Commercial Mortgage Rates Update

Today’s commercial mortgage rates

Loan program type

Interest rates

Freddie Mac Optigo

5.59% - 7.06%

Fannie Mae

5.17% - 6.67%

HUD 223(f)

5.35% - 6.25%

CMBS

5.29% - 7.47%

Regional Banks/Credit Unions

5.37% - 10.00%

Life Insurance Companies

4.97% - 6.41%

Debt Funds

8.69% - 14.94%

HUD 221(d)(4)

5.95% - 6.85%

Note: These commercial mortgage rate ranges should be considered "typical", but outliers exist on both the high and low end. These are not guaranteed rates on any particular commercial real estate deal.

 

Commercial Mortgage Rates

Commercial mortgage rates constantly change, and updating live rates is often tricky. Several factors determine commercial real estate loan rates, but the most important factors are supply and demand. Retail real estate investors are constantly looking for properties that meet their investment criteria, and commercial mortgage lenders want to understand the property's risk/return profile for these property investments before making loans available.

How Frequently Do Commercial Mortgage Rates Change?

Commercial Mortgage Rates change every day because most lenders, particularly banks and credit unions, set their interest rates by "index" rates ultimately governed by national institutions like the United States Federal Reserve and the US Department of Housing and Urban Development ("HUD"). Commercial real estate loans involve more risk than government-backed bonds, so interest rates are usually at a premium or "spread" over the underlying financial indices. Commercial mortgage rates are also usually somewhat higher than residential mortgages, except for lower leveraged loans for the strongest borrowers.

Who sets commercial real estate loan rates?

Some commercial mortgage rates are based on the "prime rate" directly governed by Federal Reserve Board. Other commercial mortgages are pegged to US Treasury Bond Yields. Still, others have variable interest rates tied to indices like LIBOR or SOFR, which mirror the rates that financial institutions' own cost of borrowing funds in the global credit market. Commercial real estate loans are typically pegged to one of these economic indices with some added premium or discount, depending on risk.

How are Commercial Mortgage Rates used?

Commercial banks charge higher commercial mortgage rates and fees than residential properties because there's more inherent risk involved when it comes down to lending out large sums of money for investment purposes. The more incredible loan amount at stake may also require additional security measures from borrowers who need these loans, resulting in a more complex loan structure and potential recourse against the borrower's assets and property.

There are eight major commercial loan programs, each with a different range of rates. Retail real estate investors use current commercial mortgage rates to determine their cost of capital for a particular investment to see if it's worth investing in.

The current market conditions determine commercial loan rates, but there is a lot of back and forth with lenders to negotiate terms.

Commercial mortgages can be hard to obtain, especially for borrowers who don't have perfect credit, a high net worth, or a long track record in real estate investment.

Commercial mortgage rates change all the time because they're affected by several factors, such as:

• The current economic outlook affects consumer confidence (how much people plan to spend and invest). This also determines if banks need more liquidity.
• Federal interest rate changes often affect commercial mortgage rates closely after rising or falling since commercial loans can impact businesses' ability to participate in the local economy and create jobs at home.
• Increases or decreases in inflation since property investments are typically long-term assets.

Multifamily Investment Property Loans

Commercial mortgage rates apply to multifamily investment properties (like apartment buildings and mobile home parks) and commercial properties. Retail real estate investors can take out loans for these significant investments, and they have several options, such as fixed-rate or adjustable rates.

There are eight major commercial loan programs, each with a different range of rates. Retail real estate investors use current commercial mortgage rates to determine their cost of capital for a particular investment to see if it's worth investing in.

Fixed-rate loans offer a stable payment based on the original loan terms over a fixed period, usually between five years and thirty years. These set payments allow commercial property owners to pay off their debt on a predictable schedule that maximizes their cash flow or equity position.

Freddie Mac Optigo Commercial

One of the primary lenders for multifamily investments is US government agency Freddie Mac with their Optigo multifamily loan program. This loan program provides non-recourse commercial mortgages of $1 Million or greater for apartment buildings with stable occupancy and experienced managers.

