Are You Thinking About Investing in Commercial Real Estate?
So, you think you want to own commercial real estate? You think this just might be your ticket to financial freedom? If you are new to this type of investment, do not try and do this alone. Just like you would not perform your own root canal, or appendectomy, why do you think suddenly now you can invest in commercial real estate without professional help? Do you buy apartments, industrial, hospitality, flex, office, or retail? What is the CAP rate? Can you get a 10% cap rate? Do you even know what CAP rate means? Is it a Net lease or triple Net Lease? Do you know what inspections to perform from a liability standpoint? If you do, you are in a small group; if you don’t, please look for a professional Commercial Broker to help you - not someone who sold you your home. So, what do we start with:
- Property Type
You have several types of housing you can choose from but at the end of the day they are all housing units that people use for shelter to live in. Commercial property varies greatly from use, style, construction, zoning, etc. You can own industrial, flex, professional, hospitality, apartments, warehouse, retail, etc. Do you have knowledge to understand the unique qualities and issues behind these different commercial property types?
Location historically has been at the top of the list on where to buy or lease. Today, technology and the pandemic are impacting location and like never before. For example, just a year ago office space in downtown Manhattan, New York City was priced at some of the highest office and retail space in the world. Today, Manhattan looks quite different with a large portion mostly deserted, with high-end retail stores still have windows boarded up from rioting and looting. So, what is that “location” worth today a year later? Has the supply and demand for this property gone completely upside down in less than a year? You must understand your locations as it pertains to the current demand?
- Consumer Behavior Changes
Zoom, Amazon, curbside pickup, autonomous, pandemic. All words that have made consumers change how they work, shop, eat, travel, and where they will live going forward. Understand that consumer behavior drives commercial real estate and you need to understand the impact; to my comment of seeking out professional help. How does future “growth”, either up or down, impact your consumer investment going forward. What are the trends in consumer behavior, and will a traditional mall exist in ten years?
- Physical Construction
Know what your building is made of, from, and what risks you could have. This gets into environmental, power source capacity, “bones” of the property, types of roof, heating and cooling systems and the cost associated with all of these.
- Property Management
Do you want to play landlord, or would you turn over your day-to-day responsibilities to a management company? Again, this depends on what your experience is and tolerance for dealing with tenants, contractors, and municipalities? The type of property you are looking at also requires different management. If you own a 32-unit apartment building your phone is going to ring – a lot. If you own a building with a warehouse distributor under a triple net lease, this will be extremely different.
Commercial property can be a tremendous asset in your investment portfolio mix. The landscape of commercial property continues to change, and consumer trends will continue to impact these changes in ways we have not yet seen. “If” you still want to look at commercial property or if you own commercial property and not sure what you should do now, reach out to a professional Commercial Real Estate Broker and get the help you need.