If You're Hesitant To Hire A Broker For Your Multifamily Property Read This

Multifamily brokers frequently hear this comment from apartment property owners: “I don’t want to list, but you can bring me a buyer.” Their reasons sometimes include previous bad experiences, fear of getting “tied up” in a formal agreement, tenants finding out the building is for sale and making anxious calls to management, thinking the commission will be halved, or not really being interested in selling. Whatever the reluctance, the reality is that if an investor wants or needs to sell, the best thing they can do is hire a broker. Let’s address a few of those common objections first.

If you had a previous bad experience, more than likely, you hired the wrong broker. The specific agent you hire or the firm they work for should have experience in both the geographic market and transaction size — ask for their track record. While you’re at it, ask for references from clients, and make sure at least one is for a listing that did not sell. These simple steps will give you insight into whether you’re working with a pro.

As for getting “tied up” or having anxious tenants because the building is selling, a professional broker typically allows you a cancellation right for the listing. If there are deadlines you need to meet, make sure your broker understands. And while no broker can guarantee tenants won’t find out the building is being sold, experienced brokers can modify marketing by limiting showings to only vacant units, specific hours for low visibility, limiting digital footprint tenants might see, etc., to reduce the probability of tenants finding out.

That said, the best course is simply to announce to tenants that the building has been listed for sale, explain the sale may not be successful, and assure them that their lease runs with the building, not the owner, and is their protection during the lease term against rent increases or being forced to move.

These are certainly not the only reasons clients are reluctant to list but whatever is yours, talk to your broker about your real concerns. A seasoned broker will most likely have previously faced a similar challenge and should be able to address your concern. But this only addresses your concerns about why you shouldn't hire a broker — it doesn’t explain why you should.

The first benefit is understanding the value of your property. A professional, qualified broker who specializes in your asset or area will be able to give you a price range to expect so that you can decide whether selling makes sense. If you move forward, this specialist will also have databases of the most qualified, active investors in the market and have relationships and influence with them. The ultimate buyer of your property will more than likely come from one of these relationships. But a broker won’t rely exclusively on these relationships. A good broker will also create a professional marketing plan with appropriate amounts of promotion across email, mail, websites, and listing services.

All this leads to the most important part of hiring a broker: competition. Trying to sell your building by letting a broker “bring you a buyer” is like having an auction for a painting, and one person shows up to bid. If the building is priced correctly, a professional marketing plan will create a competitive environment for investors so that the process itself determines not what the market wants to bid but what the market is willing to bid.

Larger portfolio owners might be reluctant to list with a specific broker because they have relationships with numerous brokers or firms in the market, and they don’t want to offend anyone by choosing a competitor. Instead, they tell every relationship to “bring me a buyer.” If this is you, think a few more steps down the chain of events.

First, this may only create chaos. You not only have brokers racing each other to bring clients, but each is advocating to you why their buyer is the best so that they can get the commission. Then you ultimately have to pick one buyer/broker anyway and disappoint the others after they’ve put work in. Alternatively, a listing agreement assures a commission for the listing agent if the property sells; therefore, there is no incentive to advocate for any one specific buyer.

An additional benefit of listing a property with a broker comes after a sale contract is signed. Any number of unexpected or challenging issues can arise during the escrow period of a sale. A seasoned broker has probably experienced something similar before. This person will also quarterback the entire process of due diligence, appraisal, and loan approval.

The most important benefit of exclusively listing your property with a broker is representation. You will have a hired gun with a fiduciary obligation to advocate for your best position in a deal. A professional broker will be ethical, transparent, and fair but will also be your personal fighter in the arena of marketing, negotiation, and escrow management.

This short list does not address every objection an owner would have for not listing, nor every benefit you receive from hiring a professional broker, but hopefully, it gives you a few things to consider. If you want to maximize your price and minimize your anxiety with the selling process, hire a broker. The benefits far outweigh the cost.

Have you thought of selling your property and would like to know what it's worth? Request a valuation for your property below:

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eXp Commercial Chicago Multifamily Brokerage focuses on listing and selling multifamily properties throughout the Chicago Area and Suburbs.