Commercial Property Interest Rates

The average interest rate for commercial properties fluctuate based on current economic factors. The rates will also vary between various commercial property types. A few examples of commercial property types include:

Loans for property types with solid economic tailwinds typically command more favorable financing rates and terms. Multifamily and industrial properties are currently in high demand on the capital markets and will see some of the lowest interest rates. Lenders may see hotels, office buildings, and specific retail properties as more risky financial bets, so financing rates and terms may be less favorable.

• Office Buildings
• Hotels and other hospitality properties (motels, resorts, Airbnb rentals, etc.)
• Strip Malls
• Medical offices
• Grocery-anchored shopping centers
• Industrial properties like warehouses or factories
• Self-storage facilities
• Religious centers
• Hospitals

Loans for property types with solid economic tailwinds typically command more favorable financing rates and terms. Multifamily and industrial properties are currently in high demand on the capital markets and will see some of the lowest interest rates. Lenders may see hotels, office buildings, and specific retail properties as more risky financial bets, so financing rates and terms may be less favorable.

Top 11 Questions About Commercial Real Estate Loans

Here are some of the most frequently asked questions investors ask:

What qualifies as Commercial Real Estate?

Commercial real estate is any property where most of its use (generally at least 50%) falls under commercial or business usage. Commercial properties include office buildings, strip malls, hotels/motels, shopping centers, warehouses, etc. Commercial mortgages are available for all types of commercial properties.

Commercial mortgages also apply to Multifamily properties (apartments, mobile home parks, student housing, and senior housing) if the property comprises five or more residential units.

Why use a commercial real estate loan?

Commercial real estate loans can be used to acquire, develop, or refinance a commercial or multifamily property and are typically larger than residential mortgages. Much like buying a home with a consumer mortgage, a commercial mortgage allows the property owner to own and invest in the property with less cash than the total value of the property. Using a commercial mortgage with a low-interest rate to purchase a property can also boost an investor's financial returns.

What is an ARM Commercial Loan?

ARM stands for an adjustable-rate mortgage, also known as a Variable Rate. ARMs are often used when borrowers desire lower monthly payments in the short term but are willing to accept the risk of a higher interest rate. Commercial ARMs can be helpful for borrowers looking at several years of low commercial mortgage rates without taking on additional costs or restrictions of a fixed-rate loan, like a prepayment penalty.

Who controls Commercial Interest Rates?

The Federal Reserve and its members (or the central banks of various countries outside the US) highly influence commercial loan interest rates. Commercial real estate loans have been affected by The Fed's quantitative easing program, which has kept commercial bank lending rates near historic lows since 2012. This is an advantage because it makes borrowing cheaper than ever before while also helping businesses find qualified buyers with substantial capital available when buying properties.

How do Commercial Loan Rates Affect Investors?

The rates you receive directly impact how much you will cost to buy a property, impacting the key financial metrics such as your Cash Cash Return, Equity Multiple, and IRR.

How can you find the best commercial real estate rates?

There are thousands of commercial mortgage lenders in the United States. The most commonly known commercial lenders are banks and private lending companies. However, several other categories of lenders may be able to provide the most suitable commercial mortgage depending on the property type, size, location, and borrower's business plan.

Other types of commercial mortgage lenders include credit unions, life insurance companies, debt funds, government agencies (like Fannie Mae and Freddie Mac), and commercial mortgage-backed securities ("CMBS").

Soliciting quotes from multiple lenders interested in a commercial real estate asset is the most reliable way to find the best commercial mortgage rate.

How much is the typical down payment for a commercial mortgage?

Down payments for commercial real estate loans are typically between 20% and 50% and will vary based on the loan scenario. Down payments, also known as an investment's Equity Requirement, will be determined by location, type of asset, the experiborrower experience, and investment risk profile's typical minimum down payment for a commercial mortgage.

The minimum down payment for commercial real estate loans is usually around 20% of the purchase price.

What are the closing costs in commercial real estate?

Commercial real estate loans always have closing costs, some of which are regulated by law.

Closing costs include an appraisal, credit reports, real estate attorney fees, title insurance, and recording charges. Commercial mortgage borrowers are usually billed for the lender's real estate attorney, so be aware of negotiating small items in the loan documents that may not be worth revising.

What are the typical fees for a commercial mortgage?

