CommercialBloggers.com

Strike Price

2012-02-20T17:34:00.000-08:00

- Strike Price -

In commercial real estate analysis it is important to have a predetermined "strike price" in order to remove all emotion out of the negotiation process. By staying focused on your individual strike price you will be able to close the deals you desire without going overboard. Strike price will have several moving variables. Those variables will include cap rates, ROI, debt service coverage ratio, etc... All of these variables will need to be clearly analyzed in order to come to a specific strike price for your property.

Strike price lets you know in no uncertain terms as to what the exact acquisition price needs to be. Your LOI's will obviously go out well below your strike price and while in contract negotiations will move upward. As the negotiation process approaches your strike price, you then need to close on the property interested in or move on to another. Remember, not every contract will close at the strike price you need it to and it is OK to move on. Strike when possible and move on if necessary. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Central Business Districts (CBD)

2012-02-13T18:03:00.000-08:00

- Central Business Districts (CBD) -

Central Business Districts or sometimes called Central Activities Districts are basically the Downtown, "Heart of the City." Central Business Districts are where the tallest buildings are located with little or no residential populations nearby. In other regions of the world like Great Britain, Ireland and Canada these areas are referred to as City Centre's.

Central Business Districts are high density commercial areas including businesses, retail and possibly Federal and State office buildings. Central Business Districts may have a Historical District memorializing a City's history as well as outlying blighted areas ripe for Economic Development funding. Many Central Business Districts will be relatively close to dining, entertainment and sports arenas.

Investors, businesses and people in general, all want to be in the "Downtown" area of a city due to high-activities and pedestrian foot traffic. Access to land and available space for rent is extremely low therefore driving prices up for business rents, parking and residential apartments, etc... if at all available. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Occupancy Rate/Vacancy Rate

2012-02-07T19:39:00.000-08:00

- Occupancy Rate/Vacancy Rate -

In commercial real estate investing it is all about the leases and occupancy rate/vacancy rate. In the current economy around the country, many real estate owners have experienced high vacancy rates. Many of the "high-barrier" to entry locations such as the seaboard states have successfully kept occupancy rates high or unchanged.

Occupancy rate/vacancy rate is a numerical value calculated as a percentage of all available units within a property. This percentage rate can be used for office, retail or multifamily properties. It basically shows the amount of commercial space that is leased and "not" leased. An example would be a 200 unit apartment complex with only 150 units rented with annual leases in place and verified. The occupancy rate would be 75 percent and the vacancy rate would be 25 percent. These are important numbers for investors to review and verify, for it is an indication of current and future cash flows to be realized.

Commercial real estate investors who acquire properties not 100 percent occupied take on the risk of valuable time and money spent paying for marketing the vacant spaces, property maintenance, taxes and insurance. This amounts to investors acquiring and paying for a "non-performing" liability. I would not recommend acquiring any commercial property less than 90 percent occupied, generally speaking of course. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Non-Compete Clause

2012-01-30T16:41:00.000-08:00

- Non-Compete Clause -

In negotiating commercial lease contracts it is important to protect your retail business' primary use. Primary use is generally defined as deriving more than 25 percent (25%) for said principal use. When signing a new commercial retail lease or reviewing an existing lease, it is important to identify the non-compete clause or exclusivity clause within the lease contract.

A non-compete clause basically states that the landlord will not lease to another tenant within the commercial property the same business use as your specified primary use. For example, if you owned a pizza store within a shopping center then the landlord would not be permitted to lease another space within the same property to another pizza store directly competing with your store.

As an important side note, non-compete clauses generally do not apply to anchor stores within a shopping center. This is why you will see a grocery store able to sell pizza as well as your individual store within the same shopping center. Read your lease carefully and review with a competent attorney. Thanks for reading.