We don’t just market properties; we make a market for each property we represent. Each offering is thoroughly underwritten, aggressively priced, and accompanied by loan quotes to expedite the sales process. We leverage our broad national marketing platform syndicating to the top CRE Listing Sites for maximum exposure combined with an orchestrated competitive bidding process that yields higher sales prices for your property.

 

 

https://www.creconsult.net/market-trends/if-youre-hesitant-to-hire-a-broker-for-your-multifamily-property-read-this/

2023 Demand for Apartment Buildings Will Remain Strong

Multifamily
Absorption of units in the last 12 months: 174,442
Rent growth in the last 12 months: 3.7%
Cap rate: 4.9%

Rent prices are still higher than they were a year ago, but the gains have returned to more normal levels. Rent growth dropped to the lowest level since the first quarter of 2021. Rents rose 3.7% year-over-year in the last quarter of the year compared to 5.6% and 9.2% in the previous two quarters.

As elevated prices continue to hurt consumers, fewer people can afford to cover their rent expenses, decreasing the demand for apartments. After reaching all-time lows in 2021, the vacancy rate rose significantly in Q4 2022 to 6.1%.

While rents have increased in nearly all the metro areas across the county, Sun Belt areas have experienced an even faster rent growth, including Kingsport and Knoxville in Tennessee, Fayetteville, NC, Charleston, SC, and Naples, FL.

Respectively, demand for apartment buildings remains strong in big city centers such as New York and Washington, DC. In these two areas, more than 9,000 multifamily units have been absorbed in the last 12 months ending in December.

2023 Outlook:

Rent price growth won’t likely hit the 2022’s highs. Although multifamily housing construction has slowed down, the number of apartment buildings under construction is at record highs. Thus, the completion of these homes may ease rent growth.

Nevertheless, demand for apartment buildings will remain strong, considering many buyers have already been priced out of the market. Due to rapidly rising mortgage rates, buyers need to earn more than $100,000 to afford to buy the median-priced home. However, only 15% of the renters earn that income.

Read the full report covering all commercial real estate sectors

Full Report

[ux_html] [/ux_html] https://www.creconsult.net/market-trends/2023-demand-for-apartment-buildings-will-remain-strong/

How to Diversify Your Investments With Commercial Real Estate

Diversifying your investments is always a good idea. And in an economic moment like the present, it's a borderline necessity when the market looks to be approaching a volatile period.

For investors in residential real estate looking to upgrade their portfolios while scaling down their risk, commercial real estate offers an exceptionally safe and lucrative harbor. The commercial real estate market is much more insulated from market shocks than the residential market. The returns can be very attractive — often on par with top-quality investments like dividend stocks.

Let’s look at some of the unique pros and cons of investing in commercial real estate and some of the best ways to allocate your money in the commercial real estate world.

What Makes Commercial Real Estate Investing Unique

Commercial real estate investing is different from residential real estate investing in some fundamental ways. First of all, there’s more money involved. The average commercial property has a higher price tag than all but the highest-end residential properties, so it’s tougher to buy in.

Those high stakes also necessitate more careful analysis. While a simple comparative market analysis is great for residential investments, a commercial real estate investment demands more in-depth number-crunching.

However, that high price tag has an upside. Commercial investments are based more on careful analysis rather than heated speculation. Since relatively few investors can participate, there’s much less competition in the market.

Commercial properties also come with long, multi-year leases, ensuring a steady cash flow. Returns on a typical commercial investment are 6% to 12%, much higher than the standard residential return.

Finally, commercial properties can be extraordinarily low-maintenance. While residential rentals can be pretty low-maintenance if you work with a property management service, property managers also eat up a significant percentage of your rents. Using a triple net lease for your commercial property means the tenant pays maintenance, taxes, utilities, insurance, and everything but the mortgage. While triple net leases come with slightly lower rents than leases in which the owner foots some of these costs, they’re still much more lucrative, on a dollar-for-dollar basis, than professionally managed residential properties.

So what are the best ways to diversify into commercial real estate? Let’s look at some of the most popular paths.

Using a Transaction Sponsor

If you want the most streamlined, low-maintenance commercial real estate experience, putting your money into a project led by a transaction sponsor is likely the best way.