Fees related to commercial mortgage origin may also be assessed at closing and added to the list of closing costs above. Some loans will also require payment of an application fee, an extension fee, or even an exit fee. The loan's Term Sheet will outline a complete schedule and explanation of fees before committing to take out the loan.

Commercial property investors may also be responsible for paying additional settlement agent or broker's commissions in addition to lender origination points (in other words - an upcharge added onto their interest rate).

What is Commercial Mortgage Debt Service Coverage Ratio?

The debt service coverage ratio ("DSCR") determines how much net income commercial real estate properties generate compared with their loan payment. Commercial mortgage debt service coverage ratios vary depending on property use, location, and other factors. Still, most lenders want at least 1.2 times monthly loan payments from total income.

This means that if your property generates an income of $120,000 per month, net of expenses, then a lender may provide a loan that costs up to $100,000 monthly in principal and interest payments.

 

Source: Commercial Mortgage Rates Update

[ux_html label="Request Financing Quotes from eXp Commercial's Capital Market Partner StackSource with over 1,000+ banks, debt funds and private equity firms in their network."] [/ux_html] https://www.creconsult.net/market-trends/commercial-mortgage-rates-update/

How to Find a Commercial Real Estate Buyer

You have a great piece of commercial real estate that you’re looking to sell, but you need to know how to find the right buyer.

There are many ways to find a commercial real estate buyer. You could list your property on an online marketplace or use a broker who specializes in finding buyers for commercial properties. You could also reach out to potential buyers directly by advertising your property in industry publications or online.

The process is frequently long, and there are many moving parts. However, following these steps can increase your chances of finding a buyer for your property.

What is a Commercial Buyer?

To determine if a potential commercial property buyer is qualified, the most critical factors to look for are experience, financial stability, and a track record of successful transactions. Experienced buyers will be familiar with the market and the ins and outs of the purchase process. They will also be better equipped to handle any unforeseen challenges.

Financial stability ensures that the buyer has the resources to make a cash offer or obtain financing and close the deal and follow through on their obligations. Finally, a successful track record indicates that the buyer is serious about your property for sale.

Who buys commercial real estate?

Top commercial real estate buyers can come from a variety of backgrounds and have different motivations for investing in commercial properties. Generally, commercial real estate investors consist of:

• Institutional investors, such as pension funds
• Private equity firms
• Insurance companies
• Corporations buying property for business use
• Individual real estate investors looking to make a profit on the purchase

Institutional investors buy commercial real estate to diversify their portfolios away from stocks and bonds and to hedge inflation. Private equity firms often look to purchase undervalued assets to improve them over time and then sell them at a higher price. Insurance companies sometimes purchase income-producing properties to hedge against market volatility and create steady cash flows. Corporations may buy office buildings or warehouses to house employees or expand operations.

Individual investors are the most common commercial real estate buyers. They purchase properties to generate a positive return on their investment through rent payments and eventual resale. In addition, these individuals often seek opportunities that offer long-term capital appreciation, tax benefits, and more control over their investments than stocks and bonds provide.

In general, all commercial real estate buyers have one thing in common: they seek investments that will generate financial returns in the future.

How to Get Commercial Real Estate Clients

Commercial real estate brokerage firms can find clients and buyers for commercial real estate property by utilizing a variety of tactics, including leveraging existing contacts, building relationships with other industry professionals, participating in professional networking events, and marketing themselves through various digital platforms as social media.

When leveraging an existing network of contacts, the key is to reach out personally to people you know who may have an interest or need related to commercial real estate. This could include current tenants or investors and prospective tenants or investors. You should nurture these contacts over time.

Building relationships with other industry professionals is also essential in finding clients and buyers for commercial real estate property. Doing so will help you develop a network of contacts that can provide invaluable connections to potential clients and buyers. This could include attending industry trade shows and conferences, joining professional associations or participating in online forums related to the commercial real estate sector.

Participating in professional networking events is another tactic that can be effective in finding clients and buyers for commercial real estate property. These events range from smaller, informal get-togethers to large conventions with hundreds of attendees. Attending such events allows you to meet people with interest or need that your brokerage can fill.

Finally, marketing yourself through various digital platforms is essential in today’s business climate. For example, you can use social media platforms such as Twitter, LinkedIn, and Facebook to reach potential clients and buyers. Additionally, having an up-to-date website with relevant content related to commercial real estate can also help you attract new business.

