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Category : FAQ: Common CRE Questions

Home/Helpful Resources & Links/Archive by Category "FAQ: Common CRE Questions"
FAQ: To Buy or Lease Commercial Real Estate

Should I buy a building or lease space?

by Compass Commercialon 23 August 2016in FAQ: Common CRE Questions

There are a few ways to look at the answer and it’s different for everyone based on your situation.   

Take a look at your current rent. What is it costing you? Speculation is that interest rates will likely rise after the election and borrowing money may become increasingly difficult. Buying or renting depends on the funds that are available to the tenant or buyer, and the best use of those funds based on their current situation.

“Usually startup businesses don’t have ample funds so they need to use those funds to grow the business, meaning they should rent,” says Herb Arathoon, CPM®, a regional property manager and broker with Compass Commercial.

On the other hand, Arathoon notes the tax benefits of owning.

“If a business is mature, generating a lot of cash, and the owner is paying a large percentage of his income in taxes, he should look into buying the building because then part of the monthly payment is going towards principal and he gets the tax write-offs of owning real estate.”

There are other advantages of owning the building where you operate your business, such as the preferential treatment by banks for the loan, less down payment required, better rates and you may qualify for an SBA loan.

Buying a building can offer a nice rental income when you decide it’s time to sell the business. Terms of a business sale could even stipulate that the business must remain in the building for a set number of years. Here are a few more questions to consider when you’re making the decision to lease or buy a building:

  • What kind of property are you looking for?
  • What are your longer term goals for the property as well as the business (owner/user, rental income, equity, etc.)?
  • Can you afford to buy the property? Do you have cash to buy outright, or for the down payment if you will need financing?
  • Are there benefits to the type of business that come from owning vs. renting?
  • How long do you anticipate being in the building?
  • What location is necessary (think of zoning, workforce, land-use permits, etc.)?
  • Would you be willing to partner with someone else on the property?
  • What’s your risk tolerance?
  • How much work are you willing to put into the property?
  • What kind of property manager might you need (or not)?

In essence, there are three parts to making the decision to lease or buy a property for your business:

  1. Scarcity or abundance of working capital
  2. Borrowing capabilities
  3. Time needed to run the business in addition to managing the building you own

It’s important to remember that being an owner takes time and effort. If you decide to buy a building with other tenants, consider hiring a professional property management company to free up your time to focus on the business and not the job of managing the property. Fear of property management should not be a factoring decision in whether you buy or lease. In most cases, a professional property manager can be retained for 5% to 6% of the rent.

A commercial real estate broker can help you evaluate each scenario and advise you on the best course of action based on your current situation.

Herb Arathoon, CPM® currently manages 20 properties including office, industrial and retail buildings. His duties include day-to-day management, emergency response, budget preparation, CAM/NNN report reconciliation, vendor hiring, common area supervision, maintenance and repairs for our clients.

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15 questions for a potential property manager.

15 Questions to Ask Your Property Manager

by Compass Commercialon 12 August 2016in FAQ: Common CRE Questions

page-asset-and-property-managementby Krista Polvi, CPM

When shopping for a commercial property manager, it is important to ask the right questions so that you know what you are paying for and the type of service you will receive.  There is a lot that goes into managing a property and it is good to have a clear understanding of what type of services are offered.

Here are 15 Questions that should help when interviewing a Property Management firm:

  1. How many people are in your property management department and how large is your entire company?

This is helpful to know so that you have an understanding of how much attention your property will get and if there is appropriate coverage when people go on vacation.  This also gives you a sense of the depth of experience and the stability of the company.

  1. How many years of property management and/or asset management do your property managers have? What sort of certifications and accreditations are held?

This also will give you a sense of the depth of the team and give you an understanding of their expertise and experience.  By asking about certifications and accreditations you will know what sort of industry education that has been taken and that they are abiding by the top industry standards.

  1. Do you have a full-time accounting staff?

A full-time accounting staff can be very beneficial to ensure top notch accounting for your property to assure accuracy and attention to detail.  This will ensure that your financials are completed correctly and that they have the staff to complete things timely and professionally.

  1. What financial reports do you provide each month and when can I expect my monthly reports?

This helps you know what to count on each month.  You will also need these reports for your year-end tax preparation and many times your lender will require review of the financials.  Finally, this will help you to review the specifics of what goes on each month with your property financially.