A transaction sponsor scouts out potential commercial projects. When they find one that’s promising, they negotiate a purchase agreement, assemble investor materials, and bring in the capital needed to buy or renovate the property.

You don't have to do much as an equity investor in a project like this. The transaction sponsor will oversee and is responsible for every phase of the project, from pre-acquisition due diligence through to the final disposition of the finished product.

To maximize diversification, allocate money to several different transaction sponsors. Since most sponsors specialize in various projects, you’ll likely have money in various properties.

Diversification Through Types of Commercial Real Estate

There are four main types of commercial real estate; allocating your money among them can further insulate you from risk. The main types are:

Industrial

This type includes buildings like warehouses as well as production or logistics facilities. Industrial properties offer excellent cash flow and low operational risks but are vulnerable to market downturns. They’re also typically quite large, which translates to high upfront costs.

Office

Office spaces offer excellent stability for investors, as leases are typically long and come with low tenant turnover. However, one of the significant downsides of a long lease is the few opportunities for rent increases. On top of that, there may be high upfront costs if an office space needs to be customized for a specialized client, like a medical facility.

While office spaces are typically stable even in volatile economic times, the rise of remote work during the pandemic has cast the future of office space into doubt.

Retail

Tenants like retail shops, gyms, entertainment properties, and bank branches use these properties. Similar to office space, retail spaces often come with long leases. On the downside, retail tenants are vulnerable to market changes and sometimes go bankrupt. Because the spaces are highly customized, expensive renovations are often necessary between tenants.

Multifamily

A commercial multifamily property has five or more residential units. While these properties are well insulated from economic turbulence, they come with the labor-intensive obligations of smaller residential investments — for example, property management costs and high tenant turnover. Despite their residential nature, these properties are still considered one of the core types of commercial real estate.

The genius of diversifying among different commercial real estate types is that you can take advantage of every market condition. For example, in a booming economy, you’ll reap the benefits of owning industrial space, and when the market enters a downturn, your multifamily investments will weather the storm.

Diversifying Through Property Classes

Savvy investors can also allocate their money to and invest in real estate along different commercial properties. Commercial property classes are:

Class A

This is the highest quality commercial property. Typically, the property is new, well-maintained, and centrally located. Consequently, it offers shallow risk and very predictable returns.

Class B

The second-highest commercial property class is usually between 10 and 20 years old, in need of minor renovations, and in a decent but not top-quality market. This property class offers slightly more risk but can give investors great returns if correctly managed.

Class C

Older properties (usually between 20 and 30 years old) require moderate repairs. Nearing the end of their usable life, they’re also located in fringe areas and require prudent management to deliver a consistent return.

Class D

These obsolete properties may require significant renovations or repairs to get back to acceptable conditions. Their very low buy-in could yield considerable profits to an innovative manager, but they could also result in a total loss.

Again, allocating investments among every class can offset risk and maximize profit. A Class A investment will consistently bring in cash flow, while a handful of lower-class assets can result in exponential gains.

Diversifying by Location

Finally, allocating money among different geographical locations allows you to avoid being too tied up in the fortunes of any one market. Especially as issues like climate change threaten prime coastal markets like Miami and water scarcity threatens prospects in the West and the Sun Belt, it’s essential to keep “location, location, location” in mind.

The Bottom Line

Commercial real estate investments offer a viable and reliable sector into which to invest capital and diversify your portfolio. It’s worth exploring various asset classes, locations, and property types to find the best investment property. And, of course, when in doubt, it’s best to talk to an experienced commercial real estate broker to gain detailed market knowledge before you buy and receive guidance throughout the investment process.

 

https://www.creconsult.net/market-trends/how-to-diversify-your-investments-with-commercial-real-estate/

How to Diversify Your Investments With Commercial Real Estate

Diversifying your investments is always a good idea. And in an economic moment like the present, it's a borderline necessity when the market looks to be approaching a volatile period.

For investors in residential real estate looking to upgrade their portfolios while scaling down their risk, commercial real estate offers an exceptionally safe and lucrative harbor. The commercial real estate market is much more insulated from market shocks than the residential market. The returns can be very attractive — often on par with top-quality investments like dividend stocks.