How do commercial real estate companies generate leads?

These strategies help commercial real estate companies generate leads and find interested parties in the industry looking for their services. With a combination of traditional and modern marketing techniques, CRE brokers can reach out to potential clients and build relationships that may result in successful sales or leases:

• Networking
• Online Marketing
• Email Campaigns
• Paid Advertising:
• Referral Programs
• Social Media
• Cold Calling
• Mailers
• Property Open Houses
• Direct Mail/Postcards

How to Sell a Commercial Property Fast

When selling a commercial property quickly, it’s important to have an effective plan. A seller or broker should take the following steps to sell their property faster:

1. Set an aggressive but realistic list price. Research market trends of similar properties to ensure that the list price is competitive and entices potential buyers – setting it too high will make it difficult for a quick sale.

2. Create compelling marketing materials. Prepare detailed descriptions of the property's unique features and find attractive photos and videos highlighting the building’s features and layout, which can be posted on websites.

3. Get your network involved. Reach out to your contacts inside and outside the industry to spread the word about your property. Expanding your reach increases the number of potential buyers that can be notified of its availability.

4. Utilize an experienced real estate broker. A broker experienced in investment sales is an invaluable resource for quick sales because they have experience finding qualified buyers quickly and negotiating a favorable deal for their clients.

5. Offer incentives to sweeten the deal. Incentives like rent subsidies or closing cost credits make it easier for buyers to sign on with your property immediately rather than considering other options that may take longer to close.

By taking the appropriate steps to market their commercial property, sellers and brokers can maximize their chances of selling quickly and efficiently. A successful sale requires good analysis, planning, and execution – with the right approach, it’s possible to sell a commercial property fast.

Top Markets for Commercial Real Estate Buyers

Here are the top 10 ranked commercial real estate markets for buyers to consider, according to the Emerging Trends in Real Estate 2023 report from PwC and the Urban Land Institute:

1. Nashville
2. Dallas/Fort Worth
3. Atlanta
4. Austin
5. Tampa/St. Petersburg
6. Raleigh/Durham
7. Miami
8. Boston
9. Phoenix
10. Charlotte

The recent survey of this year’s top-ranked real estate markets showed that most are in faster-growing southern and western regions, away from the coasts. Quality of life and affordability plays a significant role in choosing a region for commercial real estate investing. On the other hand, areas with relatively lower scores have inadequate infrastructure for their population size and growth.

The Bottom Line

Commercial buyers can be found in many places, but the most common place to start is targeting businesses you know could use your property. Generating leads for commercial real estate can be done through various methods, but one of the most common (and practical) ways is by partnering with a company that generates leads for you.

Finally, it’s important to remember that selling a commercial property quickly requires knowing what buyers are looking for in the current market. By understanding the top markets for commercial real estate buyers, you can position your property in a way that makes it attractive to potential investors.

 

Source: How to Find a Commercial Real Estate Buyer | Crexi Insights

https://www.creconsult.net/market-trends/how-to-find-a-commercial-real-estate-buyer/

What Is Cost Segregation and How It Benefits Buyers

Commercial investing occurs at an order of magnitude more challenging than investing in residential property. If you want to buy a residential rental investment or even an apartment complex, you simply hire a real estate agent and put your money down when you find a property that meets your standards. Even renting your residential property isn’t too tough, if you know how to do it right.

Buying commercial property is a bit more complicated — from the challenges in finding investment property loans, to the complex demands of commercial tenants, to the arcane tax laws that govern depreciation.

After all, every commercial real estate investor knows that depreciation is one of the most powerful tax credit advantages of owning property. Depreciation gives you a significant tax deduction every single year you own a property until that property exhausts its useful life — a span of 27.5 years for residential investment properties, and 39 for commercial investment properties.

But advanced investors know that to really unlock the power of depreciation, you have to use cost segregation. Effective, expert cost segregation can help you enhance and increase the amount of depreciation you can claim — sometimes multiplying it by up to a factor of 10x in a single year.

Let’s look at how cost segregation works, how it can benefit commercial investors, and some of the potential complications of investors who pursue cost segregation.

What is Cost Segregation?

Using standard depreciation on a commercial property you own is very straightforward: You simply divide the purchase price of the property by 39, and claim that amount every year.

