How to Buy Commercial Real Estate For the First Time
“Hey Peter, I want to get in to commercial real estate and buy a building, can you help me?” I hear this refrain often from colleagues, friends and family. The short answer would make for a BORING and not very helpful blog. “Yes, yes I can help you”. Blog over. Just kidding. Listen, while we CAN help you buy a commercial building I believe it is imperative for you to help yourself first! There are several steps to buying your first commercial space and many questions to be answered. While this may not be a “complete” guide it should get you started.
Steps to Buy Commercial Real Estate
1. Learn some commercial real estate vocabulary.
ROI – Return on investment
NOI – Net Operating Income.
CAP Rate – Capitalization rate (One way to determine if the investment makes sense)
Cash on Cash Return – Annual income on investment over a year.
Ad Valorem – Basis for taxes
Rentable Square Feet versus Usable.
The list is endless but locate and learn the basics. You would not want to invest in something you do not understand. No need to go get a commercial real estate license … however, an educated buyer always makes better decisions. And I am assuming that you do want to sleep at night, correct?
2. Get Clear on Your Goals
What do you want? Simple question…leads to an awful confusing answer sometimes. In commercial real estate we work backwards. We work with the end in mind and then go out and assist you in accomplishing your goals. Are you wanting to lease it out? Are you looking to be an owner and have your office in the building? What is the plan with your accountant? Are you willing to be a landlord? Will the building numbers work in your proforma? Are you considering a partner? What is the exit strategy? What is your situation regarding cash? So many questions….but to be CLEAR in vision is most important.
3. Be Sure to Get Out and See the Market.
A well informed buyer always makes better choices. Get out and visit buildings similar to the one you are considering. Be sure to really understand the market. Once you do you are then able to analyze the numbers with better clarity. You can feel more comfortable in your decisions….remember that good night of sleep we were discussing?? Even in commercial real estate the old adage of Location, Location Location still stands. To be certain, it is still the most important ingredient in a good real estate decision.
4. Your Team.
Early in the process, possibly the very first thing to do is to assemble a great team. A team that works well together in a collaborative effort to defend your money. Yes, defend. There are a lot of moving parts and one can spend a lot of money on needless items throughout the process. And sometimes… sometimes it just makes good business sense to walk away from money spent in an effort to not spend more bad money. Your team should be able to help you. Who is on your your team? Your Lender. Your Broker. Your Accountant. These 3 hires are critical. Many people say that you make your money when you buy your property (in other words if you buy it correctly you later can sell for a profit), I would argue that you make your money when you hire the RIGHT people to help you.
Step #1. Find a great lender. One that has the heart of a teacher. One that will be brutally honest with you. One that is willing to speak to your accountant or financial advisor along the way if need be. So many people just hire a friend or someone that was recommended to them (by someone that has never done a commercial real estate deal) or just use their Big Bank that they keep a personal checking account at. DO NOT DO THIS. Ask around. Randomly call a few commercial real estate brokers and ask who they use. Ask your Broker for 2-3 names. Interview them. Have your financial advisor interview them. Your advisor may have someone. Take this seriously. It is important!
In commercial real estate you may not go straight to writing an offer after you found your dream location. You will likely write an LOI first. Wait….just wait. I know you want to know what that is. It is a Letter Of Intent. This letter is drafted typically by your Broker. It lays out only the Big Rocks….not the details. Price, timelines, commissions, deposits, etc…. When both parties agree to the LOI there is typically a 30 day window in which they will then work towards drafting a formal offer. This offer is likely going to be drafted by the attorney. This is the formal legally binding agreement. It will contain the details.
If you are ready to take on the process of buying commercial real estate….let’s chat. Call us today and let Kima Commercial at KW Commercial become your resource for all things commercial!
Go get em!
MY Goodness, look at the growth in Raleigh! Opportunity Zones, Beer, Buses!
