The Foundations of Commercial Realty

The Foundations of Commercial Realty

Foundations of CRE

Foundations of Commercial Real Estate: Players & Properties

Commercial Real Estate

If you think about it, there really are only two facets to dealing in property; the people, and the properties.  Everything falls into or between these.  So let’s begin your entrance into the world of commercial real estate (CRE) and take a deeper look at both of categories.

 

Many people who are commercial developers have a background in brokerage. While there are many similarities, the largest key difference between the two is that emotions play a much smaller role in commercial real estate as compared to residential real estate.  Buyers, sellers, tenants & landlords are much more motivated by profit than by individual preferences.  Of course, commercial real estate transactions are often much more complex and take longer to complete as well.

 

Now, let’s consider the major players involved in the commercial real estate industry:

 

The Major Players

Commercial Real Estate Key Players

Real Estate Brokers

As anywhere else, the job of the broker here is to find and facilitate a transaction between a buyer and a seller.  Most who play this role in CRE call themselves brokers, however, this is not necessarily 100% accurate as some people hold a broker’s license, while others hold a salesperson license.  Brokers working for buyers, more often than not, need to find properties suitable for purchase outside existing MLS listings.  Whereas brokers working to sell a property need to target a high niche segment of buyers and investors.  As commercial real estate transactions are quite complex, brokers may or may not be involved in the entire spectrum of the transaction.  Additionally, they may or may not refer other professionals during the course of the transaction.

The key thing for residential realtors to realize is, that their previous buyers may prefer to deal with or through them, rather than a commercial real estate broker who they don’t know.  Thus, it is highly recommended for residential realtors to joint venture with or refer to a commercial broker who has the experience….. that their clients can be served without losing business or relationship value.  (Let us know if you are looking for tips on evaluating the right commercial real estate brokerage to associate with and how to negotiate with them, we will have an article on that soon.

Plus, it is crucial to note that the Code of Ethics laid out by San Diego’s Association of Realtors ® (SDAR) recommends against brokers practicing beyond their expertise.  For more details, refer to their publication here.

 

Lenders

As with any real estate transaction, finance needs to be secured.  While most buyers have their own source of financing, the broker needs to have relationships with various types of lenders; construction, acquisition, equity and permanent.  These relationships are useful during preliminary valuations and can also be crucial in enabling financing of the final transaction.

Just like most commercial real estate players, it’s important to have a lender who specializes in the product type you are dealing with.

 

Architects, Engineers & Planners

During development and redevelopment (and sometimes even leasing) buyers may need the assistance of any of these professionals, so it is important that a broker has developed such relationships beforehand to enable a smooth transaction.

 

Accountants

As the profit motive is significantly larger in commercial real estate deals, buyers and sellers will often want financial and tax advice.  This is usually done by consulting with their own accountants and financial advisors, which is recommended, however, when appropriate, it can be helpful for the broker to be involved in these transactions so the broker can better advise on the real estate portion of the transaction based on the items the principal financial advisor recommends.

Attorneys

There is no doubt that legal advice will be needed in any commercial real estate transaction and as a broker, unless you hold a license in law, you are not permitted to provide that advice or draft legal drafts and deeds.  It is, again, important that the commercial real estate broker has established relations with competent lawyers who can facilitate transactions rather than killing them.  Are you looking for such attorneys to work with?  Let us know and we would have happy to provide references.

Appraisers

Sellers want appraisers’ valuations in order to establish a selling price.  Buyers pay for appraisers as mandated by lenders before they extend the loan in order to purchase the property.  Appraisers need to be not only specialized in commercial real estate, but also in the type of commercial real estate as the property under consideration.

 

Others

Depending on the type of transaction, various other professionals may need to be involved.  This will change from time to time and here are a few scenarios elucidating the requirement of additional outsider help:

  • Rezoning
  • Historical
  • Traffic
  • Environmental
  • Business Brokerage

 

This brings us to the closure of this part of the article.  Do you know any of these professionals who you would like to recommend?  Are you looking for any such professional for your transactions in San Diego Commercial Real Estate?  Or do you just have some questions?  Drop a comment and share; we would love to hear from you.

 

San Diego Commercial Property Types

San Diego Commercial Property Types

Commercial Properties

As mentioned already, commercial real estate transactions are much more complex than residential real estate ones.  As a result, brokers often need to be specialized within specific types of properties of commercial real estate.  However, if the geography is a small market, it is possible for the broker to service most segments within commercial real estate.  But in more larger markets, including San Diego Commercial Real Estate, it is very difficult to know the market for every product type. Make sure the broker you are working with has specific experience in the type of property that you are interested in.

