Do You Need a Commercial Real Estate Broker to Sell Your Land?

Yep, You DO Need a North Carolina Commercial Real Estate Broker to Sell Your Land!

Commercial land transactions that did not end well are a leading contributor to the use of error and omissions insurance claims!  There are so many variables in a land transaction that it pays to have someone experienced leading, guiding, educating and closing the sale for you.  In the state of North Carolina we have seen far too many agents not educated in the potential intricacies associated with the purchase or sale of land.  Often times the broker is a residential only agent that see dollar signs in front of them.  We all understand this and many have been down this road.  Heck, we know great land brokers today that once started that way and came through unscathed.  But we also know brokers that have gotten in over their heads and ended up regretting the fact that they attempted.  In many cases the client just moved on and a relationship was damaged.  Often times the Broker has waited too long and the damage has been done.  In which case, hopefully the Broker has good E&O insurance.

Land? Help me sell it!

Of course we want to determine the highest and best use of the property in question.  But there are so many questions to be asked!  Does the land have access to public utilities?  Who manages those utilities?  Are they onsite?  Which utilities?  How far from the subject property are the water main taps?  Does the water line need to be extended?  Are we are on a well?  Commercial septic?  Private septic?  Ingress and egress?  What will the municipality require?  How is the topography?  Are there wetlands?  What is the current zoning?  What is the tenor of the municipality regarding rezoning?  Special use permit needed?  What are the setbacks?  Do you know about any upcoming road changes?  What is DOT requiring?  Turning lanes?  Road widening?  Traffic signals?  Will you need curb and gutter?  Of course many of these questions are more about the end user developing the land if indeed the highest and best use is to develop it for commercial or residential purposes.  What about the things like the timber?  Is the land being used or leased for agricultural purposes?  Do you own the surface rights only?  Do you own all of the mineral rights?  Is any of the land in a floodplain?  Will it perk?  What about the impact of neighboring tracts?  Has anyone done a Phase I environmental study?  Is there rock on the land?  Does the property need to be annexed? Are there cemeteries on the land?  Are they of historical significance?  Is there historical significance of any kind on the property?  Easements and right of ways – have any been granted?

Topo

We recently sold and closed on a tract of land that experienced a delay in the process due to the fact that there was a small old (barely can find it) cemetery on the property.  When the state took a look they recommended that the state historical and anthropology department take a closer look.  For the next 30 days, while the Seller and Buyer waited anxiously, the anthropologists worked the soil to determine if there was additional historical significance.  Thankfully for us, we are now closed.  It is the unexpected contingencies that can cause stress if the buyer or seller are not prepared in advance.

Do not be blown away by Big Brokerages and/or Big Named agents.  While they may be the answer you are looking for and be a great fit, they may not be?  Ask them about the things above.  Ask them if they have ever sold any land and how those transactions went.  Ask them about the various contingencies that may present themselves.  The pint here is.  Find someone that will put the time in to “walk the land” and get to know it.  Someone that will help identify the various Highest and Best Uses.  Find someone with “reach” to investors and and users alike.  Someone that wants to list AND sell your property.  Not just list it.

Mineral Rights

Mineral Rights versus Surface Rights

If you have commercial real estate needs, please contact our team here at Kima Commercial @ KW Commercial.  Our team is ready to assist you in the pursuit of your real estate needs.

  • Raleigh commercial real estate  
  • Wake Forest commercial real estate 
  • Cary commercial real estate
  • Apex commercial real estate
  • Rolesville commercial real estate
  • Fuquay Varina commercial real estate
  • Morrisville commercial real estate
  • Garner commercial real estate
  • Holly Springs commercial real estate
  • Wendell commercial real estate
  • Zebulon commercial real estate
  • Youngsville commercial real estate

 

Raleigh’s RTP – Live, Work, Play

Triangle Commercial Bits and Pieces…

RTP Getting New Mixed Use Development

The largest research park in America is changing things.  Wait, that’s not right, America is changing things for the largest research park.  A new concept mixed use development is hitting the park!  Durham, NC is welcoming Beacon Properties Group and the mixed use development that will lay right along the busy 15-501 corridor looking to capitalize on new restaurants, variety of office space, hotel(s), and apartments.  It will be a walkable mixed us district and the first of it’s kind in the area!  Multifamily continues to expand in the Triangle market.  Just this week there are several on planning board agendas throughout the region including one on Rogers Branch in Wake Forest, NC.

North Carolina continues to grow quickly and remains on the top or near the top of many lists of best places to live and work!  This is a reflection of that very thing.

