COMMERCIAL REAL ESTATE
DEFINITION of ‘Commercial Property’ Real estate property that is used for business activities. Commercial properties fall into many categories and including industrial properties, shopping centers, farms, offices, or even vacant land. Common examples of commercial property include the grocery store you regularly visit and the office buildings found near major urban centers.
Office Buildings – This includes single‐tenant properties, small professional office buildings, downtown skyscrapers, and everything in between.
Industrial – From smaller properties, often called “Flex” or “R&D” properties, to larger office service or office warehouse properties to the very large “big box” industrial properties. An important, defining characteristic of industrial space is Clear Height. Clear height is the actual height, to the bottom of the steel girders in the interior of the building. This might be 14‐16 feet for smaller properties, and 40+ feet for larger properties. We also consider the type and number of docks that the property has. These can be Grade Level, where the parking lot and the warehouse floor are on the same level, to a semi‐dock height at 24 inches, which is the height of a pickup truck or delivery truck, or a full‐dock at 48 inches which is semi‐truck height. Some buildings may even have a Rail Spur for train cars to load and unload.
Retail/Restaurant – Pad sites on highway frontages, single-tenant retail buildings, small neighborhood shopping centers, larger centers with grocery store anchor tenants, “power centers” with large anchor stores such as Best Buy, PetSmart, Staples, and so on even regional and outlet malls. With my 25 years of experience in the Hospitality Industry giving you the Advantage. Click Here to LEARN THE REAL STORY
Multifamily – Apartment complexes or high‐rise apartment buildings. Generally, anything larger than a fourplex is considered commercial real estate.
Land – Investment properties on undeveloped, raw, rural land in the path of future development. Or, infill land with an urban area, pad sites, and more.
Miscellaneous – This catch-all category would include any other nonresidential properties such as hotel, hospitality, medical, and self‐storage developments, as well as many more.
If you’re an investor looking for a sound investment, or if you’re a business owner looking to invest the money you would normally spend on a lease, then buying a commercial property can offer a viable business opportunity. Before you buy a commercial property, it’s essential to understand that you’ll not only need an accurate estimate of the costs and benefits, as well as the potential return on investment, but also the assistance and advice of qualified real estate professionals who understand the commercial real estate market.
Determine whether you want to buy a commercial property to conduct your own business operations or to lease to another party. If you’re going to use the property for your own business operations, you’ll need to find a property that meets all of your business’s demands pertaining to location and accessibility, amenities, and commercial zoning.
If you want to lease the property to another business, possible types of property include those that are appropriate for office, retail, or industrial use. Each type of property will attract a specific type of business and require a specific kind of investment and management.
Investigate the benefits and risks of buying a commercial property. It’s best to assemble a team of experts to assist you with this, including an accountant, lawyer, and mortgage broker. Oh, don’t forget your Realty Nerd.
When buying a commercial property for your own operations, benefits can be that you’ll gain more returns on your investment than you would from leasing, and you can claim property depreciation as a deductible when you file taxes. In addition, real estate is a sound asset that adds to your company’s equity.
A risk can be that the returns aren’t as good as projected. Whether you’re leasing the property to another business or looking to resell it after a period of time, it’s important to understand that tenants may not always pay on time, and reselling can be problematic if the market is experiencing a slump.
Other risks to consider are loss of liquidity, meaning that your business’s finances will to a certain extent be tied up in the property, and that the property’s location may become less attractive over time due to infrastructural changes or devaluation of areas.
See how much you qualify for by visiting a bank. Once you know the amount you can borrow, you’ll be able to narrow your search to commercial property that fits in your price range.
Select a commercial real estate property. Make sure it meets all of your demands in terms of location, accessibility, condition of the property, commercial uses, and reselling value. It’s also a good idea to check local development plans to see how current and future plans will impact the value of the property and to do a title search to make sure there isn’t a lien on the property due to a previous owner’s payment defaults.
Review the sales contract with Myself and lawyer. As a Broker, I have training and can help get the contract (also called an Agreement of Purchase and Sale) ready to take to a lawyer.
Marketing commercial property had become a twofold process the combination of little old fashioned marketing techniques and new technologies used to market your property which is changing at an expedition pace, remember as your Realty Nerd I’m always learning and researching new and innovative ways. Staying in tune with these technological changes is a fundamental part of my philosophy. From using Social Media to a Networking call list and everything in between ( Trust me there’s a lot out there). I have a marketing plan for your business, property or both.
Don’t resign yourself to a slow start, but have your ducks in a row, just in case. When making a professional or personal transition in life, a safety net is always helpful — big moves can take time. No matter how much you know about commercial real estate, it’s important to remember that it can take longer to move commercial listings than it generally takes to move residential listings. Be prepared to weather that storm.
