The process of selling commercial real estate can be the easy part. Difficulty comes knocking in the form of due diligence, the sometimes long investigative process done before the purchaser is legally bound to acquire the commercial property of interest. Choosing the right due diligence steps not only helps with the discovery of issues your purchasing client could face, but builds loyalty and eliminates extra hours of research.
1. Annual Profit & Losses
Analyze the past three years and current year-to-date financials using a spreadsheet to categorize the percent changes between each year. Depending on the type of property, you will be able to catch irregular expenses by analyzing line by line. Remember to look at the cost of insurance each year, taxes, and utilities.
2. Monthly Cash Flow Statements
Study the month-by-month cash flow statements for the past three years. This will allow you to know which tenants are paying on time and who has a reputation of paying late. These items do not show up on annual financials.
3. Study the Rent Roll
Make sure you look at multiple years of the property’s historic rent roll. Look for significant changes or rental modifications. This is a good cross-check for the lease analysis.
4. Analyze the Leases
This task can take the most amount of time. In many cases, items in the lease have been forgotten, like a lease cancellation clause with 90-day notice. These clauses can substantially impact the value of the property. If lease abstracts are provided, then verify each item. If they are not, create your own one-page lease abstract for each lease. Consider having your client hire an attorney to review leases and provide your client with the summary of the pertinent issues. This will also shift the responsibility to a third party.
5. Contact the City/Fire Department
Countless times, tenant improvements are constructed without a final occupancy permit or even a permit at all! Check to see if anything has been “red tagged” by the city. Verify all spaces and units have received a final occupancy permit. It’s better to find out that you are missing permits and $5,000 worth of work needs to be completed before your client buys the property.
6. Interview the Tenants
You can discover a lot about a property and any unknown issues by interviewing the tenants. Try to do this without the current owner or property management company with you in order to get information about any conflicts or issues the tenants have had with them. Ask the tenants the following questions:
7. Hire an Inspector/Contractor
I typically will have the client hire a local contractor (I don’t like typical “home inspectors”) to “inspect” the property. You want to rely on a professional that knows construction and can give you an unbiased assessment of the current condition of the property. I have yet to see a property without some hidden defects – even new properties.
8. Review All Capital Expenditures for Past 5 Years
Capital expenditures will give you insight into the work the current or previous owners have done to the commercial property. Analyzing these expenditures will help you determine if the owner has put any money into the property, if he or she chose “cheap” solutions to problems, or if problems were fixed correctly as the issues arised. Ask to see actual receipts and bids for all of the work the owner did and talk to the companies who completed the work. Then contact the companies who bid on the job but did not do the work. Ask them why their bid wasn’t chosen.
9. Complete a Market Survey
Make sure you have completed a detailed market survey of the current rental income as compared to the competition. Is the property above market? Why? If the leases are triple net, how do they compare to the completion? Make sure you look at access, exposure, and traffic counts to the comparables. Why will the subject property be competitive in the future? What new product is coming online to compete with the subject
10. Everything Else
Other items to consider reviewing: Tax returns, balance sheets, title policies, insurance policies, current appraisal, loan documents, copies of all utility bills, current service contracts, deeds, current environmental reports, wetland reports, surveys, bank statements, litigation history, and mortgage estoppel letters.
At the end of the day, the goal is to verify all the information you receive from the seller. Make a request list up front in the purchase and sale agreement. Having a complete list of these items and letting your client know how you handle these things will give you a competitive advantage in representing buyers and sellers of commercial property. Some commercial brokers have even charged a fee to clients that they do not represent to do the due diligence for them. Due diligence can be difficult, long, and frustrating. But, when done right, you will help represent your clients well, eliminate problems quickly in the process, and gain a unique competitive advantage in the market.
There are way more people involved in commercial real estate transaction than a residential deal. And it depends if you are doing a Leasing deal or a Sales transaction. It is important that you know what role you play… .and who all the other people that could or should be involved.
If you enjoyed this insight, check out the full Commercial Real Estate Expert course. It is everything Troy Muljat has learned in the past 25 years doing commercial real estate investing, leasing, and appraisals.
