Baker Real Estate

Does the stress of wondering what your options for your Commercial properties are in the current economy and tax uncertainty keep you awake at night? Many of my clients do not want to give the property away, but they’re trying to weigh what the potential  for new taxes could mean for their financial plan and retirement.

Baker Real Estate is here to help you sleep a little easier. First, we do an extensive walk-thru on the property to get a clear view of the property. We look to see not only what the property has to offer but also see what type of repairs or maintenance on the property we’ll need to attract an investor or another end user. Next, we’ll perform an extensive review of comparable properties sold in the market within a relevant time period, then we’ll produce a sales and lease price for the property.  

Together, we’ll present this report to your accountant, attorney, banker or whoever to develop a plan to maximize your investment (i.e., your property). Will a 1031 Exchange be best for you? What about taking care of my spouse or children or a benefactor on the property? You’ll be armed with information to help you make the right decision for your future and your goals. 

Congratulations you're ready to purchase your commercial real estate property and the closing date & time has been set. What should you bring or do to make sure this goes as smoothly as possible?

First, bring along your drivers license or a picture ID for verification purposes. The title company will require this. Second, what address do you want your closing papers and title commitment sent to? The property you are buying, your home address or another business address?

If you are buying the property in a corporation or LLC you will need the corporation documents for the title company. This includes minutes of the meeting of the stockholders or the members of the LLC that you had a meeting on such and such date and you approved the following to transact business on behalf of the entity. This can be as simple as handwritten or typed or as formal as having an attorney provide the information. You also might want to print off the Certificate of Good Standing from the Secretary of State stating that you have paid your corporate tax and are in good standing. If you have not done this get it done quickly and print off your receipt so you can show that your company is in good standing.

You should have received a closing statement showing how much money you will need to bring to closing. If you are buying the property for cash then it would be the full purchase price plus and fees the title company pays and minus any credits from the seller (such as taxes, seller prepaid costs, seller agreed credit for repairs, etc). These funds need to be certified so it needs to be a cashier check, or you can get wiring instructions from the title company to wire transfer the funds to the title company. If you are financing the property, then the amount would be the amount that the lender is requiring you to put down as down payment.

Finally, show up a little early so everything can start on time or even early. Hopefully, your broker has explained these things to you prior to the day of closing so the stress of the closing will be minimal. Give yourself a high five for taking the next step in commercial real estate ownership. 

Commercial Financing

Now that you have decided to purchase a commercial property you need to decide what type of financing you might need to purchase the property. Here are some choices that may be available to you:

SBA financing – These are loans that are guaranteed or direct loans from the Small Business Administration. The advantages with these loans are that they usually offer low interest rates, lower down payment (10% in some cases) and are fully amortizing. The disadvantages to these loans are that they require quite a bit of documentation and they usually have prepayment penalties if you sell the property or pay off the loan earlier than expected.

Commercial loans – These loans are loans that are funded by the lending institution and are held in the lending institutions loan portfolio. These loans can have maturities as long as twenty years, but most of the loans have maturities of 10 years or less. These loans are usually amortized over 15-20 years but have a balloon payment at maturity. You need to be aware that you might need to pay off the loan at maturity even though there is remaining time on the amortization. These interest rates on these loans are fixed for the term or have adjustment periods during the loan that adjusts the interest rate to the current market. These loans are typically relationship driven meaning the lending institution wants to have the business deposit accounts so that they can earn money from your deposit accounts. The good news is that many times if you give the lender your deposit accounts, they will potentially waive some fees on the loan such as prepayment penalties, loan origination fees, etc.

What’s the difference between assessed value and market value?

Assessed value is the value of the real property that has been assigned to the property by the County Assessor. To say how this value is derived is fairly complicated. The gist of the formula is that the county assessor uses a sales value for the land and then adjusts for differences such as buildable square footage as opposed to total square footage, access to public utilities, recent sales in close proximity, property zoning etc. The assessed value of the building is based off cost of construction on an industry standard (Marshall and Swift Appraisal) for construction costs in the area and then applies a depreciation formula based on the age of the building. The county assessor does not look at each individual sale but takes a mass appraisal approach to determine the value. 

Historically assessed value has always been lower than market value. The old banking adage was that you could take the assessed value of the property and multiply it by 125% and would get close to what the actual market value is. Over the years as information has become more accessible this way of valuing property has kind of went by the wayside.

Market value is the price that a willing buyer and a willing seller agree to sell and buy a property. This value is driven by things such as location, visibility, access, what surrounds the property (drivers of business). Market value is usually based upon arm’s length transactions of previous sales within a given time-period. This period for commercial buildings is typically a year or less but can be longer based on the local and national economy.

What is an easement and why is this important to you?

Many times, when I am talking to my clients and we are reviewing the title commitment the property may have easements that run along the side or across the property. Even though they are there most people do not ask the question as to how these effects the usage of the property they are looking to purchase.

First, an easement is a right to cross or otherwise use someone else’s property. This could be the right of the neighbor to cross your land to get to theirs, a utility easement such as a pipeline or electrical power line, or water or sewer lines. If there is an easement on your current property or one that you plan on purchasing, you need to understand all the details regarding it. Details such as how wide is the easement, how close can you build to it, can you pave or concrete over the top of it, what are the rights of the easement holder into access, repair and replacement or damage to your property.

Here would be an example of an issue that could greatly affect the value and the usage of a property. Let us say that a gas pipeline runs across the property diagonally and runs within 2 feet of an addition to the building. The previous owner(s) never got a building permit or checked with the pipeline owner with regards to this easement. The easement has a 25’ no build clause in it on either side of the pipeline. So for 50’ you cannot build or cover the easement and if you do and the pipeline needs to be repaired or replaced on your property the pipeline company would have the right to tear down any or all of the structure covering the easement and not have to replace it. Imaging how this could affect the value of the property and how it would affect your business.