Cost segregation is a more granular method of valuing the property, separating out items like personal property, finishes, and land improvements, which are depreciated on a more accelerated schedule.

That may not sound all that advantageous, but it’s common for up to 50% of a property’s features (and value) to fall into real estate tax categories that can be written off much faster than the building structure. That translates to a massive, immediate improvement over standard depreciation, and is one of the main reasons that commercial properties, if utilized correctly, are hands down one of the most effective avenues of real estate investing.

How Do You Start Taking Advantage of Cost Segregation?

The first step to using cost segregation is to have a cost segregation study done. Cost segregation studies examine the features and components of your property, and separate out certain improvements and costs that can be depreciated on a faster schedule — typically five, seven, 10, or 15 years. These can include special finishes, plumbing or lighting fixtures, or updated commercial equipment.

Cost segregation studies usually take 45 to 60 days to complete, and typically cost around $5,000 to $15,000. Unfortunately, the IRS has never provided precise standards or requirements for these studies, which has forced owners to essentially improvise the industry standards as they go.

But while some owners may be tempted to have their CPA or construction engineer execute their cost segregation study, it should really be handled by a specialist. The IRS itself says, “The preparation of cost segregation studies requires knowledge of both the construction process and tax law involving property classifications for depreciation purposes.” There are a lot of people who are familiar with just one of those areas, but few who are experts in both.

Smart owners should find an experienced cost segregation study expert, or their deductions could run into trouble in the course of an IRS audit.

An Example of Cost Segregation

Let’s look at a hypothetical example of traditional depreciation versus cost segregation to illustrate just how powerful cost segregation can be.

Let’s say you buy a commercial office property for $10 million. If you used standard depreciation for this property, you’d simply subtract the value of the non-depreciable land ($2 million) and divide the remaining $8 million by 39, which leaves you to claim $205,128 in depreciation every year. Pretty simple, and no harder than calculating standard residential real estate commission.

However, let’s say you commissioned a cost segregation study, and the study found that your property contained $2 million in personal property that can be depreciated in five or seven years. It also found $1 million in land improvements that can be depreciated over 15 years. That leaves $5 million in value for the structure itself to be depreciated over 39 years.

Because of the way the current law allows you to claim bonus depreciation, as laid out in the 2017 Tax Cuts and Jobs Act, you can now claim that $3 million ($2 million in personal property plus $1 million in land improvements) in year one. Plus, when you divide that $5 million by 39 years, you get an additional $128,205 — meaning your total first-year depreciation comes to a staggering $3,128,205!

If you’re in the top taxpayer bracket of 37%, this cost segregation will offer you property tax savings of roughly $1.157 million right off the bat ($3,128,205 x 0.37). That’s a stunningly large benefit unlocked by a comparatively small investment of time and money.

The best part is that if you can’t use those entire savings that year, you can roll over the unutilized benefit to future years.

It’s Never Too Late to Take Advantage of Cost Segregation

While most owners like to have their cost segregation studies done either soon after construction is completed, or as soon as their purchase of the property is finalized, you can get retroactive benefits of cost segregation even if you’ve already owned the building for several years or decades.

As long as the property in question was purchased or renovated after December 31, 1986, you can conduct a “look-back study” to claim all the prior years of depreciation you didn’t take advantage of, and roll them into a massive, one-year benefit.

This is calculated as the difference between what you claimed as depreciation and what you could have claimed if you’d done a cost segregation study. As you can see from the example above, this difference is often very significant. Considering that you can claim retroactive benefits as far back as 1987, a look-back study could be worth tens of millions of dollars — or more — in catch-up depreciation.

Doing a look-back catch-up doesn’t even require an amended tax return. Your CPA simply files a tax form indicating a change in accounting method and attach the cost segregation study. So whether you’ve just bought your first office building, or you’ve owned a whole portfolio of commercial properties for years and are just now learning about cost segregation, you should do yourself a big favor and have a cost segregation study done today.

 

Source: What Is Cost Segregation and How It Benefits Property Buyers | Crexi Insights

https://www.creconsult.net/market-trends/what-is-cost-segregation-and-how-it-benefits-buyers/

Selling an Apartment Building FAQ's

[ux_text text_align="left"]

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.

