank Jermusekularly in portfolio situations,’” (Misonzhnik, 8 Most Common Mistakes Real Estate Investors Make).
Another mistake often made by investors when the market is really active is that they assume newly constructed buildings have zero problems. Just because a building is new, does not mean that it does not have any problems. In fact, newer building sometimes have more problems than ones that have been around for years. This is because builders generally rush to complete developments when the market is booming, which leads to defects in construction plans from hiring less qualified workers.
Lastly, investors will often focus on short-term noise instead of long-term signals, particularly when they are looking to profit from the real estate investment right away. According to Chris Mack, “Focusing on short-term ‘noise,’ whether it be the daily speculations surrounding Fed policies or daily gyration in the stock market, as opposed to the underlying factors that actually drive commercial real estate returns such as employment growth, capital flows into commercial real estate and property fundamentals is another common mistake,” (Misonzhnik, 8 Most Common Mistakes Real Estate Investors Make).
For more information about the mistakes commercial real estate investors make, read National Real Estate Investor’s article here.

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