The Fundamentals of Commercial Real Estate & Investments ... · commercial real estate and...

14
2016 Georgia REALTORS ® partners with the Local Boards and REALTOR ® Firms to provide quality, affordable continuing education courses. The Fundamentals of Commercial Real Estate & Investments #57087 Sponsored by: Georgia Association of REALTORS ® , GREC School #271 Partners in Education Program Visit the Georgia REALTORS ® website to learn about membership benefits, continuing education opportunities, networking events, and more! (www.garealtor.com ) NOTICE: The following material is copyrighted and is provided to you for one-time use only in this GAR-sponsored course. You may not reproduce or redistribute any portion of this packet without the express written permission from the GAR Professional Development Department.

Transcript of The Fundamentals of Commercial Real Estate & Investments ... · commercial real estate and...

Page 1: The Fundamentals of Commercial Real Estate & Investments ... · commercial real estate and investing. It is ever different from residential and requires a lot of expertise, knowledge,

2016

Georgia REALTORS® partners with the Local Boards and

REALTOR® Firms to provide quality, affordable continuing education courses.

The Fundamentals of Commercial

Real Estate & Investments

#57087

Sponsored by:

Georgia Association of REALTORS®, GREC School #271

Partners in Education Program

Visit the Georgia REALTORS® website to learn about

membership benefits, continuing education opportunities,

networking events, and more!

(www.garealtor.com)

NOTICE: The following material is copyrighted and is provided to you for one-time use only in this GAR-sponsored course.

You may not reproduce or redistribute any portion of this packet

without the express written permission from the GAR Professional Development Department.

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STUDENT NOTICE

The Georgia Association of REALTORS®, Inc. is approved by the Georgia Real Estate Commission (GREC) to offer continuing education, sales postlicense, and broker prelicense courses. The GREC school code number is 271 with a renewal date of December 31, 2019. The Georgia Real Estate Commission has approved this course for three (3) hours of continuing education credit. GAR school policy defines an instructional hour as 50 minutes. To receive continuing education (CE) credit for this in-classroom course, the student must:

be on time

sign in with the course facilitator before the course begins

be present in the course during all instruction periods

return a completed evaluation to facilitator at the end of course

not have taken this course for continuing education credit within the past 366 days. There is no make-up session for this course. Cell phones and other electronic devices can be distracting. Use of communication methods such as text messaging, E-mailing, web surfing, etc. is prohibited while class is in session if it poses a distraction to other attendees and shall be grounds for dismissal. Taking pictures of PowerPoint slides requires the permission of the instructor. Entrance qualifications and standards of completion will not be based on race, color, sex, religion, national origin, familial status, handicap, sexual orientation, or gender identity. No recruiting for employment opportunities for any real estate brokerage firm is allowed during this course or on the premises while this course is in session. Any effort to recruit by anyone should be promptly reported to the Director of Professional Development; Georgia Association of REALTORS®; 770-451-1831; 6065 Barfield Road; Sandy Springs, GA 30328; or to the Georgia Real Estate Commission; 404-656-3916; International Tower; 229 Peachtree Street, NW; Suite 1000; Atlanta, GA 30303-1605. 1-20-16

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The Fundamentals ofCommercial Real Estate & Investments

INSTRUCTOR: CURTIS YORK- “THE REAL ESTATE GUY”

The Fundamentals ofCommercial Real Estate & Investments

COURSE OBJECTIVES

• Discuss various commercial opportunities

• Discover basic fundamental concepts involved in

commercial real estate transactions.

• Learn the different types of investor customers

• Differentiate between office class types.

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There are many opportunities for specialization and financial rewards in commercial real estate and investing.

It is ever different from residential and requires a lot of expertise, knowledge, due diligence & ability to get things done.

The Fundamentals ofCommercial Real Estate & Investments

Types of Investor CustomersPurchasers of commercial real estate fall into (3) very

general categories:

� OWNERS/USERS

� DEVELOPERS

� STRICTLY INVESTORS

Mindset of the Investor

Most Investor’s goals are the same

regardless of the type of investment.

– to generate an acceptable return

on the investment and to minimize

the risk in all transactions.

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OWNERS/USERS

are primarily

concerned with

� Utility of the

property

� Location &

image

considerations

� Liquidity

� Management

DEVELOPERS

are primarily

concerned with:

� Build to suit

� Location

� Budget

� Timelines

� Risk

INVESTORS

are primarily

concerned with:

� Investment risk

� Return

� Liquidity

� Management

TYPES OF INVESTOR CUSTOMERS

‘KNOW YOUR CLIENTELE’

Portfolio IncomeStocks & Bonds

Passive IncomeRental properties; residual. Does not require active participation.

Active IncomeEarned by working or actively participating.