In this episode of The Commercial Real Estate Show, Michael Bull interviews co-founder and managing director at ArborCrowd, Adam Kaufman. Now if you’re new to crowdfunding in commercial real estate this video with Adam Kaufman will help you grasp a better understanding of how sourcing funds for your CRE project works.
If you missed a previously email newsletter, check out the archive of email newsletters.
When it comes to keeping yourself up-to-date on the latest in commercial real estate, there are a number of great and informative resources out there on the internet. But let’s face it, there’s just so much out there, it makes it hard to find content that’s not only reliable but also, new, interesting and informative all at the same time. Read More
Youtube is home to millions if not billions of videos on a number of topics, making it easy for anyone to access a world of how-to entertainment at the click of a button. Youtube is just one resource among many for commercial brokers and investors to use when trying to learn the basics and even the most complex aspects of CRE.
What many new commercial brokers don’t know about commercial real estate is that there is actually a great deal of number crunching involved with a commercial real estate transaction. If math isn’t your strongest suit, then you might be hesitant to try to do any or all calculations yourself. Read More
CALLING ALL INVESTORS, especially those of you who are new to investing and are looking into purchasing your first rental property. There is a ton of paperwork that comes along with any commercial real estate transaction, but what you may not know is that there are 10 very important seller documents you may have to review when it comes to buying a rental property.
To maximize your Net Operating Income in your investments or business and your client’s investment you need CONNECTIONS. Work networks are common. You may already been involved in other networks for business & knowledge exchange. So why join one more? Three reasons:
There are a number of new and innovative technologies that are hitting the multi-family property market. These new and improved gadgets are changing the way multi-family residents live their everyday lives; not necessarily by creating brand new technologies but taking old systems and applying a completely new spin on them. Allowing multi-family properties and its residents the ability to adapt their living arrangements to this new and evolving world that is technology.
KPIs or Key Performance Indicators are an effective way for commercial real estate investors to monitor their speed, accuracy, and adaptability when it comes to navigating through day-to-day tasks. Many CRE investors monitor the KPIs of their business by implementing different CRE technologies. These three metrics; speed, accuracy, and adaptability will ultimately help investors succeed in helping their own organizations make better and faster investment decisions.
Commercial real estate is no longer about a simple and functional building. Tenants demand more in terms of aesthetic, functionality and recently, technology. Tenants want a work and living environment that embraces the forms of technology that create unique and inspiring experiences each time they encounter them.
This month’s featured commercial real estate broker and residential agent is Kam Deol. Kam has been providing his expertise in the Bellevue & Kirkland, WA market for over a decade. By taking a bad situation and learning from it, Kam was able to sharpen his skills and learn about the real estate industry during the height of the ’08 housing crash. Allowing him to grow as an expert in selling properties of all types, shapes, sizes, and sale prices.
Kam focuses his efforts in a number of markets including: commercial retail properties, residential single family, and condominiums. With the overwhelming opportunities invest in Bellevue & Kirkland, Kam can help provide the expertise you’ll need when it comes to searching and finalizing a real estate deal.
For more insider knowledge on the Bellevue & Kirkland, WA market contact Kam Deol, myNOI’s selected commercial real estate and residential broker in King County.
We are constantly surrounded by information and data, but not many of us, especially in the commercial real estate industry know how to make use of all the data out there. Especially because there is a ton of data that we’re failing to collect right within our own properties. Read More
Despite what you’ve read in the news, retail is NOT DEAD. Not according to a recent study conducted by the National Retail Federation that found that recent sales figures were actually up 4.2% year-over-year. What you may be surprised to know is that the number of sales have actually increased every month this last year in 2017. Read More
If you haven’t had your try at VR or AR also known as Virtual Reality and Augmented Reality, then stop what you’re doing right now and give it a go! Read More
As the multi-family sector of commercial real estate continues to grow the demand for these types of properties become more and more attractive to real estate investors who want to expand their portfolios and generate a nice steady flow of additional income. But if you have multiple properties in your portfolio, managing them all can become increasingly difficult and time consuming for any one person. Read More
Residential and Commercial Real Estate are not the same and a lot of the time brokers who’ve started their career in residential think the jump from one field into another will be an easy transition. This isn’t always true, both residential and commercial are quite different and they both require a different processes in order to complete a successful transaction.