What’s Happening In Triangle Area Commercial Real Estate:
Invest long term in more under performing areas of our country and be rewarded handsomely with tax incentives. Your federal taxes will be waived (some). The hope is that some investment dollars will be redirected to regions that typically do not see them. The IRS says the goal is to “spur economic development and job creation in distressed communities”. While we may question some
Opportunity Zones in NC
of the areas chosen to be opportunity zones (East Franklin Street in Chapel Hill and the Durham Bulls Athletic Park area) there is no questioning that the large majority of opportunities zones are in areas of needed growth or redevelopment. How do they work? Well, an investor can take A property, sell A property and take the capital gains from that real estate deal and invest it in to an opportunity zone (B property). Once A is sold, get a reduction in original capital gains tax and then pay no taxes on the capital gains of the sale of B property. One could essentially pay less in taxes to sell B (the higher investment) than the sale of A. Want to know more? Contact us at Kima Commercial and let’s chat.
200, 206 and 210 S. West Street Raleigh, NC – 40 Story Tower?
Raleigh’s new Transportation Center plans are YUGE (said in President Trumps voice). These 3 contiguous properties are being considered for a rezoning that would allow for the new HUB to have a 40 stories! That’s more stories than James Patterson could tell…bad attempt at
Raleigh Union Station
humor, I know. The Research Triangle Regional Public Transportation Authority – known to the rest of us as GoTriangle – is asking for the rezoning so that a 40 story Bus Transportation HUB can be built. The skyline is changing in the Raleigh warehouse district. Conveniently the new station will be placed right next to the Raleigh Union Station. Best part? The rezoning includes a residential component and AFFORDABLE HOUSING! The applicant has indicated that they intend to retain the historical significance of the surrounding areas.
NC State’s Hillsborough Street Gets
93 New Luxury Condo’s Correction 180 Apartments!
Yep, if you have not driven up and down historic Hillsborough Street near the campus of North Carolina State University lately you may not recognize it any longer. And if you are one of “those” people that don’t venture back to campus very often you may fell, well, lost. Adding to the make-over of the prodigious street is a new project featuring 93 luxury condos named The Turnhill at the corner of Hillsborough and Turner Streets. The 1.72 acre assemblage was purchased and approvals given….WAIT! What? The developer is shifting gears and now that tract will be home to 180 apartments for rent. Location. Location. Location. The rezoning to NX-5 will allow for a 5 story building. Three blocks from Meredith Collage and certainly placed, we expect this one to be a success.
Hillsborough Street, Raleigh NC
Wake Forest, NC – Come Get Your Brew On?
The once sleepy little town of Wake Forest, NC actually may have a “scene”? What? In the early 2000’s the only places to meet out for a “cold one” we a few hidden bars no one talked about publicly and the soon to open Applebees! Insert that sound of a cassette tape fast forwarding here – Gang, not only is there a wonderful scene for those that like to have a cold beer, a glass of wine or maybe something a little stronger with places like White Street Brewing Co., Bodega’s, Over The Falls, Tonic, Real McCoys, Gatehouse Tavern and several others…TWO new places are coming to town. Almost ready to open is The Lonerider itself.
Lonerider Tap Room
Tap Room at the old go cart place at The Factory. And Pam Tarangelo is selling La Foresta to what rumor claims is full Brew Pub. Stay tuned as the once Nearly dry town continues to reinvent itself. And if you want to discuss any of this in person, please contact our team here at Kima Commercial. As a part of KW Commercial Internationally, we have the resources to assist with all of your needs.
One of the most basic datasets considered when a client is thinking about purchasing land to build or expand a company is the population and growth of the surrounding community. Among other things, clients want to know:
- Are there enough people to supply an immediate demand for their products/services?
- Is the area growing, and will that growth be sustainable?
- Will the growth trends contribute to a long-term demand for their products/services?
We can easily help clients find data detailing different types of growth—increases in population, new businesses, and household income; pending residential/commercial development; etc.—but because we want our clients to be successful, we encourage them to consider not just the growth itself, but also what fuels that growth. It is frequently the overall “quality of life” that most affects an area’s growth and contributes to a company’s success or failure. A few factors that contribute to an area’s quality of life include:
- the quality of public education
- proximity to and quality of higher education institutions
- social opportunities through local customs and traditions
- recreational activities and the ability to connect with nature
- suitability for families
- cost of living
Since most of our team members have lived in the Triangle area for many years, we can personally—and easily!—elaborate on the quality of life the area affords. But we wouldn’t expect our clients OR you to just take our word for it! Experts from around the nation, even around the world, have researched the Raleigh and Wake Forest areas and have drawn their own conclusions. Let us share with you a little bit of what THEY have to say!