3 Types of INCOMEFundamentals of Commercial Real Estate & Investment

CLASS C, D & E - Many of these facilities need major

restoration and, if properly located and restored, can rise to a Class

B once again. Lenders are very selective about these properties as

the risk is much greater, thus loan rates are much higher.

Acquisition/construction and mini-perm financing are available to

these classes on a case-by-case basis.

CLASS B- older construction, former Class A buildings with less

rent and more marginal tenants. Usually in good repair and has

multiple tenants.

COMMERCIAL OFFICE CLASS TYPES

CLASS A- Construction less than 5 yrs. old, minimum of

30,000 sq ft., attract credit tenants, loan cost are often lower

with those with a higher # of tenants . Bigger building = lower

risk if occupancy is stable.

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Commercial Building Examples

• Class A • Class B

Commercial Building Examples

• Class C • Class D & E

Central Business District (CBD)

• A Central Business District (CBD) is the commercial and business centre of a city. In larger cities, it is often synonymous with the city's "financial district". Geographically, it often coincides with the "city centre" or "downtown", but the two concepts are separate: many cities have a central business district located away from its commercial or cultural city centre or downtown. Both the CBD and the city centre or downtown may also coincide with the central activities district.[citation needed]

• A city's CBD is usually typified by a concentration of retail and office buildings.[1] The CBD usually has an urban density higher than the surrounding districts of the city, and is often the location of the tallest buildings in the city.

• The CBD is often also the "city centre" or "downtown", but this is also often not the case.

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FACILITATOR/NEGOTIATOR

LISTING TYPES

EITHER WAY…GET IT IN WRITING

EXCLUSIVE AGENCY REPRESENTATION

EXCLUSIVE RIGHT to REPRESENT

OPEN or NON-EXCLUSIVE AGENCY

DON’T FORGET

Net Listings are ILLEGAL in Georgia. *GA LICENSE LAW

CASH REQUIREMENTS

TENANT REPRESENTATION & BUYER PROFILES

EXPERIENCE LEVEL

RETURN REQUIREMENTS

RISK TOLERANCE and/or OBJECTIONS

UNIQUE REQUIREMENTS

COMPEN$ATION MODELS“You Don’t Get What You Deserve, You Get What You Negotiate” – AUTHOR UNKNOWN

RETAINER or HOURLY FEE

FIXED % of SALES PRICE

FIXED FEE plus %

GRADUATED %

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Calculating Lease CommissionsSCENARIO:

You are the Selling Broker for Callier Realty Company in Atlanta, GA and have a client that is looking for Class A properties in Downtown Atlanta on a 5 year lease. After searching loop net you find an office building located at 371 Peachtree St, Atlanta, GA 30310. It consists of 2,550 sf at $18 per sf years 1-3 and rate escalates by 5% in years 4 and 5. All CAM charges are included in base rent. Calculate your upfront commission and also your monthly commission if you were to be paid out over the course of the lease. You are have a 75/25 commission split with your Broker. Commission rate is 5% for Selling Broker.

Callier Realty Group - Commission for 5 Year Lease

• Years 1 -3 2,550sf x $18 per sf = $45,900 yr x 3 yrs = $137,700

• Years 4 -5 2,550sf x $18.90 per sf = $48,195yr x 2 yrs = $96,390

• Total Value of 5 year lease $234, 090

• $234,090 x 5% = $11,704.50 Total Commission

• $11,704.50 x 75% = $8,778.38 Agent Upfront Commission

• or

• $8,778.38 /60 months = $146.31 per month

15 MINUTE BREAK!!!

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DETERMING FACTORSIt is a good practice to consult with your clients about:

�Cash Requirements

�Urgency

� Tax Requirements/1031 Tax Deferred Exchange

� Installment Sale

� Loss Timing

� External Influences on Decision Making

MARKETING INVESTIMENT PROPERTIESKnow the Sellers Needs

MARKETING INVESTIMENT PROPERTIESThe Prospecting Plan

�Contact adjacent property owners

�Contact owners of similar property

�Contact investment clubs and groups

�Hold investment seminars

�Investment newsletter

�Accountants, attorneys and financial advisors

�Other real estate agents

�Networking

A MARKETING PLAN TO SELL YOUR COMMERCIAL LISITNGSSelling commercial real estate in today’s complex market requires in-

depth knowledge of market trends and fast, strategic sales promotion

that produces results.

� Once you sign a listing agreement use the most up-to-date technology to create an exciting and dynamic marketing program to provide the greatest exposure for your property.

� Place your property on the MLS, CoStar, Cimls, Cityfeet, Loopnet and other commercial listing databases.

� Prepare a time lined marketing strategy.

� Prepare a presentation package & strategically place signage.

MARKETING INVESTIMENT PROPERTIESNow What?