  1. How is the productivity of each of your Property Managers? What area do they manage, how many properties to does each Property Manager handle, what are the size and types of properties?

Answers to this type of inquiry will provide a general sense of the kind of workload each property manager is responsible for and how much time they will have to devote to your property.  Also, by knowing locations of their current properties you will get a sense as to how often they are near your property and can check in.

  1. Do you prepare an annual operating budget each year? If yes, when is this typically completed?

The annual budget acts like a road map for your property.  By putting the budget together, you and the property manager will know what to expect for the year and how to budget appropriately.  This is also important for establishing the CAM rate for the property.

  1. How often do your property managers visit each property on average?

By physically visiting the property, the managers can catch things that need attention and see potential problems before they become an issue.  This also helps in the tenant relations if the property manager frequently checks in with tenants to see how things are going.

  1. Do you have staff on hand for after hours and weekend emergencies?

This is very important as many times issues come up after hours and on weekends.  It is important to know that there will be somebody available “on call” to address issues that arise and get back to tenants who need assistance.  This will also give you the peace of mind that emergencies can be addressed at all times and you as the owner will not have to worry.

  1. Do you review and analyze vendor contracts to ensure quality and competitive pricing? What sort of relationship do you have with your vendors and do you get preferred pricing and service?

Property managers should bid vendor contracts on a regular basis to ensure competitive pricing and top notch services. Having a good long standing relationship with vendors translates to priority service to both you and your tenants. That means greater tenant satisfaction and retention. Additionally, by economies of scale and giving so much work to certain vendors, they likely offer priority pricing in exchange for the good business.

  1. Do you offer electronic rent payment options for tenants as well as ACH direct deposits for owner distributions? Do you have tenant and owner online portals?

This is a great feature for tenants as it makes their life easier.  They can log-in and pay their rent online via ACH and even sometimes use a credit card.  Rent payments are timelier as they can be automated, eliminating the time it takes for a check to be mailed.  Electronic owner distribution pays property owners electronically and eliminates their trips to the bank.  Overall, this just improves efficiencies of operations.   Online portals  allow tenants and owners to access information on their own.  Tenants can put in work order requests, check their balance due, and other pertinent lease information.  Owners can then pull up reports and have all the information they need at their fingertips.

  1. What other services do you provide, such as tenant improvement oversight, lease renewals, asset management, property tax disputes, etc.?

Having a clear understanding of other services a property manager provides can help you find solutions often through the same firm.  Many times you may need help with these other items and it is helpful to know the cost and if your PM can be of service or offer brokerage or construction improvement services.

  1. Do you provide a detailed property profile showing all pertinent information for the property along with a management plan?

A detailed property profile is very important as it shows a clear map of where all the pertinent pieces of the property are located.  For example, the water shut off locations for the building can be vital to know when there is a water line break and the ground is covered in snow.  This is very helpful in emergency situations and enables any property manager to find the information that is needed to resolve any issues.  Management plans also provide a good road map for the property to make sure the owner’s goals are properly accounted for.

  1. How do you charge for your services? Is it based on a percentage of gross rents or a minimum fee?

This is important to understand up front so you know how much you will be paying for management and how it can vary based on occupancy. This is also helpful in comparing management companies in understanding what you are getting for your money.

  1. Where are the majority of the properties you manage? Just in Bend or do you expand into Redmond, Prineville, and Madras?

This will give you a good sense of the range of properties that are managed and how far your PM has to travel.  If your property is in close proximity to other managed properties, you will know it may get more frequent visits.

  1. How would you rate your level of customer services to your tenant, vendors, and owners?

Customer service is extremely important, not only for tenant retention but also for vendor relations.  By ensuring that your tenants are heard and issues are addressed timely, you are more likely to have happy tenants that will want to renew their leases.  Vendor relations are also important here in order to ensure top notch service for your property. It is also good to get feedback from other owners to make sure that they are happy and satisfied with the service they have been getting.

Krista Polvi, CPM®  is a Partner, Regional Property Manager and Broker with Compass Commercial Real Estate Services. Read more about our Asset & Property Management services here.