RTP Durham

View of RTP from the south

Featuring 57,000 square feet of retail and 25,200 square feet of office along with 17,000 square feet for restaurants and 300 apartment units, the project name, Oakridge will have major impact in our market.  The first of several?  We will see.

DOWNTOWN Raleigh By the Numbers….

While residential builders are helping change the face of the market near downtown Raleigh, it is the commercial impact that truly will drive the traffic to these homes!  What came first?  Chicken?  Egg?  Smoke?  Fire?   Residential?  Commercial?  Twenty nineteen has been a good year for Raleigh.  Hemp stores, cocktail lounges, new restaurants, new office space, etc…..  Here it is by the numbers according to the TBJ.

37 – Number of businesses closed since Jan 2018.

64 – Number of new businesses since Jan 2018.

15 – Number of storefronts closed in 2019.

20 – Number of new storefronts in 2019.  (We call that growth)

Triangle Rental Rates Up

The second quarter showed a boost in Triangle area office rental rates.  With the expansion of local businesses and the growth of outside companies coming in to the market, it appears that vacancy rates continue their decline.  Average Class A office rental rates climbed in the second quarter to $29 per square foot.  That is nearly a 40% increase from earlier in 2019.  Rates were holding steady over the previous year as well.  Again, we call this growth.  The economy continues to flourish!  Class A rates exceeded $32 per square foot in submarkets like downtown Durham, Six Forks/Falls of Neuse, and Raleigh.  Where would you expect the first over $40 per square foot to be recorded??  Yep, you guessed it, Kane Realty announced earlier that Tower IV at North Hills hit $41.50.

Trending up.  What goes up must come down…right?  Not in the near future experts say.  There are several proposed projects in downtown (remember the smoke versus fire thing earlier in this post?) that are likely to ask similar rental rates.

By the Numbers: 

7.5% = Class A vacancy rate across the region

3.1% = Class A vacancy rate in downtown Raleigh

Massive Development Project – Johnston County

Whew, this one took some time.  After a year plus of preparation, planning, designing, talking, drinking coffee, more talking, more planning…you get the idea…a new 470 plus acre mixed-use development in Johnston County has officially begun construction.

A 2.8 Million square foot project that will encompass the land running from exits 97 and 98 on I-95 near Selma.  Retail?  You want retail?  Okay, this feature a massive amount fo retail, restaurant, office medical space, hotels, senior living, residential development etc….A total of 1 Million square feet will be created.  Wow!  This isn’t your parent’s Johnston County!!!

Locals will enjoy a farmer’s market, farm to table dining options and other ways to make the residents and workers feel “grounded”.

 

What Are You Looking For?

Our team here at Kima Commercial would love to earn your business.  Whether you need land to build commercial space on, land for residential development, office, industrial, leasing, etc… our team stands ready and welcomes your business.  Our partners are all encompassing.  In other words there isn’t a commercial real estate team member we cannot bring to the table for you.  Meaning if you need a reputable commercial builder to build or do an upfit or just quote one for you, civil engineers, architects, inspectors, designers, etc…we can help.  Please feel free to visit us at one of our two offices.  We currently run our day to day operations for our commercial business out of the Brier Creek location in Raleigh and also have an office in Wake Forest.  We have sold all across the state of North Carolina and have resources across the country.

How Long Can A Good Thing Last? – A Market Update

How Long Can A Good Thing Last? - A Market Update

How long can a good thing last?? Our nation has enjoyed a bull market for nine years—the second-longest stretch since World War II! With such a mix of things to consider these days—low unemployment, increased wages, the impact of new tariffs, new tax laws—individuals and businesses alike are figuratively holding their breath as they wonder how long it can go.

Predictions for the continuation of the bull market were carefully made in LPL’s March 5, 2018 and March 12, 2018 publications. (Note: These predictions were made just as the tariffs on steel were being announced, and before the announcement of trade tariffs on competing countries, so the market fluctuation experienced in the past few weeks due to these tariffs are NOT considered in their analyzation. It will be interesting to see how these changes play out among the indicators by the time of LPL’s next analysis.) To make their predictions, LPL analyzed and explained what they call the “Five Forecasters”: the Conference Board’s Leading Economic Index (LEI), the US Treasury’s Yield Curve, market breadth, market valuation, and the Purchasing Managers’ Index (PMI).

The LEI is a grouping of ten different economic indicators, “including data on employment, manufacturing, housing, bond yields, the stock market, consumer expectations, and housing permits”. In part because it is so diverse, it gives a solid snapshot of the economy’s general health, and has proved to be quite reliable in predicting early warnings of a recession. As of the latest reading, conducted in January 2018, LPL asserts there is a “low probability” of the US going into a recession over the next twelve months.