 

While there are many types of properties with the San Diego Commercial Real Estate Industry, the major ones are ;

 

  • Multi-Family 5+ Units (more on this later)

  • Office

  • Industrial

  • Retail

  • Land

 

Some of the smaller segments include hospitality, storage, and multifamily, which is last in this list, but the largest within this category of sub-segments.  Interesting to note that Gabhart Real Estate Advisors has experience within most of these segments in San Diego!

 

Now let’s consider each major type of property within the commercial real estate segment:

Office

Each type of user has their own requirements.  As a broker, it’s important to understand the factors that tenants would consider important for their business. What is important for a law firm is not likely to be important for an IT startup, and so forth. While there are many sub-categories (converted homes, low-rise, mid-rise, high-rise, specialty etc.) within this category, most of San Diego’s office properties fall under the following:

 

Office Showroom

Footfall, window and internal display & layout are the more important variables in this type of property.  In San Diego Office, showrooms often fall within prime localities in order to attract the most customers.

 

Office  Warehouse

As the name suggests, a space suitable for storage of goods (depending on the type of goods) as well as administrative and sales teams. Location, price, and usability are often the most considered points in such transactions.  Certain suburbs of San Diego are well known for office warehouses.

 

Independent Warehouse 

Security, storage capabilities, bonded, climate control is some factors to consider. Most of San Diego’s warehouses are located in suburban areas around the 13 cities.

 

Manufacturing 

Here, often legal matters matter the most.  Free trade zones, licensing for light and heavy manufacturing are of prime importance.  Availability of labor nearby is another key consideration.  Free Trade Zones # 153 in the San Diego / Tijuana area is very popular for various manufacturing concerns for precisely these reasons.

 

Self Storage 

Is another type of industrial product

 

Apart from the factors mentioned in various types of office spaces above, there are various more which apply to some or all such properties.  They are:

 

·         Labor pool availability

·         Proximity to customers

·         Transportation access

·         Price

·         Space configuration

·         Ceiling Height

·         Floor Load

·         Utilities

·         Docking area

·         Sprinkler systems

·         Zoning laws

·         Govt. Incentives (local, state & national)

·         Buy vs. Lease

 

Additional resources recommended by National Association of Realtors ® is available at the website of Society of Industrial and Office Realtors ® www.sior.com and the CCIM Institute www.ccim.com

 

Retail

Again, this is a wider segment than most may imagine and carries various subcategories of properties within the retail real estate segment.  They are:

Single User 

These are used by destination orientated retailers such as banks, retail chains or even grocery shops.

 

Credit Tenants 

When retail is being financed, the tenants business strength is reviewed for considering the tenant’s lease as a security for a loan. Financially stronger tenants in San Diego (and other places) are often granted better terms.  However, these terms may change during the course of tenancy based on the business outcomes of the tenant.

 

Big Box 

Big Box properties in San Diego are limited to large national or International companies.  These are companies that require 25,000 + sq. ft. of space, sometimes even more than 50,000 sq. ft.

 

Small Strip Center 

There is no death of San Diego’s small strip centers.  These are buildings which contain numerous mom and pop shops i.e. retail outlets which are typically owned and operated by the same person.

 

Neighborhood Shopping Center 

Every San Diego neighborhood has one as each such center services within 1-3 mile radius.  There is always several anchor tenants, which vary from cleaners, nail shops, grocery stores et al.  Recent trends observed by the National Association of Realtors ® notes that drug stores used to be a part of such shopping centers, however increasingly they have become stand-alone shops near the parking lot, and as such, are known as an “outparcel”.

 

Community Shopping Center

These buildings service a larger community than neighborhood shopping centers.  They typically service up to a 10-mile radius and house a major retailer such as Walmart, or Movie Theaters etc.  Fashion Valley & Westfield UTC Mall are a few that fit this category.

 

Regional Shopping Center

As implied, these buildings service a wider region and are often known as malls even though they need not be an enclosed space.  Tenants include a variety of regional & national tenants including boutique stores.  The size of such stores ranges between 400,000 sq. ft. and 2 million sq ft.  Beyond that, and they are known as super regional.  However, it is not just the size of the mall that determines if a mall is a super regional shopping center, but also the tenant mix and sales per square foot to ensure that the building is actually popular amongst customers.

 

Specialty Center

These centers vary in size and objective.  They can house certain types of décor such as antique or be geared towards a certain segment such as parents by selling just baby related items.  Belmont Park is an example of a San Diego specialty center, focusing on wearable and accessories for beachgoers.  Surfs up, dude!