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Opening a hair salon or microbrewery, know your SDCs to avoid surprise fees

by Compass Commercialon 22 July 2015in Advisor Insights, Construction Services, FAQ: Common CRE Questions

By Steve Hendley, Partner, Construction Services Manager

For tenants calculating business location expenses or developing a building for a particular type of use, plan for the inclusion of fees imposed by System Development Charges (SDCs), which can be significant.

Government agencies impose SDC fees to recover the cost of a particular user’s impact on public services such as water, sewer and transportation. Each type of use (i.e. school, manufacturing and heavy industrial, etc.) affects public services differently, and fees are calculated based on the user’s impact on those services as a monetary solution paid to the city.

Take for example, the SDC fees for the construction of a new manufacturing building. The transportation fee for a manufacturing user is assessed at $3,526.00 per 1,000 square feet.  A 10,000 square foot building then has a fee of $35,260.00 just for transportation system development.  Sewer and water in this example can add an additional $15,000 and $8,000 respectively.  SDCs in this example total and add $58,260.00 to the project cost. 

By Steve Hendley, Partner, Construction Services Manager For tenants calculating business location expenses or developing a building for a particular type of use, plan for the inclusion of fees imposed by System Development Charges (SDCs), which can be significant. Government agencies impose SDC fees to recover the cost of a particular user’s impact on public…

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6 Steps to Successfully Sell Your Business

by Compass Commercialon 28 May 2014in Advisor Insights, Business Sales, FAQ: Common CRE Questions, Peter May, CCIM

Compass Business Sales and Acquisitions

1. Expectations

After all the blood, sweat and tears you’ve put into your business, sometimes it’s hard to separate yourself to be able to accurately evaluate the true value of your business. We will provide a broker’s Opinion of Value based on industry comparable information, current market multiples, and buyer expectations of ROI and terms.

2. Data

We do all the fact finding to get your best price: inventory, lease terms, and financials. Then we put it together for buyers in a confidential marketing package.

3. Marketing

We realize the importance of discretion and confidentiality. ALL of your potential buyers sign NDA’s. We work our database, co-brokers, web and print to find qualified prospects.

4. Qualifying

All potential buyers complete a registration form, pass financial and credit screens, and are further qualified in introductions to you.

5. Negotiations

When it comes to prices and paperwork we facilitate the meetings, deliver the offers, craft your responses and requests and clarify contract terms.

6. Closing

A successful business transfer often involves attorneys, accountants, escrow agents and plenty of due diligence. We communicate all the way through, facilitating the countless details until you are closed.

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Ten Things to Know When Buying a Business

by Compass Commercialon 28 August 2013in Advisor Insights, Business Sales, FAQ: Common CRE Questions, Peter May, CCIM

Compass Business Sales and Acquisitions

By Peter May, CCIM

Buying a business can be a daunting task. Most buyers are faced with challenges they have never encountered. When you work with Compass Commercial we offer experience and sound advice to get you to your goals.

1. Goals

You’ll need to define and refine your goals in any business purchase. We help by asking about your preferred business type, your motivation and your requirements.

2. Finances

What can you pay? We help define what you can realistically acquire, including your ability to attain financing. We will educate you on financing availability and the terms of the deal.

3. Strategy

We work with you to outline a plan from the beginning of your search through business ownership. We make sure that you are positioned to succeed after the keys are turned over.

4. Team

You’ll need other professionals besides our brokers to pull a purchase together. We will guide you to professionals when it’s time to consult attorneys, accountants, bankers and other brokers.

5. Search

You may not feel comfortable contacting local businesses about their availability for sale. We do it all the time. As professional business brokers, it’s part of our job to contact specific businesses on your behalf in an effort to determine the current owners’ interest in selling. We are members of national business brokers’ networks, which allow us to cast a wider net if your interests grow outside Central Oregon.

6. Review

You’ll save time by having us drill down the facts and cull opportunities that are unrealistic or deceptive. There are some key indicators of stability (or instability) that we review and will bring to your attention.

7. Offer

We can work with your legal council to help craft the Offer to Purchase Agreement or use our standard letter of intent. We will help develop price and terms that make sense for you and promote your success.

8. Investigate

Offers are written with a window of time dedicated to Due Diligence. This process is key to determining the viability of the business and its fit for you. We know what to look for in discovery on your behalf.  You’ll avoid making a hasty or not fully informed decision.