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

Request Valuation

 

Source: Selling an Apartment Building FAQ’s

[/ux_text] https://www.creconsult.net/market-trends/selling-an-apartment-building-faqs/

2023 eXp Commercial Commercial Real Estate Symposium

REGISTER TODAY

The Commercial Real Estate Symposium will provide junior and senior agents and brokers with valuable insights on topics, including: international opportunities, capital and funding for small businesses in today’s market, how to attract investors, and much more.

Dates: April 25-26, 2023
Start Time: 9 a.m. - 4 p.m. CST
Location: eXp Commercial Campus

We look forward to seeing you in the metaverse!

Important: Please download the virtual eXp Commercial Campus prior to the event, and follow the instructions to login and create your avatar. Feel free to explore the campus before the event begins.

 

+ Add to Google Calendar   + Add to iCalendar

 

Interested in Joining eXp Commercial as a Commercial Real Estate Agent?

Further Info

https://www.creconsult.net/market-trends/2023-exp-commercial-commercial-real-estate-symposium/

Top 6 Tips for Selling Commercial Real Estate

Selling commercial real estate has always been a complex process due to the multiple steps in the sales process and the uniqueness of each transaction. Despite new transaction trends which have accelerated post-pandemic, the fundamentals of selling commercial real estate remain the same.

In this article, we’ll discuss the six most important things to consider when selling commercial real estate for sale.

1. Conduct In-Depth Market Research

The most successful investors know it’s never a good idea to try and time your sale with the top or bottom movement of the commercial real estate market. With that being said, there are steps you can take and trends you can monitor to understand better if you’re getting the best value when you sell commercial real estate:

• Location, including neighboring properties and ease of access for tenants and customers
• Tenant and lease documentation, including rent rolls, actual vs. market rents, vacancy history, tenant credit quality, and aging of tenant receivables
• Future supply and demand metrics, such as absorption rate and new construction in the pipeline
• Historical change in property prices and rents in the immediate market over the past five years
• Average days on the market before vacant space is leased to help measure demand.

After you’ve completed your market research, you’ll be able to identify the best buyers for your specific property and determine the right asking price or whether to price at all. However, before you list your property for sale, you’ll want to conduct a “reality check” of your property value by reviewing the most recent sales comparables.

2. Review Real Estate Sales Comps

Comps are recently completed sales transactions of properties most similar to yours. While market research determines the price you hope to receive, sales comparables tell you the price you’re most likely to receive based on current market conditions.

There are four main ways that buyers value income-producing real estate. Comparing your sales comps to each of these four methods can help you gain a better understanding of how buyers are currently pricing a commercial property for sale:

1. The income capitalization approach compares the net operating income (NOI) to the property sales price and is expressed as a capitalization rate.
2. The gross rent multiplier (GRM) divides the property price by the gross income and is expressed as a ratio.
3. Value per door is typically used to buy an apartment complex and is calculated by dividing the property price by the number of units.
4. Cost per rentable square foot measures the amount of rental revenue generated by the total amount of leasable square footage to make a fair evaluation of a building’s value.

Remember that real estate sales comps may not give you the information you want. But knowing what to expect, you and your commercial broker can make informed decisions throughout selling commercial real estate.

3. Find the Right Representation for Your Property

Hiring a great commercial realtor can make the difference between selling your property quickly at the best possible price or having it sit on the market month after month with no buyers.

Some of the most significant advantages of having a broker represent your property for sale include the following:

• Determining a fair and realistic asking price based on current market conditions, helping to ensure a favorable return on your investment
• Exposing your property to an established network of contacts who may be interested in buying your property right away
• Handling the back-and-forth negotiations through closing, including managing the necessary paperwork. The broker only gets paid when the sale is complete

4. Use Online Marketing for the Best Results

Even before COVID-19 struck, the rise in CRE tech and online marketing tools was revolutionizing commercial real estate marketing and significantly expanding the pool of qualified buyers:

• Virtual tours, online Zoom calls, drone aerial videos, and AI in real estate are now the rule rather than the exception.
• CRE tech tools can put your property in front of qualified buyers, helping you understand what future buyers look like.

Marketing and selling commercial real estate online makes it easy to gather contact information for prospective buyers and build a database with names, phone numbers, and emails.