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Commercial Service Agreements

2012-01-24T16:41:00.000-08:00

- Commercial Service Agreements -

As you know, commercial real estate requires a lot of servicing in order for the property/facility to properly be run and managed. once an investor gets over in my opinion eight plus units/tenants, it is prudent to hire a commercial management company through commercial service agreements. One of the goals of investment real estate is to reduce your personal management of a property, not run the day-to-day operations and enjoy your life and do the things most important to you and your family.

Commercial property management entails such things as tenant marketing, rent collection, monitoring, management, administration, evictions, accounting, maintenance, etc... To a novice investor/property manager, this can be overwhelming to say the least. This is why a commercial property management company/service agreement is advisable. A great way to locate a qualified manager or management company nationwide is through the Institute of Real Estate Management (IREM) www.irem.org Here you can contact different companies and mangers based on your investment management needs. There are several different levels of management certification levels based on your property size and complexity of management. Below are listed IREM's certifications.

CPM - Certified Property Manager

ARM - Accredited Residential Manager

ACM - Accredited Commercial Manager

AMO - Accredited Management Organization

Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Re-Tenanting

2012-01-16T18:26:00.000-08:00

- Re-Tenanting -

In some cases during the life of a commercial retail property it might need to be re-tenanted in order to increase it's revenue and attract additional quality tenants to the available spaces. Re-tenanting can be as simple as moving tenants around into the proper spaces in order to fit their use or be more complex as in re-leasing national "big box" vacated spaces such as Circuit City, Linen-N-Things, etc...

Re-tenanting is basically seeking the highest and best use for both the property's owners and the retailers. By properly assessing a property's retail uses already filled and spaces that need to be occupied, will help owners and leasing agents identify which tenants will be the best fit for their re-tenanting efforts. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Commercial Real Estate Analysis Software

2012-01-09T19:02:00.000-08:00

- Commercial Real Estate Analysis Software -

In the world of commercial real estate investors, there are numerous ways investors use to evaluate a property's yield on investment. From crude proprietary Excel spreadsheets to elaborate specific "in-house" brokerage software, there is quite a bit to choose from within the industry. In my opinion, for the money, it is best to use some of the industry standards when evaluating commercial investment properties. To name of few, but not exhaustive there is;

1) RealData - www.realdata.com
2) PlanEase - www.planease.com
3) REI Wise - www.reiwise.com - (My Personal Favorite)

Choose the commercial real estate evaluation software that you like the most and use it extensively. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Minimum Rent

2012-01-02T17:14:00.000-08:00

- Minimum Rent -

Within commercial rental agreements you will find several different rent schedules to be familiar with. One is called Minimum Rent. In a varying lease schedule, minimum rent is the base monthly rental rate excluding operating costs. Sometimes Minimum Rent will be referred to as "Net Rent." If a percentage rent clause is found within the rental agreement, an example of Minimum Rent would be a base rent of $2,000 per month with a 5% over monthly sales revenue of $50,000. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

"Happy New Year" - 2012

2011-12-30T12:11:00.000-08:00

- "Happy New Year" - 2012

CommercialBloggers.com and CoreMarq, LLC would like to wish you and yours a very prosperous 2012.

- tj -

"Value Add" Commercial Property

2011-12-30T12:08:00.000-08:00

- "Value Add" Commercial Property -

Value add is a reference to commercial real estate investors that are seeking to increase a properties financial performance and eventually realize the value added in an increased selling price. Value add commercial properties are ones with fixable problems that the previous owner/seller was unable to address for whatever reason. In order to add value to a property, you have to do something to the property, like increasing rents, by adding a pool, re-painting the property, re-landscaping the property, adding a laundry mat, blacktopping the parking lot, etc...

By adding value to the property you increase the NOI (Net Operating Income) which in turn increases the selling price. Adding a professional property management company will also add value by their ability to increase occupancy rates, tenant rents and maintain retention of quality tenants. The value add approach to commercial real estate investing is not for everyone and should not be taken lightly. So, consult, consult, consult. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

"Merry Christmas" & "Happy New Year"

2011-12-23T09:51:00.000-08:00

- "Merry Christmas" & "Happy New Year" -

Commercialbloggers.com and CoreMarq, LLC would like to wish you and yours a very "Merry Christmas" and a prosperous 2012.