Let’s look at some of the unique pros and cons of investing in commercial real estate and some of the best ways to allocate your money in the commercial real estate world.

What Makes Commercial Real Estate Investing Unique

Commercial real estate investing is different from residential real estate investing in some fundamental ways. First of all, there’s more money involved. The average commercial property has a higher price tag than all but the highest-end residential properties, so it’s tougher to buy in.

Those high stakes also necessitate more careful analysis. While a simple comparative market analysis is great for residential investments, a commercial real estate investment demands more in-depth number-crunching.

However, that high price tag has an upside. Commercial investments are based more on careful analysis rather than heated speculation. Since relatively few investors can participate, there’s much less competition in the market.

Commercial properties also come with long, multi-year leases, ensuring a steady cash flow. Returns on a typical commercial investment are 6% to 12%, much higher than the standard residential return.

Finally, commercial properties can be extraordinarily low-maintenance. While residential rentals can be pretty low-maintenance if you work with a property management service, property managers also eat up a significant percentage of your rents. Using a triple net lease for your commercial property means the tenant pays maintenance, taxes, utilities, insurance, and everything but the mortgage. While triple net leases come with slightly lower rents than leases in which the owner foots some of these costs, they’re still much more lucrative, on a dollar-for-dollar basis, than professionally managed residential properties.

So what are the best ways to diversify into commercial real estate? Let’s look at some of the most popular paths.

Using a Transaction Sponsor

If you want the most streamlined, low-maintenance commercial real estate experience, putting your money into a project led by a transaction sponsor is likely the best way.

A transaction sponsor scouts out potential commercial projects. When they find one that’s promising, they negotiate a purchase agreement, assemble investor materials, and bring in the capital needed to buy or renovate the property.

You don't have to do much as an equity investor in a project like this. The transaction sponsor will oversee and is responsible for every phase of the project, from pre-acquisition due diligence through to the final disposition of the finished product.

To maximize diversification, allocate money to several different transaction sponsors. Since most sponsors specialize in various projects, you’ll likely have money in various properties.

Diversification Through Types of Commercial Real Estate

There are four main types of commercial real estate; allocating your money among them can further insulate you from risk. The main types are:

Industrial

This type includes buildings like warehouses as well as production or logistics facilities. Industrial properties offer excellent cash flow and low operational risks but are vulnerable to market downturns. They’re also typically quite large, which translates to high upfront costs.

Office

Office spaces offer excellent stability for investors, as leases are typically long and come with low tenant turnover. However, one of the significant downsides of a long lease is the few opportunities for rent increases. On top of that, there may be high upfront costs if an office space needs to be customized for a specialized client, like a medical facility.

While office spaces are typically stable even in volatile economic times, the rise of remote work during the pandemic has cast the future of office space into doubt.

Retail

Tenants like retail shops, gyms, entertainment properties, and bank branches use these properties. Similar to office space, retail spaces often come with long leases. On the downside, retail tenants are vulnerable to market changes and sometimes go bankrupt. Because the spaces are highly customized, expensive renovations are often necessary between tenants.

Multifamily

A commercial multifamily property has five or more residential units. While these properties are well insulated from economic turbulence, they come with the labor-intensive obligations of smaller residential investments — for example, property management costs and high tenant turnover. Despite their residential nature, these properties are still considered one of the core types of commercial real estate.

The genius of diversifying among different commercial real estate types is that you can take advantage of every market condition. For example, in a booming economy, you’ll reap the benefits of owning industrial space, and when the market enters a downturn, your multifamily investments will weather the storm.

Diversifying Through Property Classes

Savvy investors can also allocate their money to and invest in real estate along different commercial properties. Commercial property classes are:

Class A

This is the highest quality commercial property. Typically, the property is new, well-maintained, and centrally located. Consequently, it offers shallow risk and very predictable returns.

Class B

The second-highest commercial property class is usually between 10 and 20 years old, in need of minor renovations, and in a decent but not top-quality market. This property class offers slightly more risk but can give investors great returns if correctly managed.