REITs or Real Estate Investment Trusts hit a soaring record high of $52.4 billion of unsecured notes this last year. For those who are unfamiliar with REITs, REITs are companies that owns, operates or finances income-producing real estate, according to Investopedia. Essentially turning the real estate market into the stock market.
Are you an investor considering whether or not it is time to sell your apartment property? The decision isn’t as easy as one may think, there is a lot to consider before taking that big leap. Today we’ll visit a video by BiggerPockets’, Michael Blank. Michael will take us through his decision process with one of his own properties.
Which of our 3 different scenarios will allow us to maximize our overall returns? In order to answer this question we should consider these 4 questions:
The best way to answer these questions it to look at the Internal Rate of Return or IRR for each scenario; selling now, selling in a few years or refinancing. Calculating an IRR can be confusing to calculate on your own, but there are a number of tools that can aid in calculating this number, especially if you’re new to investing and the different metrics involved in commercial real estate.
Internal Rate of Return takes into consideration a number of things; 1.) capital going in and out of an investment, 2.) cash flow generated by the investment, and 3.) the passing of time and the time value of a dollar. Michael’s objective at this point is to calculate the IRRs given each scenario in order to help determine which option is the best for your circumstances. The goal here is to pick the scenario that has the highest IRR.
As mentioned before, IRR can be a confusing concept to grasp and calculating it can get tricky. According to Michael, in order to accurately calculate all three IRRs you’ll need to have a detailed financial model that will help you calculate all of your cash flows, cash investments, and any returns of capital. We like to use our IRR Calculator PRO, which not only calculates IRR but also calculates; cap rate, NPV, 10-year cash flow, NOI, and cash-on-cash returns.
Once you’ve calculated all 3 IRRs, compare them to each other – the scenario with the highest IRR will yield a higher return. But remember that one scenario isn’t fitting for every case, so make sure you do this same process for every property you consider on selling in the future and most importantly consult with an expert who can help you determine the best options.
As the new tax season approaches more and more real estate investors are wondering whether or not they qualify as what the IRS calls a “real estate professional.” If you’re new to real estate investing and are curious to find out whether you fall under this category, keep on reading. You’ll be surprised to find out that there are actually 3 different categories you could possibly fall under.
Most brokers send some type of regular email newsletter. 2018 is a great time to implement at least a few improvements.
Their primary findings. The most successful emails tend to:
It’s easy to get distracted creating a complex email. It takes more time and your audience probably doesn’t value it. And keep in mind people read emails on dozens of different devices. So simple wins. Images also help emails, but only if images are in correct balance with quantity of words.
With any great process, testing is essential. Figure out which email format provides the best customer response.
But, wait, Why do you even have an email newsletter? …if you have read this entire email and don’t know your WHY, stop. We will talk about the WHY next week.
Before you can create an awesome email newsletter you need to choose your WHY. It is the same question we all must ask:
WHY am I a broker?
“He who has a why can endure any how.” – Frederick Nietzsche
Entrepreneur has several articles discussing the “why in business“. Here a few highlights.
Take some time to think it through. Do some research. Ask your friends. Watch this or any video from Simon Sinek.
If you’re new to commercial real estate or are considering taking the jump over from residential real estate, check out John Highman’s video “A Guide to a Career in Commercial Real Estate Brokerage.” His video will run you through the basics of the trade and what you need to begin your new career.
After much conflict and deliberation, Congress has finally passed a new tax bill for 2018. The new bill will certainly affect those who plan to or have invested in commercial real estate. Dubbed the bill with the “most comprehensive tax changes in recent history,” this new bill has in fact taken away a number of deductions but deep within the new bill you’ll find new loopholes real estate investors will benefit from for the very first time.
These days the real estate market is certainly in favor of buyers much more than it is for sellers of real estate. This at times creates a difficult environment when it comes to seeking out opportunities for investment, but for this very reason you shouldn’t loss hope and start selling all your properties. Today on BiggerPockets.com we discover the “3 Reasons I’m Still a Buyer in Today’s Real Estate Market” and why you should be too.
How can lead generation for commercial real estate brokers be so similar today (2018) as it was in 2013! Well, not sure about the “join a country club”, but …. Check out this article from https://sunsunconsulting.wordpress.com re: “prospecting“.