Having an easement on your property may have no, little or major effect to the value of your property. But shouldn’t you know? 

Is Your Commission Negotiable?

Many times, after making a real estate listing presentation I get asked will you negotiate your commission. When a commercial realtor makes a listing presentation they have spent a lot of time researching the property, your business, the commercial real estate market, who’s buying and who’s selling and they have developed a marketing plan that is specifically tailored to your property. After working on all the above the commercial broker will then determine what they feel is a fair and reasonable commission to market your property.

So, what does a commercial real estate broker take into consideration when calculating a commission. Here are a few considerations that commercial brokers look at.

They share 50% of my commission with the Buyer’s broker. They do this because the other broker has worked hard to search for properties for their client and they deserve to get paid for bringing that buyer to the deal. They are paying them for their expertise which they will use to make the overall transaction better and potentially close faster.

They pay for the marketing platforms that they will use to expose your property to the market. This can include internet commercial marketing websites and MLS’s, marketing brochures, videos, and virtual reality tours of your property. Technology is helping us to better market your property, but it does come at a cost.

They belong to professional commercial trade associations such as CCIM, SIOR, marketing groups that are specific to commercial brokers. These groups allow for commercial brokers to have a larger pool of contacts that have clients who are looking for a property like yours. Without belonging to these groups these contacts would more than likely not be made.

They have relationships with title companies, attorneys, accountants, and investment professionals that they can use to help save you money, time and more that likely provide a greater return on your property. 

They have overhead expenses just like you. They pay for space, utilities, staff, internet & phone, business insurance, car expenses, etc.

They pay themselves so that they can support their family.

The above is just a few of the considerations that a commercial realtor looks at when calculating your sales commission. It is fair to ask them how they are going to market your property, what technology they will use and what professional trade associations do they belong to so you have a clear understanding of what you are paying for.

How is a commercial realtor a time saver for me?

Let us face it, your time is worth a lot to you. With all the things that you must get done in a day running around looking for a new location for your business or your investments it is a time suck. Why would a commercial broker be of benefit to you in helping you manage your time?

First, commercial brokers on the average have been in the business for 15+ years so they understand the market and what questions they need to ask to help you find the right property. So, 30 minutes of your time talking to a commercial broker could save you hours in narrowing your search for the right space. Questions such as how much square footage do you have now? Are you expanding or contracting? What type of office space do you need and how many offices? Do you need yard space or is a small lot okay? What about overhead doors are they grade level or dock high? How many? Size? By asking you the right questions and getting your priorities in what you want for a building allows the commercial broker to narrow the scope of the search so that they can focus on what your needs are rather than just a blanket search of the market.

Second, commercial brokers have a network of clients, builders, landlords and other commercial brokers who have listings that are not always published on the local MLS (Multiple Listing Service). This networking of commercial brokers gives the opportunity to find properties that may not be available to residential brokers. Many people search zillow, trulia, and other websites to find properties, but those are not always updated on a commercial real estate basis. 

Third, because commercial brokers work the market daily, they have a better understanding of market prices, lease rates, willingness of owners to provide tenant improvements or repairs to the property. Some of this information is only available within this commercial broker network. This information can save you thousands of dollars in your purchase or lease of a property.

So, if you are thinking of looking for a commercial property and using a real estate broker consider these factors:

Did they ask what I have now and what I need for the future?

Did they offer to tell me how they would help you find the right property?

Did they ask what the most important points in finding the right property are?

Are You Using The Right Real Estate Agent?

When you are ready to buy, sell, or lease commercial real estate, who do you turn to? Many people work with their residential agent or broker to help them with their home. Makes sense as real estate is real estate, right? Wrong! Commercial real estate is complicated. Commercial brokers are experienced in asking questions that not only will affect the sale initially, but in the future as well. Questions such as; hook height, overhead door height, sidewall height, sumps, electrical power, access, utilities, easements, triple net leases vs. gross lease, rent-able square footage, CAM charges and so forth.

Commercial real estate agents have weathered many challenges in regards to closing a commercial deal. With that said, they are not experts when it comes to assisting with a residential sale. Their knowledge, the data they review & statistics focus on the commercial market & would be of little use in the residential real estate world.

Let’s look at specific topics that Commercial Real Estate agents specialize in.

Expertise & Experience

On average, the age of a commercial real estate broker is 60 and they have been in the business for over 15 years. They have spent countless hours learning the commercial real estate trade both by educational opportunities and from the school of hard knocks. This experience and education helps them navigate you through your real estate transaction. Asking a residential broker to help you with a commercial transaction is like asking a plumber to help you with your electrical problem. It might work but wouldn’t you prefer to have the person who works with that daily rather than someone who is figuring it out as they go?

Commercial Agents & Time Management

Residential and commercial real estate have very different methods when going about their customers' purchase. Arguably, one purchase is made with the mindset of your business and the other purchase is made with the mindset of your day to day life. Both are equally important, but they are completely different perspectives. Commercial brokers can be used as a time management tool. They know what questions to ask & how to identify what is important to your business. They then research the market, give you prospective properties that fit your needs & discuss the short term and long term advantages or challenges to each property. Ensuring the most effective use of your time when looking for new options for your business.

Contacts

Residential agents and brokers know who has buyers and/or sellers within a specific price range. They align themselves with these agents/brokers so they can efficiently work within that market segment. Commercial brokers like to deal with other commercial brokers, plain and simple. They will share sales and leasing information with other commercial agents that may not be open to the public. They also share information on properties they have listed that might fit another buyers’ or tenants’ needs or vice versa.