Class C

Older properties (usually between 20 and 30 years old) require moderate repairs. Nearing the end of their usable life, they’re also located in fringe areas and require prudent management to deliver a consistent return.

Class D

These obsolete properties may require significant renovations or repairs to get back to acceptable conditions. Their very low buy-in could yield considerable profits to an innovative manager, but they could also result in a total loss.

Again, allocating investments among every class can offset risk and maximize profit. A Class A investment will consistently bring in cash flow, while a handful of lower-class assets can result in exponential gains.

Diversifying by Location

Finally, allocating money among different geographical locations allows you to avoid being too tied up in the fortunes of any one market. Especially as issues like climate change threaten prime coastal markets like Miami and water scarcity threatens prospects in the West and the Sun Belt, it’s essential to keep “location, location, location” in mind.

The Bottom Line

Commercial real estate investments offer a viable and reliable sector into which to invest capital and diversify your portfolio. It’s worth exploring various asset classes, locations, and property types to find the best investment property. And, of course, when in doubt, it’s best to talk to an experienced commercial real estate broker to gain detailed market knowledge before you buy and receive guidance throughout the investment process.

 

https://www.creconsult.net/market-trends/how-to-diversify-your-investments-with-commercial-real-estate/

Bridging The Bid-Ask Divide: Brokers On Getting Past Who's Going To Blink First

As rising interest rates and economic volatility have stifled buying power for investors over the last six months, commercial real estate sellers often have found themselves somewhat of a standoff with potential purchasers.

Who will make the first move in adjusting expectations?

For the brokers sitting in on those negotiations daily, it comes down to serving both sides a dose of reality about market conditions. And that isn't accessible medicine for buyers or sellers to swallow right now.

"The reality is, sellers still want 2021 pricing, but buyers just can't step up to that number," Joe Powers, regional manager of Marcus & Millichap's Chicago downtown office, told Bisnow.

The bid-ask spread between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept proved to be a challenge in 2022 and continues to be one into 2023.

"It's become more important now, I think, than in recent years because, for a while there, you could throw a number out there, and someone would grab it, whereas now, real information is dictating the market," Powers said.

In office space especially, the bid-ask divide has become particularly wide, reaching a spread of about 30%-40% as of November and December 2022, according to Wei Luo, global associate research director at CBRE Investment Management. Before the pandemic, the bid-ask spread hovered around 10%-20% for offices.

"It's common for a spread between the bid and asks. That's why we need brokers," Luo told Bisnow. "It's not uncommon, but I would say once the gap reaches beyond 30%, that's when the sector has a problem. That's when activity will be coming to a standstill. ... When people go to a negotiation, they're not expecting to cut 20% off their price."

In its 2023 Trends to Watch in Real Assets report, MSCI estimated that London office prices would need to fall 29.3% from October 2022 levels, and New York offices would need to drop 10.4% to bridge the gap between what sellers want and buyers are willing to pay, Bisnow reported.

Meanwhile, CBRE predicts another 5%-7% decrease in investment values in 2023, coming off a 10%-15% decline across the first three quarters of 2022.

"As the market has become more difficult the last four to six months, people have struggled with, from a sell side, how tough do I become, and from a buy side, how much am I willing to move up?" Steven Weinstock, regional manager of Marcus & Millichap's Oak Brook office, told Bisnow. "The sellers have been unwilling to move because 'I still own the real estate, so why am I going to make the first move? Nothing is causing me to make the first move.'"

In the case of office buildings, the spread is starkest when it comes to the differences between modern Class-A buildings and older buildings.

"When more modernized offices have become available, I think that's when you start to see that spread because investors now realize the bifurcation has begun, so you have two different assets — one that's kind of future-proof, one that's going to be obsolete at some time in the future," Luo said.

Office buildings that might have been built in the 1980s or '90s and weren't well maintained are bearing the brunt of the hit to their values, mainly as the pandemic brought into question the future of the office, Luo said.

However, new developments built with environmental, social, and governance principles in mind and modern amenities have seen demand outpace supply even in a downturn as investors participate in a flight to quality, she added.