The US Treasury’s Yield Curve is said by LPL to be “one of the most reliable leading indicators” of an impending recession, as for the last 50 years, the curve has batted .1000 in this arena. When the Federal Reserve raises the short-term interest rates above the long-term interest rates, it creates what’s known as an “inverted yield curve”, and every time this has happened in the last 50 years, a recession has begun within 5-16 months. Right now, the curve is still “fairly steep”, and the estimation is that it could be at least two years before the Feds could raise the short-term rates high enough to trigger the inversion, suggesting the bull market may have quite a ways to go before it is finished.

Market breadth is measured by the number of stocks climbing in value as opposed to falling. As of LPL’s latest analysis in early March, there were no “major warning signs or any concerning divergences” between the breadth and the NYSE Composite Index, which is the comparison for this particular analysis tool.

The Purchasing Managers’ Index (PMI) is based on the “front lines” of manufacturing, despite the fact that manufacturing does not make up a large portion of our economy when measured by GDP. Why? Because the “demand for manufactured goods has been a timely barometer for all types of economic activity in recent decades. In the past, the peak of manufacturing has preceded recession by a period of nearly four years. LPL attests the PMI shows there is “no sign yet of a meaningful peak” in manufacturing, indicating the bull market is still running strong.

Market valuation—though not effective as either short-term or intermediate investment timing tools—have been “solid indicators of long-term stock returns”, and are therefore strategically quite useful. This indicator is the ONLY one of the five indicates a bear market may be coming soon. The reasoning is that price-to-earnings ratios are typically high at the end of a bull market, and that is the case at this point in time. However, as earnings estimates rise—as they have done “significantly” in 2018—this ratio becomes more stable and nearer the long-term averages, thus removing any cause for an earlier-than-anticipated end to the bull market.

Now, what does all of this financial mumbo-jumbo mean in terms of commercial real estate? If you’re a CEO or a Developer, it means you need to strongly—and perhaps quickly—consider your growth plans. Although purchase prices are up from the “dirt cheap” prices of years past, the market is still on an incline and property values have not yet hit their high point, so it’s reasonable to expect prices to continue rising until the market officially shifts to a bear market. All things considered, it’s still a reasonably good time for land transactions.

We look forward to working with you!

Understanding Capitalization Rates and Debt Coverage Ratios

Understanding Capitalization Rates and Debt Coverage Ratios

Capitalization Rates or “Cap Rates” and Debt Coverage Ratios or “DCRs” are highly effective and popular commercial real estate metrics that can be used for valuation analysis of real estate, property trends, and to help make purchasing decisions. Provided below is a basic overview of how Cap Rates and DCRs are utilized.

First, what is the definition of a cap rate and what is the formula for determining a cap rate? The definition of a cap rate is the ratio of Net Operating Income to the Asset Value. To obtain the cap rate, simply use the following formula: Cap Rate = annual net operating income/cost (or value). For example, if a property is on the market for $1,000,000 and the net operating income is $150,000, the cap rate is 15. Using another example where the net operating income is $7,000 and the property is listed for $100,000, the cap rate is 7.

cap rate definitionSo what can we learn from using cap rates and what do they tell us about a potential real estate investment? One thing we learn from the cap rate is the return on investment an investor can expect to earn on a purchase using all cash. The examples in the above paragraph would, therefore, yield returns of 15% and 7% respectively. Another thing a cap rate is helpful for is evaluating risk. For example, two equally sized office buildings in the same neighborhood can be evaluated for risk based upon cap rates, all other things being equal. The higher the cap rate between the buildings, the greater the risk premium. Investors often use cap rates to evaluate the risk of certain investments in making decisions about their portfolios.

Cap rates can also help to identify trends in a particular market over time. For instance, if cap rates are trending lower in a market over a period of a few years, the market is growing more competitive. Whereas, higher cap rates over the same period indicate less competition for that particular product. This, therefore, provides some insight into the performance of the particular markets over this time period. Utilizing this simple analysis can help to evaluate risk for the purchaser.

It is important to remember that cap rates are much more accurate an indicator of property performance when the source of Net Operating Income is relatively steady. A discounted cash flow analysis may need to be used when a Net Operating Income stream is complex and/or irregular.

Another example of important real estate investment metrics is the debt coverage ratio or DCR. Examples of how the DCR is utilized are outlined below.

The Debt Coverage Ratio (DCR) is used to determine the ability of an income stream from a property to pay its operating expenses and mortgage payments. Banks and investors will set a limit on their tolerance for this ratio and expect a particular project to remain at or above this ratio for the duration of the loan or investment term.