9. Negotiate

Most buyers have never bought a business before and our expertise in this area can mean the difference of thousands of dollars. We genuinely strive to make the transaction truly a “win-win” for all parties.

10. Close

As they say, “It ain’t over ’til it’s over.” We can help facilitate this process all the way through to the signing table, communicating with the selling party to improve the chances of closing the deal. A successful and satisfying transfer is our goal.

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What is dual representation and is it legal?

by Compass Commercialon 20 May 2013in Advisor Insights, FAQ: Common CRE Questions, Ron Ross, CCIM

 

By Ron Ross, CCIM

It is a safe observation based on nearly 35 years of real estate practice that the vast majority of consumers, in this case real estate buyers and sellers; do not understand the concepts of  “agency”.  One might also observe that a significant segment, if not most, of licensed real estate practitioners do not completely understand the concepts of ‘agency”.   This is not so much an indictment of real estate licensees as it is a statement on the twisted, awkward, inconsistent and convoluted nature of agency laws that have been imposed on our industry by our esteemed governing and regulatory bodies.

Real estate brokerage is and always has been a commission sales business.  Brokers get paid zero unless they make a sale.  All brokerage companies train their people to sell, they are called real estate sales people and they are hired by property owners to “sell” their properties.  Yet real estate agency laws impose an agency obligation which means that brokers are required to “represent” one party or another.  This sales bias coupled with imposed agency duties creates bizarre ethical and legal inconsistencies on a daily basis.   There are a handful of states that actually recognize this and allow real estate brokerage to be practiced as transaction brokers or facilitators and not as agents.  This more accurately reflects the reality of how real estate brokerage is conducted. 

  By Ron Ross, CCIM It is a safe observation based on nearly 35 years of real estate practice that the vast majority of consumers, in this case real estate buyers and sellers; do not understand the concepts of  “agency”.  One might also observe that a significant segment, if not most, of licensed real estate…

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Thinking of selling? First, find out the value of your property…

by Compass Commercialon 26 March 2013in Advisor Insights, Client Solutions/Case Studies, FAQ: Common CRE Questions

question-mark-money

By Gardner Williams, SIOR

Before you make a decision to list your property for sale, you will most likely want to know its value.   You might seek the help of an appraiser, but what about asking for a broker’s opinion of the value?

By Gardner Williams, SIOR Before you make a decision to list your property for sale, you will most likely want to know its value.   You might seek the help of an appraiser, but what about asking for a broker’s opinion of the value?

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NNN lease? CAM charges? Do you know your commercial real estate lease terminology?

by Peter Mayon 11 December 2012in Community Resources, FAQ: Common CRE Questions, Peter May, CCIM

By Peter May, MBA, CCIM

In working with clients on commercial leases, I often get one of the following questions:

  • What is a NNN lease?
  • What are CAM charges?

When looking to lease commercial property, you will find a range of terminology to describe the type of lease being offered for each building.

By Peter May, MBA, CCIM In working with clients on commercial leases, I often get one of the following questions: What is a NNN lease? What are CAM charges? When looking to lease commercial property, you will find a range of terminology to describe the type of lease being offered for each building.

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Thinking of starting a restaurant in Bend, Oregon? Be sure to know your FF&Es and SDCs…

by Howard Friedmanon 26 November 2012in Advisor Insights, FAQ: Common CRE Questions, Helpful Resources & Links, Retail & Restaurants

By Howard Friedman, CCIM

The Firehall buildingThe Bend restaurant scene is an ever-evolving and ever-changing animal. Being one of the toughest businesses to run and one of the highest turnover industries in the nation, Bend is also no stranger to restaurant ownership changes.

Of the almost 60 food and beverage businesses in the downtown core, there are currently a number of vacant or ‘quietly for sale’ establishments available. But the good news is the apparent interest and impending occupancy of several of these, with some promising new concepts to add to the diverse selection of dining choices that we currently have.

By Howard Friedman, CCIM The Bend restaurant scene is an ever-evolving and ever-changing animal. Being one of the toughest businesses to run and one of the highest turnover industries in the nation, Bend is also no stranger to restaurant ownership changes. Of the almost 60 food and beverage businesses in the downtown core, there are…

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