"For any owners that are trying to sell right now, their goal is to get liquidity," Luo said. "They want to sell the office asset they own to get capital, to get cash so that they can recycle the capital into better-performing assets. But for the buyer who's in the market trying to buy an office, they want to buy low and sell high. They're looking for discounts when the owners are looking for capital."

Because both sides have misaligned goals and differing price expectations, Luo said, "it's tough to bridge when you're in such a tightened credit condition."

Luo said that retail, industrial and residential properties face price adjustments based on higher borrowing costs, but the bid-ask gap is relatively small compared to the office.

If interest rates stabilize, that will help close the gap, but office owners, in particular, will need to take some write-downs, which she said they have already started doing,

"Many office investors in the industry have started to do that because that's the reality. We can't bury our heads in the sand," Luo said.

The brokers at Marcus & Millichap have found that widening the pool of potential buyers has helped sellers become more realistic and get a sense of fair market value for their assets. Marcus & Millichap aims to bring at least five offers to the seller.

"The bid-ask gap has become a 'who's going to blink first?'" Weinstock said. "Sellers have started blinking. They started saying, 'I got enough offers. I have enough interest. I know what the market pricing is. Even though I wanted more, if I want to transact, I've got to take the market price.'"

The real estate brokerage has opened up its property listings to all of its 2,000 brokers across North America and taken a collaborative approach across markets — something Weinstock said has been a rarity in his 34 years in the industry.

"It works if you take a property and bring it to market, expose it to the most people, and create competition," Weinstock said.

Of the firm's 2022 Chicago transactions, about 66% were from out-of-state investors, Powers said. The typical average of out-of-state transactions falls around 45%.

"In 2001, money didn't go across state lines. You stayed local," Weinstock said. "In 2023, you're not concerned where the property is anymore, so it's become very robust."

Marcus & Millichap train its brokers to work with the buyer and seller to understand how each is coming to its pricing.

"It's a lot of coaching," Powers said. "It's a lot of conversations that are harder than others because you have a seller that has a number that they need or want, but sometimes that isn't necessarily achievable. So, our job is to bring them to market.

"There are two reasons why a property doesn't sell. It's either exposure or pricing, and if we've been able to generate multiple offers from qualified buyers, the market has spoken, and it's a function of pricing."

During this time of economic turbulence, WHe said Weinstock encourages sellers to sit down with their financial advisers to discuss their options, which aren't just to sell or own anymore; they can also decide to hang onto their assets and make improvements or to refinance and use the additional capital for other investments.

Industry players told Bisnow they see the gap narrowing by year's end.

"We always come out of it, and statistically, mathematically, the succeeding 12 months after whatever economic uncertainty there is have always produced a significant gain for the commercial real estate market," Weinstock said. "All we have to do is help our clients during this turmoil, however long or short."

 

https://www.creconsult.net/market-trends/bridging-the-bid-ask-divide-brokers-on-getting-past-whos-going-to-blink-first/

What is Tenancy in Common in Commercial Real Estate?

Tenancy in common (TIC) is a real estate transaction in which there is more than one owner of a specific property. It is not an uncommon situation, but it can have both good and bad factors related to it. Understanding tenancy in common in a commercial real estate transaction is a critical step if this type of structure will be used.

What Is Tenancy in Common?

TIC is a type of ownership structure. In this transaction, more than one party will own the same property. There are some situations where this can be good, for example, because it can make it simpler for borrowers to get the financing they need for a property. However, TIC can also come with several legal and sometimes more complex complications when the owners do not have good practices.

There are various situations when this could occur. For example, it can be set up through paperwork by two or more parties as co-owners during the purchasing process of commercial real estate. It could also be a default situation under the state's property laws. Sometimes it is necessary because one person or organization can't hold the property alone.

How Does TIC Work in Commercial Real Estate?

This legal arrangement occurs when two parties (or more) share commercial real estate ownership rights. In this arrangement, the owners may share privileges and interests in all aspects of the property. While they share those interests, they can have different levels of rights or percentages of their overall interest in the property.

This type of agreement is flexible in that it can be created anytime. It is possible to add a new tenant in common at any time during the ownership, even after other parties have entered the agreement.