- tj -

Best Practices

2011-12-19T17:55:00.000-08:00

- Best Practices -

A method, technique or practice proven to show superior results from other means used. Usually becoming a benchmark, can also continue to evolve and improve as additional discoveries are made. Accredited management companies use benchmark standards such as best practices which are able to be used by multiple organizations. Best practices are best described as the process of developing and following a standard way of doing things accepted by most industry professionals. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

#1 Net Lease, Single-Tenant Acquisitions Company 2011

2011-12-16T12:16:00.000-08:00

- #1 Net Lease, Single-Tenant Acquisitions Company -

For the past five years, Cole Real Estate Investments www.colecapital.com has been the U.S. leader in single-tenant acquisitions according to REAL Capital Analytics(1). Cole's primary focus is on credit quality retail, office and industrial assets within primary U.S. markets. In the past 12 months, Cole has accomplished #1 in single-tenant office acquisitions, #2 in overall U.S. retail acquisitions, #3 in all U.S. property type acquisitions and #4 in U.S. single-tenant industrial acquisitions.

Cole's U.S. acquisitions in millions are approximately $4,292.7, their number of properties total 469, and average price in millions is approximately $9.2. Cole is a market leader in quality single-tenant acquisitions and most likely will remain that way for the near future. Thanks for reading.

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Reference: (1) Real Estate Forum Nov. 2011, pg. 59, Cole Real Estate Investments/REAL Capital Analytics

Top 20 Direct Commercial Lenders

2011-12-09T10:54:00.001-08:00

- Top 20 Direct Commercial Lenders -

The following rankings are based on NREI's annual Top Lender Survey. Rankings reflect total dollars financed or arranged in commercial real estate for 2010.

1. Wells Fargo - $36.9 billion

2. Prudential Mortgage Capital - $8.81 billion

3. Deutsche Bank - $8.8 billion

4. MetLife - $8.4 billion

5. PNC - $4.4 billion

6. CBRE - $4.2 billion

7. Berkadia - $4.1 billion

8. Northwestern - $3.5 billion

9. CW Capital - $2.8 billion

10. Strategic Alliance - $2.7 billion

11. KeyBank - $2.2 billion

12. NorthMarq - $2.1 billion

13. Natixis - $$2.06 billion

14. Red Mortgage Capital - $2 billion

15. M&T Realty Capital Corp. - $1.6 billion

16. Grandbridge - $1.49 billion

17. Principal Real Estate Investors - $1.48 billion

18. Centerline Capital Group - $800 million

19. TIAA-CREF - $747 million

20. Alliant Capital - $506 million

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Replacement Reserves

2011-12-05T18:54:00.000-08:00

- Replacement Reserves -

In commercial rental properties it is important to calculate and set aside funds in a separate bank account for future expenses and capital improvements. The replacement reserve is for major expenses such as a new roof, mechanical equipment, parking lots, etc... and not for regular operating expenses.

Replacement reserves can be determined several different ways depending on the investors choice and bank requirements. Replacement reserves can be calculated as a percentage such as 3% to 5% of GSI (gross scheduled income) or $300 to $400 per unit annually, or $2 to $3 per s.f. (square foot).

Always make sure that all property evaluation reports show an allowance for replacement reserves, which will then be calculated into the properties Income & Expense report. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Rent Roll

2011-11-23T11:13:00.000-08:00

- Rent Roll -

In commercial real estate, some of your buildings will have more than one tenant. In such cases, you will have a rent roll that your asset management team will need to keep up-to-date and accurate. Rent rolls are an account or schedule of rents monthly, quarterly, etc... showing the amount due from each tenant on property and the total received. Rent rolls will included such information as; lease date, term of lease, deposit on hand, current amount due, past due rent and any escalation due dates or expiration.