San Diego Land for Sale

Land Sales

Land

This is where monuments are made.  Realtors ® focusing on land deals are often (or should be) Accredited Land Consultants, which is a designation imparted by the Realtors Land Institute.  This is a highly-specialized niche within commercial real estate as planners, architects, engineers, developers, and brokers are all often involved.  Some of the key considerations in San Diego’s Land transactions are:

 

·         Zoning

·         Utilities

·         Accessibility

·         Suitable Soil

·         Nearby Amenities


Curtis Gabhart and Gabhart Investments, Inc – 2018 All Rights Reserved
The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of Gabhart Investments, Inc. The material contained in articles that appear on gabhartinvestments.com is not intended to provide legal, tax or other professional advice or to substitute for the proper professional advice and/or commercial real estate due diligence. We urge you to consult a licensed real estate broker, attorney, tax professional or other appropriate professionals before taking any action in regard to matters discussed in any article or posting. The posting of an article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.

 

80/20 Rule, Real Estate, and the Great Thing About America

80/20 Rule, Real Estate, and the Great Thing About America

Why Am I Not Succeeding in Real Estate?

While I was scanning the forum that I post on frequently I came across a thread that asked some important questions like:

  1. What is the amount of net cash flow of debt-free income properties [units] nationally divided by the number of individual private investors=what amount? That number would be ROI or cap rate.
  2. Do the similar math for total residential real estate commissions earned nationally divided by the number of licensed agents = what amount? Again, either some assumptions or raw data might be used.
  3. Take the ‘average profit/gain’  from residential sales nationally by investors both seasoned and newbies who either do wholesale flips or forced appreciation thru retailing. The ‘newbies’ would include those who have not done any deals yet.
Pareto Principle

Pareto Principle

In another post I came across, someone commented on the 80/20 rule (Pareto principle) which in summary states that, for many events, roughly 80% of the effects come from 20% of the causes. Personally, I like this rule, whether it is exact or not the principal is good. 80% comes from the 20% which helps keep me focused on the 20%.

Another posted that they read 95% of would be real estate investors lose money on their first deal then quit. Similarly, think about how many small businesses go out of business in the within 1, 2, 5 years of operation.

So after some more bantering about exact numbers and the 80/20 rule really being a 96/4 rule or a 60/40 rule my response was this.

Whatever % you want to use, the great thing about America is that it is possible to be in that top 20% or 2% or…

For me some important things I take into account when looking at a venture

  1. Can someone else do it and how did they do it?
  2. Can I duplicate what they are doing through hard work, perseverance and a little luck sprinkled in?
  3. In what time period can this happen?
  4. What is wrong with it and why WONT it work? (I keep on looking for this and until I find it I keep going. If I do find it, I’ll see if there is a solution and if not, I move on)
  5. I don’t want it to be easy because things that are easy that everyone can do get compensated less. i.e. digging ditches vs. finish carpenter.

One of the things that got me interested in real estate is that the potential is so broad. (I also did some MLM when I was younger and was able to make enough to make payments on the first new car I ever bought) 

You can be a mom & pop investor who buys a house here or there while working and have a great retirement. Or you can become Sam Zell who started buying student housing in Chicago while going to college who then was brave enough to acquire lot’s of property during a downturn while others were selling.

Real Estate can be your business, or just an investment vehicle. I would say the ratio of success and failure really depends on how soon and quick you try to make it your business.

People who try to immediately make it there business without any other means of income I believe exponentially increase there chances of failure. They fail like the majority of business’s they become under-capitalized and can not meet their overhead obligations.

They usually have no experience and lack of money – 2 things that are most often the cause of failures for businesses.

Real estate really is a simple business but it takes a tremendous amount of effort and hard work (like most business). What I find happens is everyone wants to be a millionaire…. Until 5pm hit’s and they want to go home or the alarm goes off at 4am and they decide to show up at 9am, or until it doesn’t work out exactly how they plan (hint – it NEVER does).

You get all these gurus and infomercials talking about how easy it is and you need NO money and NO credit to succeed. Well that may be true just like you can start a company that then becomes Google (obviously the odds are better than starting a Google but you should get the point).

Well there is my rant that really gave no answers to your numbers. The reasons for many of the failures are stated above.

p.s. Here is a question for your question… Do you fail when you do not accomplish your goal or when you give up and stop trying?