5. Do Your Due Diligence and Prepare Your Property for Sale

Most qualified buyers won’t waste time waiting for a seller to gather information and put documents together. To keep your prospective buyers interested, plan by doing your due diligence and preparing your commercial buildings for sale:

• Order a preliminary title report and look for issues such as monetary liens and overdue taxes
• Update lease files to include all leases, amendments, and modifications, along with copies of all material tenant correspondence, then put together a historical and year-to-date rent roll.
• Service contracts for existing vendors, including maintenance, landscape, and property management
• Collect copies of all maintenance records and capital expenditures, including mechanical systems such as HVAC and electrical, structural and safety systems such as roof and fire suppression systems, and common areas such as parking lots and elevators
• Compile historical and year-to-date profit and loss statements that accurately report the annual operating revenue of the property, using your tenant lease details and maintenance records as a backup
• Assemble physical due diligence material, including an updated Phase 1 and 2 environmental assessment report, ALTA survey, zoning reports, and insurance studies

6. Set Realistic Expectations for the Sales Process

Selling commercial real estate sometimes takes longer than many owners realize. Market conditions can change after escrow is opened. Sales costs such as cleaning and staging the property for virtual showing, inspections and repairs, and legal fees can quickly add up.

There are four basic steps in the sales process for commercial real estate:

Escrow

Escrow paperwork is more extensive than buying a residential property. Less regulation of CRE transactions requires escrow officers to have expertise in conducting commercial real estate closings.

Legal entities

CRE deals often involve two or more legal entities, such as an LLC or LLP, to protect buyers and sellers from personal liability. Properly structuring entities can create an extra layer of paperwork and potential delays in the closing process.

Due diligence

Although a lack of RESPA can lead to creative deal structuring, closings may also be delayed due to lease verification and review of the seller’s books and records.

Title and closing documents

Commercial real estate titles are often more complicated due to the liens, encumbrances, and easements included. Reports must be thoroughly reviewed, with objections filed within the deadline or negotiated contingency extension.

Commercial real estate transactions can take as little as one month to complete or as long as a year or more, depending on the deal’s documentation and complexity. In-depth market research, efficient CRE tech, and advice from your real estate broker can prepare you for the realities of the marketplace and set the right expectations for how much profit to expect when your transaction closes escrow.

 

Source: Top 6 Tips for Selling Commercial Real Estate | Crexi Insights

https://www.creconsult.net/market-trends/top-6-tips-for-selling-commercial-real-estate/

Commercial vs Residential Real Estate: Which is Better?

When evaluating investment opportunities, it is important to understand the difference between commercial and residential real estate. They are both vastly different beasts with their own unique sets of pros and cons.

The main difference between commercial and residential real estate is that commercial real estate is used for business purposes, while residential real estate is used for living purposes. That means that commercial properties are typically larger and more expensive than residential properties, but they also have the potential to generate higher returns. Commercial real estate is also riskier than residential real estate, so it’s essential to do your due diligence before investing.

So, which is better? It all depends on your individual goals and needs as an investor. Here’s a look at the key differences between commercial and residential real estate to help you make an informed decision.

What is Commercial Real Estate?

Commercial real estate is any property zoned and used for commercial purposes. This can include office buildings, retail space, warehouses, factories, and more. Commercial real estate is integral to any city or town as it provides space for businesses to operate.

Different types of commercial property

There are four main types of commercial property: office, retail, industrial, and mixed-use:

• Office properties typically host business operations, including small single-story buildings to large skyscrapers.
• Retail properties are designed for businesses that sell goods or services to the public, such as stores, restaurants, and malls.
• Industrial properties are usually large warehouses or factories where goods are manufactured or stored.
• Mixed-use properties are a combination of two or more of the other types of commercial property and are often found in busy urban areas.

Is it worth buying commercial property?

The estimated value of the commercial real estate in the U.S. is $20.7 trillion, including large apartment buildings and special-use properties like hospitality and self-storage. Regarding real estate investment, commercial properties offer a range of advantages over their residential counterparts.

Firstly, commercial tenants tend to stay longer, leading to a steadier income stream. Commercial properties also often have higher rent rates, providing the potential for greater returns on investment. In addition, commercial leases often include clauses that require the tenant to cover certain expenses, reducing the financial burden on the owner. Examples include property taxes, improvements, and building maintenance.