Rent rolls play an extremely important role for current owners, banks and potential investors in determining the value of commercial real estate properties both now and in the future. It is vital to your commercial real estate business to keep rent rolls accurate and up-to-date at all times. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

CRE Benchmarking

2011-11-18T14:27:00.000-08:00

- CRE Benchmarking -

Commercial real estate companies and corporations regularly monitor (benchmark) their commercial real estate assets for their energy consumption such as; office buildings, bank branches, financial centers, government buildings, etc... Reduced energy consumption has a two fold benefit, in that it reduces overall operating costs for building owners and managers, while significantly reducing environmental contaminants released from the buildings.

Energy Star has an energy performance and consumption program and rating system which helps owners and managers meet their benchmarking requirements. Benchmarking assists commercial real estate owners and managers in data collection from their commercial buildings for analysis. If compliant with Energy Star's performance guidelines, a commercial real estate building then may receive the Energy Star label, which is highly desirable in today's environmentally aware general public. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Anchor Tenant

2011-11-14T16:40:00.000-08:00

- Anchor Tenant -

In commercial real estate, you have tenants and then you have anchor tenants. Anchor tenants sometimes also referred to as an anchor store, draw tenant or key tenant, basically are the main tenant(s) within a shopping center or regional mall. Major department stores, retailers or grocery chains are necessary in order to attract general public foot traffic and increased retail revenue.

Most anchor tenants receive deep discounts to their lease contracts/ coupon rates and generally occupy 50 to 70 percent of a mall's leaseable space. The end result is that anchored centers and shopping malls outperform non-anchored centers and shopping malls. These critical anchor tenants help to draw shoppers to the project as well as shop at all the other stores. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

QR Code

2011-11-11T12:06:00.000-08:00

- QR Code -

Somewhat like bar codes found on everyday shopping products, QR Codes are informational tools used to relay everyday information to the general public. A QR Code (Quick Response Code), is a two dimensional matrix bar code designed to allow it's content to be decoded at high speed.

You will see QR Codes published in magazines, store window signage, etc... The QR Code can be deciphered with the new smart phones for receiving quick and relevant information on the go. In context of commercial real estate, the QR Code is being successfully used in decimating real time property data such as rental rates, lease term requirements, deposits, additional market data and agents contact information.

The QR Code is an effective communication tool sales and leasing agents can utilize in their ongoing efforts to close deals. Be on the lookout for these QR Codes and try one yourself. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Key Money

2011-11-09T11:06:00.000-08:00

- Key Money -

This is a term used in context of securing a leased property before it is actually available for rent or back on the market. Key money is a payment made to an owner of a building by a potential tenant, in an attempt to secure a desired location and tenancy. Key money is an unofficial deposit/bribe, used in hopes of securing a lease contract in a particular property.

Where scarcity is an issue in high demand metropolitan areas, key money can pay an important role in realizing a lease contract. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

ALTA

2011-10-26T09:54:00.000-07:00

- ALTA -

ALTA stands for American Land Title Association and is the national trade organization representing the land title industry. ALTA was founded in 1907 and it's headquarters are located in Washington, D.C.

In the acquisition process of real property, it is a requirement to have title insurance providing a clear and "un-clouded" title before closing. ALTA forms provide standardization throughout the tile insurance industry and are generally accepted by all major title insurers nationwide.

The purpose for an ALTA title search is to provide and protect homeowners, investors and lenders who underwrite real property. ALTA also provides land survey reports in addition to its' title research services. Thank for reading.

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Kick-Out-Clause

2011-10-18T18:23:00.000-07:00

- Kick-Out-Clause -

When reviewing commercial real estate leases either for purchase, renewals or initial contract, you might come across the term "kick-out-clause." This is a clause within the lease language that protects both the landlord and the tenant from financial risk. A penalty would be paid to the landlord by the tenant in the event that they terminate and break their lease earlier than the lease contract specifies.