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MARKETING INVESTIMENT PROPERTIESNow What?

�Arrange professional photography for your property.

� Prepare professionally written full-color property brochure.

�Market your property on the internet via your company or personal website and other database affiliations.

�Direct mail your property brochure to all realtor members of the National Multiple Listing Service

�Trade Groups

�Direct mail your property brochure to residential agents who have commercial tenants and buyers.

�E-mail property brochure and e-postcard sales promotion to targeted buyers.

MARKETING INVESTIMENT PROPERTIESNow What?

�Target market to prospective buyers who have purchased similar properties within a 1 to 5 mile radius of your property.

�Advertise your property in newspaper and magazine publications.

� Market your property through international referral networks.

� Prepare a press release for your property to be distributed to media.

�Network with other realtors, on a regular basis, by telephone, direct mail and e-mail.

�Purchase ListServ databases to present your property to all customers interested in your type of property, area and price range (Opportune Buyers)

�Host broker open houses to ensure maximum exposure to the real estate community.

�Provide design service to originate a website on the internet dedicated exclusively to marketing of your property.

�Submit weekly activity and marketing evaluation reports

Let’s Talk Commercial – The Lingo

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Commercial Real Estate Lingo

• Building Classifications – Building classifications in most markets refer to Class “A”, “B”, “C” and sometimes “D” properties. While the rating assigned to a particular building is very subjective, Class “A” properties are typically newer buildings with superior construction and finish in excellent locations with easy access, attractive to credit tenants, and which offer a multitude of amenities such as on-site management or covered parking. These buildings, of course, command the highest rental rates in their sub-market. As the “Class” of the building decreases (i.e. Class “B”, “C” or “D”) one component or another such as age, location or construction of the building becomes less desirable. Note that a Class “A” building in one sub-market might rank lower if it were located in a distinctly different sub-market just a few miles away containing a higher end product.

• Cap Rate – Short for capitalization rate. Unleveraged initial yield on the investment expressed as the annual Net Operating Income divided by the property price (or asking sales price)

Commercial Real Estate Lingo

• Common Area Maintenance (CAM) – This is the amount of additional rent charged to the tenant, in addition to the base rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc. Most often, this does not include any capital improvements that are made to the property.

• Concessions – In negotiations to attract tenants, a landlord will sometimes grant concessions. These most often take the form of free rent but may also include lease buyouts, moving allowances and above-standard tenant improvement allowances. In a hot real estate market concessions are difficult to negotiate.

Commercial Real Estate Lingo

• Net Absorption – The net change in occupied space in a given market between the current measurement period and the last measurement period. Net absorption can be either positive or negative and must include decreases as well as increases in inventory levels. It is recommended to disclose the inclusion (Total Net Absorption) or exclusion (Direct Net Absorption) of sublease space in any calculation of net absorption.

• Net Operating Income – (NOI) A calculation used to analyze real estate investments that generate income. Net operating income equals all revenue from the property minus all reasonably necessary operating expenses. Aside from rent, a property might also generate revenue from parking and service fees, like vending and laundry machines. Operating expenses are those required to run and maintain the building and its grounds, such as insurance, property management fees, utilities, property taxes, repairs and janitorial fees. NOI is a before-tax figure; it also excludes principal and interest payments on loans, capital expenditures, depreciation and amortization.

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Commercial Real Estate Lingo

• REIT – (Real Estate Investment Trust) – A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

• Return on Investment – (ROI) A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. ROI = (Gain from Investment – Cost of Investment) / Cost if Investment

Commercial Real Estate Lingo

• Tenant Improvements or Tenant Improvement Allowance – (TI) the customized alterations a building owner makes to rental space as part of a lease agreement, in order to configure the space for the needs of that particular tenant. These include changes to walls, floors, ceilings, and lighting, among others. In actual practice, these customized tenant improvements usually have a useful economic life of 5 to 10 years, which spans the average commercial lease term.

• Triple Net Lease – (NNN) A lease agreement that designates the lessee (the tenant) as being solely responsible for all of the costs relating to the asset being leased in addition to the rent fee applied under the lease. The structure of this type of lease requires the lessee to pay for net real estate taxes on the leased asset, net building insurance and net common area maintenance. The lessee has to pay the net amount of three types of costs, which how this term got its name.

HELPFUL COMMERCIAL WEBSITES• www.loopnet.com

• www.Realtor.org

• www.Commericialsource.com (NAR)

• www.CCIM.com

• www.CIMLS.com

• www.Cityfeet.com

• www.google.com

• www.naa.com

• www.sior.com

• www.Costar.com

• www.Xcelligent.com

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© 2017 Inspironix, Inc. (916) 488­3222        InspiroScan Survey Form PIE Instructor / Course Evaluation v5        Side 1

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