What are the disadvantages of commercial real estate?

While commercial real estate can bring in steady income through rent or leases, it also carries a higher risk than residential properties. One drawback is the longer timeline for finding tenants or customers and negotiating contracts, resulting in potentially longer periods without income.

In addition, commercial properties often require more maintenance and upkeep, including major repairs such as roof or HVAC replacements. Another potential issue is the higher cost of financing, as commercial loans generally have stricter requirements and shorter repayment terms. Overall, careful research and analysis are necessary to weigh the potential risks and benefits before deciding.

What is Residential Real Estate?

Residential real estate is the property for living purposes, including new construction and resale homes. It covers many property types, from single-family homes to multifamily dwellings like apartments and condos.

Different types of residential property

There are many different types of residential real estate, including single-family homes, townhouses, condominiums, and cooperative apartments:

• Single-family homes are the most common type of residential real estate in the United States. These homes are typically detached from other residences and have a yard or garden area.
• Townhouses are another type of residential real estate. They are attached to other residences but usually have their entrance.
• Condominiums are another type of residential real estate. They are similar to apartments, but each unit is owned by an individual rather than rented from a landlord.
• Cooperative apartments are residential real estate where the residents own and operate the property together.

Other types of residential real estate include multifamily homes (such as duplexes and triplexes), mobile homes, and manufactured homes. Multifamily homes are usually investment properties, while mobile and manufactured homes offer a more affordable option for those who want to own their own home.

Is it worth buying residential property?

Many people view commercial real estate as the more profitable investment, but residential property also presents its unique benefits compared to commercial. One significant advantage is the consistency of demand. Commercial properties can experience fluctuations in rental income due to changes in the industry or the economy. Conversely, residential rents tend to remain steady as there will always be a need for housing.

Additionally, rental rates for residential properties have a strong potential for growth over time. This can provide investors with a steady income stream and the potential for value appreciation if they choose to sell. And, unlike commercial leases, which often have long terms and strict landlord responsibilities, residential leases are typically shorter and less demanding.

What is the Difference Between Commercial vs. Residential Real Estate?

Commercial real estate vs. residential real estate investing

Here’s a more detailed look at the key differences between these two real estate types.

Location

Location is one of the most important factors when choosing between commercial and residential real estate. Commercial properties are usually located in business districts or nearby businesses, whereas residential properties are typically situated in neighborhoods or subdivisions. The location of a property can impact its value, so it’s essential to choose wisely.

Renters/Tenants

Another key difference between commercial and residential real estate is who rents/lives in the property. In commercial real estate, businesses are the typical tenants, while in residential real estate, individuals or families are the usual occupants. The type of tenant can affect the stability of income, as well as the amount of maintenance required.

Size/Scale

Commercial real estate properties are often much larger than residential ones since businesses need more space than home residents. This means that commercial properties typically require more capital to buy and more manpower to maintain. However, it also means that there’s potential for higher returns on investment (ROI).

Financing Options

When it comes to financing, commercial and residential real estate each have their unique options. For instance, with commercial real estate, you may get an SBA loan, which the Small Business Administration backs. With residential real estate, you can take out a home equity loan if you own your home outright or have significant equity built up. You could use these funds as a down payment for a rental property.

Is commercial real estate better than residential?

So, which is better—commercial or residential real estate? The answer depends on your goals as an investor. Residential real estate is probably your best bet if you’re looking for stability and modest returns. However, if you’re willing to take on a bit more risk in exchange for potentially greater rewards, commercial real estate could be the way to go.

Whatever you choose, make sure you do your homework first to know what you’re getting into.

The Bottom Line

Choosing between commercial and residential real estate is a big decision that should not be made lightly. There are many factors to consider, such as location, type of tenant, size/scale, and financing options. In addition, the type of investment you choose will depend on various factors, including your investment goals, budget, and experience level. By understanding the critical differences between the two, you’ll be better positioned to make the right decision.

 

Source: Commercial vs Residential Real Estate: Which is Better? | Crexi Insights

https://www.creconsult.net/market-trends/commercial-vs-residential-real-estate-which-is-better/