Commercial real estate comes with a lot of nuances when it comes to commercial use and zoning. In order to effectively serve your clients, you’ll need to be up to date. Talk to your local zoning officer about individual properties and any upcoming changes. Gather all of the necessary documents for a property before listing it. Recent documentation will give prospects the data needed to secure a preliminary mortgage and hop right into due diligence and closing. A few documents you may want to include are the rent roll, previous appraisals and environmental studies, a copy of the title deed, permits for any recent site alterations, and copies of previous leases, utility bills, and tax information. Putting a package together will increase the probability of making the sale go smoother.
A commercial lease is a written agreement between a landlord and a business tenant. This legally binding contract allows you, as the tenant, to use the commercial premises for your business activity for a specified period of time by promising to pay an agreed-upon rate to the landlord. Leasing commercial space is often a two-part process. First, you sign the offer to lease. Then, after negotiations take place, you sign the lease containing the details of the negotiations. LEARN ABOUT Single vs. Double vs. Triple Net Leases: An Overview
Here are a few items to keep in mind as you investigate commercial property:
- Be ready to negotiate. You are not expected to agree to all terms immediately, so be prepared to go back and forth.
- Take the time to understand what is included in your lease. Go through it carefully with Real Estate Professional and on your own, then with your team of professionals (lawyer, accountant, property inspector, etc.).
- Always get decisions and changes in writing — a verbal agreement may not stand up in court.
- The amount of rent you pay is important, but other aspects of the lease are also significant.
- Be prepared to walk away.
Things to consider when signing a commercial lease – There is no such thing as a standard commercial lease, but there are common points covered by most leases. Commercial property leases can include the following items:
Term – You will occupy the premises for either a fixed or renewable period of time. Your lease may be month-to-month or for a much longer-term. The clause describing the term of your lease may include renewal options.
Rent – Commercial rents are usually based on the size of the space or the square footage. Your landlord may add operating costs to this base rent.
Various types of commercial leases involve different rent calculations:
- Percentage rent lease — If you own a retail business, you might pay a base rent plus a percentage based on your sales.
- Gross rent lease — You pay a flat rate equal to base rent plus other specific expenses. The landlord pays the other operating costs.
- Net lease — You pay some of the taxes plus the base rent.
- Net-net lease — You pay base rent, taxes and insurance costs to the landlord.
- Triple net lease (net-net-net) — You pay base rent, taxes, and operating and maintenance costs.
Space and Services – Does your lease cover the actual square footage? It never hurts to take measurements. Which common spaces are included (washrooms, lobby, etc)?
Find out whether the following services are included:
- Parking — Is there enough for all tenants and their clients?
- Heating, ventilation and air conditioning — Is this a 24-hour service?
- Cleaning service for common spaces
- Snow removal/grass cutting/landscaping
Healthy Features – To help keep you and your employees healthy, look for building features such as:
- Indoor stairwells that are designed for everyday use
- Standards for indoor air quality
- Smoking restrictions near doors, building air intakes and operable windows
Also, it may be useful to find a building near amenities such as:
- Public transit
- Safe and appealing walking/cycling routes
- A park or fitness options
- Healthy food options
Type of business permitted to operate on the premises – You may need to write permission to use the premises for any purpose other than the original one. Find out if there are restrictions that could limit the future direction or expansion of your business.
Repairs – Determine which repairs are your responsibility and which are your landlord’s.
Leasehold improvements – You may be allowed to make some changes or improvements and install equipment. Will these fixed assets be yours or will they become the landlord’s property if you leave? Will you have to restore the property back to its original state?
Some fixtures are included in the property, such as built-in items that would damage the premises if removed. Make sure you know what you can take with you and what you will have to leave behind.
Subletting – If your business expands, you might outgrow your space before the lease ends. You may need to sublet the premises, so it is a good idea to work this into a clause in your lease. It may be okay to assign the lease to your own partners, subsidiaries or anyone with whom you merge, but you may not be allowed to sublet to anyone else outside your business without the landlord’s consent.
Insurance details – What is covered by your landlord’s insurance? You may be responsible for paying for repairs to anything not covered by this.
Taxes – Will your landlord pay all property taxes? Are you responsible for any municipal taxes?
Utilities – Any utilities that you must pay for, such as water, electricity, sewer, gas, phone, etc., should be listed. Your landlord may pay for anything that is not metered and then bill you accordingly.
Other items to consider – These may include details about:
- Options for the first refusal if more space becomes available
- Building rules
- Damage and destruction
- What happens if the building is condemned
- Escape clause (in the event you become unable to run the business)
Because commercial leases can be complex, always enlist in the aid of experienced professionals for guidance. Before signing any commercial lease.
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