The kick-out-clause will clearly be spelled out within the lease contract and may be based on "as-is" language or based after a certain time-frame or can be tied to unforeseeable future events such as parking issues, expansion needs, loss of an anchor tenant, unmet store sales benchmarks, etc...

Kick-out-clauses are much harder for smaller tenants to secure versus national retail chains and will require a longer advance notice of termination such as three months or more. A kick-out-clause is nothing to be afraid of. So read your lease and have it again reviewed by your real estate attorney for clarity. Thanks for reading!

www.commercialbloggers.com
www.coremarqllc.com

Proof of Funds Letter

2011-09-12T16:31:00.000-07:00

- Proof of Funds Letter -

During the underwriting process of real estate loans, verification of funds (down payment, closing costs, points, escrow fees, etc...) will often be required in order to move forward with the acquisition of a property. If an investor(s) actually have the funds within their company bank accounts, they can simply ask the bank for a proof of funds letter verifying that the company does have the funds readily available to be used and close the transaction.

If the investors do not actually have the funds or proof thereof, they may seek an investor service for a fee, which can provide the bank with funds, which in turn will issue a proof of funds letter. These funds will be blocked by the bank from withdrawal by the company and is referred to as a standby letter of credit or a blocked funds letter. These funds are considered "leased" by the company pursuing the acquisition, for a fee to the investor, in terms of 30, 60, 90 days or longer depending on the estimated closing date and at a flat rate or a specified percentage of the leased amount of money.

Although prevalently used in the past, this practice of receiving proof of funds letters and the monies for a temporary hold or lease, may be considered as fraud. Most fraudulent proof of funds cases have been directly associated with real estate transactions and therefore may be wise to seek legal council regarding this financial matter. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Basis Points

2011-09-05T19:51:00.000-07:00

- Basis Points -

Sometimes in the news or during financial conversations with bankers, investment sales agents, etc... you will hear the term basis points (bps). Basis points are a percentage change gauge calculated in points either up or down. Basis points are usually in reference to cap rates, interest rates or spreads (bps over a base rate index).

Basis points are calculated as one-hundredth of one percentage point. So, in other words if you hear that cap rates are up +45 basis points, you would know that cap rates have increased by .45% (45/100=.45). It is important as a commercial real estate investor/professional to understand what basis points are and how they convert into a percentage of increase or decrease. Thanks for reading!

- tj -
www.commercialbloggers.com
www.coremarqllc.com

Tenant Improvements / T.I.'s

2011-08-29T18:09:00.000-07:00

- Tenant Improvements / T.I.'s -

Tenant Improvements or T.I.'s for short, are the typical interior or exterior changes needed by a tenant in order to better run and operate their leased space. Some franchise agreements will require franchisees to update their locations every five years or so in order to stay competitive, profitable and current within the marketplace. These improvements can include the moving of interior walls, shelving, carpet, flooring, fixtures, etc... and the costs are negotiated during the lease finalization or during renewals.

As a general example of this, let's say Main Street Flowers 5,000 s.f. (square feet) lease is up for renewal and they are willing to sign a five year extension at $30 s.f. annually. During the renewal negotiations, Main Street Flowers wants new flooring, window covering and an outside awning installed. The property owners Main Street Partners, LLC agree to the new five year term and rate with a T.I. allowance of $20 per s.f. Both parties sign the lease renewal contract and Main Street Flowers will receive an $8,333 T.I. allowance payable up front by Main Street Flowers and reimbursed to them by contractor invoices. If the new tenant improvement costs go over the $8,333 allowance, then Main Street Flowers will have to pay the difference.

T.I.'s are a great way for commercial property owners to build repor with their tenants, while providing fresh new property upgrades as they are needed. The property continues to be upgraded, the tenants business continues to prosper and the owners continue to run and operate a very nice and well maintained property with happy tenants. Thanks for reading!

- tj -
www.commercialbloggers.com