- In what may be the most current praise, Raleigh was ranked just last month (March 2019) as having the 3rd “Best in Quality of Life in the World” by NUMBEO. FYI, this twice-annual accounting ranked Raleigh between 2nd and 3rd for each of its last FIVE reports!!
- Kevin Litwin’s July 2017 article, “Why Wake Forest, NC is a Great Place to Live”, for com sites several reasons for his claim, among them the median annual income and high education level of the population, but it also includes fun stuff, like the vibrant downtown and numerous nature and cultural opportunities.
- Raleigh ranked #2 on the October 2018 “Forbes List for Businesses and Careers”, in part because they were the “most consistent performer” for 16 straight years. This ranking from Forbes was Raleigh’s third straight trip to the #2 position due to the “strong economy and educated workforce”.
- In February 2019, Chris Kolmar compiled com’s fifth edition of “These are the 10 Best Places to Live in North Carolina for 2019”. Six of the “10 Best” are located right here in the Triangle…including our lovely Wake Forest!
- In a November 2018 article by Shaina Mishkin and Allana Akhtar, Money Magazine puts Raleigh in the #2 spot of their “10 Best Big Cities to Live in Right Now”. Part of their reasoning for such a great ranking includes Raleigh’s job growth record of 17.25% in the past five years, as well as its cultural offerings. The article cites one of Raleigh’s nicknames, “Smithsonian of the South”, reflecting the numerous museums available in Raleigh, often free of charge!
- Cheria Brickhouse ofcom used six criteria to complete the site’s February 2019 ranking of the “2019 Most Family-Friendly Cities”: school quality, park availability, cost of living, safety, childcare availability, and commute length. Raleigh came in at #2!
- For clients who need a strong, “fresh out of the gate” workforce for their company, again, Raleigh’s got them covered! Raleigh ranked 10th in MarketWatch’s May 2018 ranking of “The 10 Best Cities for New Grads Starting Out”. In his summary, Andrew Wang cites the offices of “numerous multinational companies in technology, life sciences, and finance”.
There are many, MANY other articles we could site—there’s no way we could list them all! You can check out some of the info on Raleigh here and on Wake Forest here, and of course, you are always welcome to give us a call!!
$52.35M SALE SHOWS CONTINUED INTEREST IN TRIANGLE MARKET
W.P. Carey Inc. recently paid $52.35 million for a large office building located well at 3900 Paramount Parkway in Morrisville, NC. W.P. Carey, a net lease real estate investment trust…one of the largest in the country…acquired the significant property in Morrisville proving that the entire Triangle region continues to pace and attract investment from major players from other parts of the country. Currently the property is home to Pharmaceutical Product Development Inc. Headquartered in Wilmington, NC they are a player in the research healthcare provider market.
Built in 1998, at time of sale the building was had an assessed value in the $29 million dollar range. Featuring 224,880 square feet inside, the land had a value of $2.4 million.
3900 Paramount Parkway – Morrisville, NC
Legacy @ Brier Creek Sells For $34.1 Million
Legacy at Brier Creek celebrated a one year birthdate recently with a successful sale. Heritage Properties Inc. sold the fully leased building to a company owned by insurer Zurich North America. It appears to be a smart purchase by the Zurich owned company as there remains space to add a second building. The land that the building sits on…nine acres…is nicely situated on the lot facing Brier Creek Parkway.
The $34.1 million dollar deal is just another example of foreign and out of state investor money coming to the Triangle. The $28+ per foot average lease rate puts Legacy at or near the top of the market that extends down Glenwood Avenue in Raleigh. Fully leased with excellent tenants that include yours truly along with Keller Williams Preferred Realty, Infosys (a tech consulting services company) and IRS and Sage Therapeutics among others.
Kima Commercial, Llc. is poised to assist you with all of your real estate needs.