 

For the most updated information & news on real estate & Gabhart Investments go to our Facebook & Twitter pages


Curtis Gabhart and Gabhart Investments, Inc – 2018 All Rights Reserved
The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of Gabhart Investments, Inc. The material contained in articles that appear on gabhartinvestments.com is not intended to provide legal, tax or other professional advice or to substitute for the proper professional advice and/or commercial real estate due diligence. We urge you to consult a licensed real estate broker, attorney, tax professional or other appropriate professionals before taking any action in regard to matters discussed in any article or posting. The posting of an article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.
Gratitude….

Gratitude….

Is it just me or does this election seems to be pretty crazy and very divisive?
A conversation today on Facebook about how bad our system is got me thinking….. Are things so bad? Really?
Don’t we live in a country that even the poorest are in the top 1% of the world?
We live in a time that everyone has food and shelter if he or she chooses…. Remember that A third of the world lives on less than $2 per day.happy
Sure we can complain about everything that is wrong with this country and this world, or we can choose to be grateful for a wonderful life IF WE CHOOSE to be grateful. Because ultimately it is what’s in your head and your perceptions that create your reality.

I just want to say I am grateful for my beautiful daughters who can go outside and are safe, that they know how much they are loved. I appreciate my family (the crazy ones and all) and the friends I have met over the years. Moreover, I look forward to meeting so many more friends.
So yes, our political system and the world can seem like a mess if you let the news consume you or we can focus on being grateful for what we do have and strive to continue to improve and learn.

We get so caught up with all the negative news that we forget that we are the ones who determine our destiny. I want you to know that I am grateful for everything I have and hope this message can take our focus off what’s wrong with the world to what is right and what can we be grateful for? Money does not bring happiness, gratitude does. Here is a great article on being happy.

http://www.inc.com/jeff-haden/want-to-be-a-lot-happier-science-says-do-any-one-of-these-9-things.html

Block Party + Open House + Charity Event + Bon Voyage Party = Bon Voyage 4 A Cause

Block Party + Open House + Charity Event + Bon Voyage Party = Bon Voyage 4 A Cause

Bon Voyage 4 A Cause

A couple weeks ago we put on a great event for a new listing we have in Del Sur.

Had a great block party and raised money for charity in the process while promoting this new listing.

 

Discovering Commercial Real Estate

Discovering Commercial Real Estate

Commercial-Real-EstateDiscovering Commercial Real Estate

Sponsor: National Association of REALTORS®

Curtis Gabhart will be presenting this course November 11th, 2015 in San Diego for the National Association of Realtors.

Course Description

This 3-hour course offers a broad overview of the basics of commercial real estate and how it differs from residential real estate. Students will be able to

  • Understand the broker’s role.
  • The basics of commercial real estate.
  • Discover the different types of commercial properties, terms, valuation methods, marketing and resources for further education.
  • Learn how commercial real estate impacts residential sales.
  • How to make a successful career in commercial real estate.

While it will not equip an agent with the needed tools to practice commercial realestate, it will explain the business and introduce many of the resources needed to pursue a commercial transaction or a career in commercial real estate. This is an ideal introductory course for those who are newly licensed and/or residential agents who want to learn more about commercial real estate.

Course URL: http://www.realtor.org/educsess.nsf/PagesLUNew/15confDiscoveringCommercial.

You can sign up for the course when you register for the conference.

For more information, visit www.REALTOR.org/DCRE

Discovering Commercial Real Estate

Wednesday, November 11th (8:30-11:30 am)

Hilton San Diego Bayfront

1 Park Blvd., San Diego, CA 92101

5th Level, Cobalt Room 520

Registration Contact: Leslie Pearsall, lpearsall@realtors.org, (312) 329-8393

Total fee for Discovering Commercial Real Estate course is $69, and enrollment is now open for prospective candidates.Course URL: http://www.realtor.org/educsess.nsf/PagesLUNew/15confDiscoveringCommercial.

You can sign up for the course when you register for the conference.

Instructor:

Curtis Gabhart is President of Gabhart Investments, A Real Estate development & advisory services company based out of San Diego California.

Curtis is the President of Gabhart Investments Inc. which is a privately held real estate firm specializing in acquiring, renovating and upgrading Single & Multi-Family properties.  His firm provides expert services in property and asset management, acquisitions and dispositions, zoning and entitlements, real estate development, construction management, venture funding and related financial analysis as well as sales training and property investment consulting.  Through years of coaching and mentoring the organization clearly exhibits dedication, diligence, purpose integrity and value. Come and learn from one of San Diego’s Top Real Estate Advisors of Commercial and Luxury Residential estates.

Curtis is one of only 29 instructors throughout the country approved to teach this course.