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Tenancy in Common vs. Joint Tenancy

What is the difference between joint tenancy and tenancy in ordinary?

It is not uncommon for a property that more than one individual owns to be a joint tenancy rather than a common one. When it is a joint, the structure must conform to a specific set of rules or standards. These are often called TTIP. These standards require that each joint tenant must start their ownership of the property together.

In addition, it must be documented on the property's deed – the same deed. In addition, each joint tenant has to have the same type of ownership share in commercial real estate. That includes providing equal possession rights to the property. In many situations, a joint tenancy becomes a TIC when one tenant decides to sell their portion of the property's ownership to another joint tenant or party.

This is very different from what can be expected in a TIC situation. For example, it is not uncommon for each tenant to have a different percentage of ownership shares in the property. In some cases, one party may have a 30 percent stake of ownership and the other 70 percent, or any further configuration. Unlike joint tenancy, all parties must have the same privilege level.

Another difference is that the ownership of the property does not have to occur at the same time as it does in joint tenancy. Instead, adding a new tenant at any time is possible, which is not uncommon.

Another significant difference is that when a commercial real estate investor dies in a TIC, the property's share does not automatically go to the other property owners. That's what occurs in a traditional joint tenancy. In a TIC, though, the property owner can pass to the named heir of the tenant.

What Are the Benefits and Drawbacks of TIC?

When considering tenancy in common in a commercial real estate transaction, it is critical to know the pros and cons of this scenario. Considering living in its ordinary meaning, consider the following.

Advantages of Tenancy in Common

There are numerous benefits to this arrangement.

For example, it allows for the property to be purchased. In other words, all aspects of the purchase are more accessible, allowing all parties to participate. This includes dividing up the down payment, maintenance, upgrades, and payments.

In addition to this, in comparison to a joint tenancy, a TIC can allow the tenant structure to change over time, meaning that more people can be added to it. Also, different degrees of ownership are permitted, providing more flexibility than a joint tenancy.

Disadvantages of Tenancy in Common

There are some disadvantages of tenancy in common also to consider.

For example, when a mortgage is obtained to purchase commercial real estate, all borrowers agree to the terms and conditions of the loan together. When this happens, all parties hold equal liability to the property.

For example, if one of the tenants in common does not make payments as agreed, the other parties could be held responsible or have assets seized. There are also no automatic survivorship rights in a TIC, which could be concerning for some property owners. Other factors to remember include that any tenant can cause the forced sale of the real estate property at any time.

Tenancy in Common Tax Implications

With the TIC structure, there are some factors to consider when it comes to taxation. Most of the time, the TIC receives a single tax bill. This bill is then divided based on the amount of commercial real estate each party owns. This requirement is often outlined in the agreement that all parties agree to.

There could be some local and state laws that play a role in this, but the tenants make their own decision about how this payment is structured.

It is also important to note that each TIC will have a liability in the tax bill. For example, if one of the parties defaults on their payment because they filed for bankruptcy, the other tenants must pay that bill.

How to End a Tenancy in Common Agreement?

In some situations, it may be necessary to dissolve the tenancy in common. One member of the TIC can buy out the other members. This would lead to the dissolving of the TIC. It is done in a joint agreement.

Sometimes the parties cannot agree on the dissolving of the property. This may lead to a breaking up of the ownership in a court order and legal proceeding.

Wrapping Things Up

In many situations, the use of TIC is sensible and beneficial, creating an opportunity for property owners to achieve the purchase and ownership of commercial real estate property in a meaningful manner. When considering this type of structure, investors must consider the drawbacks, including the shared liability in tax and mortgage liens and the process for dissolving them. Without a doubt, TIC is not uncommon and is readily used in various scenarios as a viable solution for ownership.

 

 

https://www.creconsult.net/market-trends/what-is-tenancy-in-common-in-commercial-real-estate/

Selling an Apartment Building FAQ's

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Top Frequently Asked Questions on Selling a Multi-family in Chicago

Are you thinking of selling your multi-family property?

Here are some of the most frequently asked questions we get from clients looking to sell multifamily properties in Chicago.