The larger the DCR the better the investment is covering its debt service. A DCR of 1 means that the investment is meeting its obligations to the bank or investor but with no free cash flow left over. Therefore, it is not unusual for a bank or investor to require a DCR of 1.25. This provides 25% of each dollar in excess of expenses as a cushion for the bank or investor. To calculate the DCR, simply add all operating expenses and debt service, including interest, and subtract them from gross revenue. This leaves Net Operating Income. An example of a DCR of 1.25 would be Net Operating Income of $150,000 on Debt Service of $120,000 ($150,000/$120,000 = 1.25). This simple calculation can be critical when pre-qualifying your investment to ensure you are heading down the correct path. As interest rate and amortization are functions of this ratio, these are important to consider when calculating your DCR.

Utilizing Cap Rates and Debt Coverage Ratios will often be the first things your commercial real estate broker will do for you when assisting you with your project. Therefore, it is important to utilize a professional when determining the best plan of action for your commercial sale or purchase.

We look forward to working with you!

How Will Cyber Tech Affect Real Estate in 2017

How Will Cyber Tech Affect Real Estate in 2017

Many different analysts are saying the cyber tech market is going to grow this year! Here are some of the sub-headings of the Kiplinger Letter, dated January 6, 2017:

  1. When Donald Trump takes office on January 20th, he’ll face a slew of urgent cyber threats
  2. [Trump’s] First task is dealing with foreign hackers
  3. Another challenge: Aging federal computers
  4. Look for Trump to roll out a cyber-security strategy yearly in his term
  5. When it comes to the alarming state of federal IT, big changes are on tap.
  6. An overhaul of the world’s largest IT system will dragon for a year

These are just a few article titles floating out there. How does this affect Real Estate agents and investors? Well, if you live here in the local Research Triangle Park, you need to understand what is happening all around us. All information leads us to one conclusion: there will be a LOT more start-up IT companies that will need space to run and grow their companies. More companies will be looking to secure government contracts as the White House rolls out their plans. The larger, more established IT firms will have a push for growth, which will lead to building expansions and new construction. However, the predictions show a steady influx, not a rapid, out-of-control growth in the IT world. Investors and Developers need to act accordingly to this need in our market place. A great resource of knowledge is your local Commercial Real Estate company. One that comes to mind is Kima Commercial. Kima Commercial has a great deal of market knowledge and well-trained commercial brokers. The key word here is commercial. You will want to hire a commercial agent, not just a residential agent who is playing around with commercial real estate. Commercial real estate is a completely different process that has to be learned by actual experience, rather than simply passing a state exam.

If you are in the market to buy property or to buy an existing building, we would recommend the well-qualified Kima Commercial team!

Forecast of the2017 housing market!

A quick glance at the housing projection for the year 2017:

Single-family projections are about 865,000. If we hit these numbers we will cap out above last year’s numbers of 783,000.

Multifamily new starts are holding about the same as last year. The forecast is for about 390,000 versus 385,000 last year.

New-home sales are also predicted to be up from last year, at 635,000 versus 561,000

This year’s forecast for existing-home sales are 4.6% versus last year’s 4.3%.

The market demands are growing. Builders are struggling to keep up with the demands. The demand for buildable lots is high. Even if you can obtain the material and workers to construct a new home, it does not mean you can find a good lot. We foresee the need for commercial agents to step in and find great lots that are for sale. If you find an agent who is good at this type of property search, you should hold on to them. Kima Commercial is, simple put, one of the firms that understands the need for a great commercial agency. The developers need great agents and Kima Commercial has them. Our home value will grow throughout the year 2017 up to about 5%. Starter homes will increase in value faster because of the shortage of product on the ground. Even the larger homes of over $500,000 will show a steady increase in 2017. Markets that are seeing major growth will continue see growth, and markets that might have been viewed as slow will not be this way in 2017. The average home size in 2017 will decrease, which is being caused by the supply and demand. Smaller home will sell faster and are currently in high demand.

We are seeing a major surge in the cost of lumber. The average increase was about 18%last year alone. This is partly because of the tariffs on Canadian lumber.

How high will interest rates go in 2017?

Another area that will change the demands in the market is the cost of money. Our mortgage rates will increase in 2017. This will slow the rate of refinancing and lower new loan origination. Interest rates will be something to watch closely during 2017.

A great way to navigate through these waters is by enlisting help from many different groups and people one of which is a commercial real estate agent. At Kima Commercial we have great access to builders and engineers that can help a client make an informed decision on a building or property. There are so many things you should know before you purchase, and Kima Commercial is an easy way to make sure you get all the facts before you invest.

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Keller Williams Preferred Realty, 7920 ACC Blvd, Suite 210, Raleigh, NC

919-336-1700

Peter@KimaCommercial.com

We look forward to working with you!