We here at myNOI hope you had a wonderful holiday break filled with much needed rest and way too much food! But the new year is here and with it comes new beginnings…and what a better way to kick off the new year than with some new amazing and FREE CRE tools to help you get those new CRE deals up and rolling?
The world of Commercial Real Estate can be confusing and consist of a heavy workload, but in the end is extremely beneficial especially if you’re trying to expand your knowledge and your skill set within the real estate world. If you’re just starting your commercial real estate journey, here are a few tips that will help set you on the right path to selling your first commercial property.
5 Ways myNOI can help you Increase YOUR Net Operating Income
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Commercial real estate investing, like any new venture can be quite beneficial but also come with a number of risks. Some of which can take some time, persistence, and patience to overcome. If you’re new to commercial real estate investing or are considering on making the shift over to the CRE side, you’ll want to consider some of the risks that come along with being an investor.
Are you a residential agent considering on making the switch to commercial real estate? Having over 25 years of experience in the field, our very own Troy Muljat has a few tips all residential agents should know before making that leap over to the commercial real estate side.
IRR Calculator Demo for myNOI and RealLaunch Webinar
RealLaunch owner & Commercial Broker, CCIM, Troy Muljat provides demo of the IRRCalculator.pro. Knowing your CRE investment numbers starts with the basics and ends with the Cap Rate, Net Cash Flows, and Internal Rate of Return. Find out how easy it really is to make these calculations.
The playing field is becoming more level for small investors thanks to a slew of real estate crowdfunding websites sprouting up across the web.
The crowd-sourced investment websites have become an expansive trend in the industry. In the last year, an estimated half a billion dollars pooled into sites like realtyshares.com, realtymogul.com and realcrowd.com.
To keep it sweet, it’s the trend that’s here to stay for commercial real estate. And for the next week, MyNOI will be covering the details you need to know when getting involved.
Just over a year ago the U.S. Securities and Exchange Commission (SEC) opened doors to permit the use of the popular investment platform in an effort to help small investors acquire capital and additional protections under the law.
Regulators adopted A+ Offerings, which in turn expanded asset classes to two tiers, ranked between $20 million to $49.9 million and $50 million and above.
In a statement released near the time of the adoption of the final rules, SEC Chair Mary Jo White stated he following: “There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need.”
And investors are noticing. For the first time, accredited investors — or, someone who’s valued at $1 million and makes equal to or more than $250,000 per year — aren’t the only ones who can have a stake in crowd-sourced campaigns.
The regulations have gone a long way. Based on my experience owning my own share in one of these sites, they’re growing in popularity because they’re reaping returns. By next year, I expect the number of dollars invested in these sites to double.
Now, I’ve already identified the top brass in the real estate crowdfunding sites today, but I’ll also recommend a valuable place to search for reviews and rankings as well as stats on fees or other features on the hundreds of crowdfunding options available.
It’s called realestatecrowdfundingreview.com and it offers readers the top 100 real estate crowdfunding sites on the web today. So if you’re looking for facts and figures, check it out.
You’ll find that many these sites have similar components. Often, you’re presented with several properties detailing the project, the developer or investment group as well as their investment and project history and return.
By law, parties leading the crowdfunding effort will need to disclose the amount of money they’ve put in as well as their intent for the property.
As an investor, it’s your choice to drop a dollar in several properties or just one.
So take a careful look at your options and consider giving real estate crowdfunding a shot — I predict it’s here to stay.
Retail property is one of the most sought after investments around today. Out of the four asset classes on the market, investors are paying large sums for small, multi-tenant and single-tenant retail properties in locations across the globe.
With such hot demand, it’s hard to get your foot in the door. That’s why I’ve put my practice in writing to present one valuable piece of advice to aspiring investors looking to network and make deals in retail.
Last week Troy discussed the second thing residential agents should know about being a commercial broker, understanding asset classes. This week in part 3 of our 4 part series, Troy will discuss the third thing residential agents need to know and that’s their numbers.
Join us for our monthly live webinar with Troy Muljat, CCIM on November 15, 2017 @ 10 am PST.