Before You Sell:

How is selling a multi-family different than selling a single-family home?

If you’ve sold an investment property before, you’ll be familiar with the ins and outs of selling a multi-family. However, if it’s your first time, you’ll learn that the process works differently than it would with a single-family or condo.

A large part of a multi-family’s sale appeal will lie in its cash flow. Buyers looking for a multi-family are looking for more than just a home: they will want to see a property that generates good rental income, rents easily, and provides a financial incentive for them to buy. This could be in the form of easy upgrades they can make to boost rental income or as an empty unit for them to occupy and offset their own living expenses.

Do I need a broker to sell a multi-family?

Of course, we’re biased...but we do recommend working with a broker who is experienced in the multi-family market in your neighborhood. Not only will they be able to pull good comps and provide a market analysis of how you should price the property, but an experienced agent will know how to show the proeprty to different types of buyers, whether they are experienced investors or first-time multi-family buyers who want some supplemental income. Brokers who work in multi-family markets are also in the know about rent prices and trends, which will help them sell your home at the right price.

Do I need to make repairs before selling?

Some buyers look for multi-families with units that could benefit from some updating because they see it as an opportunity to raise the rent using some sweat equity. Your agent should be knowledgeable of the renter’s and buyer’s market for your area and property type and will have good recommendations of what types of updates to make before selling.

Making simple upgrades around the property and in common areas like hallways and entryways can be an easy way to boost the property’s curb appeal that won’t break the bank, whether it’s through new fixtures or a fresh coat of paint.

How do I list a multi-family?

One of the most important parts of getting ready to list your property is confirming the number of legal units in the building. In a city full of old homes like Chicago, many apartment units have been created in old basement spaces or have been de-converted into larger single unit. If you sell your property with an incorrect number of legally recognized units, you could face legal issues down the road. To get the most accurate picture of how your property should be valued and listed, get in touch with the local village to confirm the number of legal units listed in their records.

How should I price my multi-family?

Buyers and their lenders will typically appraise a multi-family home using the income approach method instead of simply using comps in the area to compare values. This means that the appraiser will look at the cost of property maintenance and rental income to evaluate a property’s cash flow. To price your multi-family, you should do appraise a building’s income and use comps in the area to accurately represent what someone might want to pay for it.

How should I market my multi-family?

• You’ll want professional photos of each unit to get ready to list your property, which means asking your tenants to clean their spaces and set up a time for the photographer. Having an empty unit comes in handy because it gives you the opportunity to deep clean the space and potentially even stage it with furniture to show off its potential.
• Put together a financial breakdown and lease abstract to show possible buyers. This might include details like current rents, cost of utilities, and other maintenance fees to give them a better idea of potential rental income.

Selling a building with tenants.

How do I sell my multi-family with occupied units?

One of the trickiest parts of selling a multi-family is to make sure that you are aware of your tenants’ legal rights and that you make the selling process as effortless for them as possible.

• Breaking the news to tenants: Announcing that you’re listing your property for sale isn’t the easiest conversation to have with tenants. For them, it means the hassle of cleaning their apartments for multiple showings, a change in landlords, and a potential increase in their rent after the sale. However, you are legally obligated to inform your tenants when you sell the property, so it’s important to have that conversation before getting too far into the selling process.
• Tenant’s rights when a property is listed for sale: To protect yourself from liability and provide a smooth transition for your tenants during the sale process, it’s important to be aware of their rights determined both by the state and by their lease agreement. Your tenants most likely have a right to be notified a set amount of time before showings and have a lease that can’t be terminated just because you want a vacant unit to sell the property. Reread your lease agreements and the tenant’s rights for your city before listing your home or schedule showings.

How do I show a property with occupied units?

An experienced Broker will know the ins and outs of how to show a property with occupied units (which is one of the biggest reasons why you should take your time to find a good agent). The most important concern when it comes to showing units is to make sure that the tenant is aware of the appointment sufficiently ahead of time. Check your lease agreement to see if there are already guidelines in place, or contact your tenant prior to listing the process to come to an agreed-upon amount of days or hours before the showing when they should be contacted.

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Source: Selling an Apartment Building FAQ’s

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