This month Troy will walk you through some of the most important calculations that all commercial real estate brokers should know. The biggest mistake any commercial broker can make is not understanding the numbers. Knowing how to calculate and analyze: NOI, Cap Rate, and IRR is key in any CRE transaction.
This month all webinar attendees will have a limited time offer to have their own BRANDED version of our IRRCalculator.pro at a discounted price! Your clients need to see you as a commercial real estate expert, what better way than with your own branded calculator?
Complete the quick form below to sign up.
In part 2 of our 4 part series, Troy discusses the 4 main types of asset classes involved in commercial real estate transactions and the importance of understanding each class in the current market.
We all know that weathering fast market conditions requires stamina, experience and, most importantly, knowledge. As an investor, it’s crucial to stay informed, but it’s not always easy to find the best place to look. (Besides MyNOI’s own news aggregating page.)
Lucky for you, I’ve already sifted through the multitude of options online and have compiled a list of the top five news outlets reporting on issues impacting commercial real estate investors today.
In all, CoStar Group Inc. leads the pack in providing investors market data and news impacting commercial real estate hubs across the nation. It’s a paid subscription service and is the largest publicly traded commercial real estate entity specializing in industry news and research.
The top news of the day often features a mix of high-stake commercial transactions, profiles on leaders in the industry and expert commentaries on market outlooks. The news team at CoStar is comprised of hundreds of researchers gathering the latest news on leasing deals, national trends, average expense rates and more.
A series of quarterly webinars are also published through the service and feature extensive analysis on the top four asset classes, including retail, office, industrial and multifamily.
Next is GlobeSt.com, which contains a plethora of original content about the latest in commercial real estate on both a national and local scale. The online edition of their business highlights real estate trends and analysis.
If you’re looking for news on some of the largest corporate players in the real estate game, look here.
Since 1999, Commercial Real Estate Direct has acted as one of the most outstanding sources of news specific to the real estate capital markets industry.
The daily news source is one of the top places to look for data, including its property sales database and others, detailing pricing surveys, a calendar of upcoming transactions and more.
The Wall Street Journal is next on my top list of places to search for industry news. The seasoned team of real estate reporters produce work that is no less than exceptional.
The commercial real estate branch of the site focuses on the big picture, detailing market data, buyer trends and the latest stats on property stock. On a global scale, the outlet leads in highlighting some of the biggest transactions taking place on the market today.
Finally, I have to give a shout out to the CCIM Institute (Certified Commercial Investment Member Institute). A subset of the National Association of Realtors, the organization’s monthly magazine tackles industry-wide issues and sets forth on predicting trends for the future.
It’s an incredibly valuable source for analysis on a wide spectrum of issues. The website also provides an ample amount of professional resources for aspiring and active investors.
Investors prize after real estate deals that guarantee safety and high rates of return. These days it’s hard to know where to look. My advice to you: consider the absolute net lease, also known as the land lease.
Picture a prime piece of property on a high traffic corner, free of development — to put it simply, it’s an empty plot of land in a top spot in town. For a moment, pretend you’re the owner looking for a safe and lucrative investment.
What do you do? One solution is to build on the property and rent out the space to prospective tenants, but it’s a risk since you’d have to drop more money on the property. The other option is to pursue what I call the crème de la crème of real estate, an absolute net lease or — leasing the land.
Find an accredited tenant that is willing to lease the space and build. This is a typical move in the retail industry and leads to decades-long contracts with reputable companies able to pay their rent. And if they default, your land will be worth more with the addition of a property paid for by the original leasing party.
Often, these accredited institutions, like McDonalds or Walmart as an example, will provide property owners with a letter of intent to lease the property. Most of the time, these institutions will sign a decades-long lease, spanning 20 or even 40 years.
All costs associated with building on the property, including utilities, taxes, insurance and more are the burden of the leasing party. In essence, they assume the responsibilities of the property owner, but don’t legally own the land.
So if you’re a broker or have a client with land looking for a safe investment, get on the phone and start dialing retailers that are expanding in your market.
These properties are in high demand. Investors are willing to pay some of the highest premiums and lowest cap rates for these types of leases. In fact, I get calls on a similar property of my own about once every other week. It’s in hot demand and I don’t want to sell — It’s really the best problem to have in real estate.