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Frequently Asked Questions

What is commercial real estate?

Broadly defined, “commercial real estate” can be used to refer to any dealing with real property in a business context. This may involve leasing space, constructing of new buildings (retail, office, industrial), or selling real property as part of the sale of a business. It could be the sale of vacant land or management of properties described above.   It might even involve residential properties like apartment complexes or other residential properties that have a minimum of 4 units.

 

Are there that many differences between a commercial real estate and buying a house?

Many of the concepts are the same, but there can be significant differences between the commercial and residential real estate markets. It is far more common for commercial property to be leased, rather than sold. Many commercial properties are owned by large real estate holding companies. These entities will often enter into long-term leases with various businesses. The lease periods can be longer and are often three, five, or ten years in term.

This stands in sharp contrast to the residential market, where outright sales are more common. Residential real estate also offers significant leasing and renting opportunities for the consumer, but typically for one-year terms.

Certain types of commercial transactions can have additional legal implications, particularly with regards to zoning and land use. For example, if you are hoping to buy or lease a commercial building in which to manufacture chemical products, you’ll need to consult with an attorney to verify that you file the proper public permits and that the location is properly zoned for such activity. These sorts of issues are less common for residential buyers, who generally plan to use the home for the purpose for which it was intended: a residence.

Commercial buyers and lessors generally are not afforded the same consumer protections as residential buyers and sellers. Commercial entities are generally considered to be sophisticated parties, usually represented by counsel.

Should I hire a real estate broker?

The goal of every seller is to maximize profits, while the goal of every buyer is to minimize costs.  It can help you broaden your market and achieve your goals by hiring real estate professionals, and fees should be factored in as a cost to doing any commercial real estate deal. There are many reasons to hire your own real estate broker (or an agent who may work for a broker). The broker or agent should have specific expertise in commercial real estate, and particularly in the area where you need it (such as office space, retail space, industrial warehouse space, apartment complexes, land etc.).

Even if you’re just leasing property, a real estate broker may be extremely helpful.  A good agent will go out and find the property for you. The agent will also serve to negotiate on your behalf and work on similar deals all the time.  Most times it does not even cost the tenant anything because the Landlords pay a lease commission for a transaction in their property. If the Landlord has an agent, they split the commission.

Hire the best person you can find, who has expertise in representing parties on your type of real estate transactions.  Ask around and call Commercial Asset Partners Realty for a free consultation.

If I hire a real estate broker, why do I need to hire a lawyer?

A real estate broker is a licensed professional who is hired to negotiate the purchase and sale of real estate for a commission and a broker is usually not an attorney. Real estate agents are not providing legal advice. Separate legal advice from an experienced real estate attorney will help make sure all the appropriate language is used and the I’s are dotted and the T’s are crossed.

How is monthly rent calculated?

Multiply the price per sq. ft. times the square footage of the space then divide that number by 12 for the monthly rent.

What if I find the location myself?

Contact your commercial real estate agent who will make the calls and negotiate the best terms possible for you. It is likely that the agent is already familiar with the building and too many inquiries will only encourage landlords to increase their rates.

What does NNN mean?

NNN stands for net, net, net. These are property expenses and are passed through to Tenants in addition to the lease fee, or rent to the landlord or lessor. The NNN fees are property taxes, property insurance, and common area maintenance.

What does “build out” mean?

Many office and retail buildings start out with tenant spaces consisting of little more than four walls and a door. The idea is that the spaces will be finished to meet the specific needs of each tenant. The process of finishing this raw space is known as the “build out” and can also be referred to as “tenant improvements”.

What is radon gas?

Radon is colorless, odorless, radioactive gas that is given off by soil or rock. High levels of radon gas in your office, school, or home may put you at risk of lung cancer. There is a required disclaimer in all leases and sale contracts in the State of Florida.

Does “as is” really mean “as is”?

“As is” really means the seller is offering a piece of real property with no warranties as to its quality. Buyers can assume that the property has some issues that the seller expects to factor into the initial purchase price without facing further negotiation or demands for repairs. Sellers trying to evade liability by selling their home “as is” should be careful, however. Many states have legislation to preclude a seller from completely passing the buck on certain issues such as environmental cleanup, hazardous waste disposal, or dealing with other dangerous known conditions. The law sometimes requires mandatory disclosure of defective conditions or problems with property, a legal norm common to other types of sales contracts. For example, a seller would likely be found liable if it sold a commercial property to a buyer and failed to disclose its knowledge that the foundation was buckling.

Can my IRA invest in real estate?

Your IRA can become directed by you through the use of an IRA Custodian, which will enable your IRA to invest in real estate, mortgages, notes, and other investments. The growth of your IRA can grow tax free, even at distribution.

Can I self-direct my own IRA and make Real Estate Investments and realize the returns tax free?

If you invest through a Roth IRA, your investment earnings are tax free when you take a withdrawal after the age of 59 ½. By investing in Real Estate with a Roth IRA, you will not have to pay taxes on your rental income, your capital appreciation, or your gains from selling a property. In exchange, you do not receive a tax deduction for your contributions into the Roth IRA like you would with a traditional IRA.

What is the process involved in converting from a Traditional IRA into a Roth IRA?

When you convert from a Traditional IRA to a Roth IRA you pay income tax on the contributions. The taxable amount that is converted is added to your income taxes and your regular income rate is applied to your total income.

What is a cap rate?

The capitalization rate is the rate of return on a real estate investment property based on the income that the property is expected to generate. It is used to estimate the investor’s potential return on his or her investment.

What is a sublease and what are the advantages and disadvantages?

In a sublease agreement, the sublessee, pays rent to the sublessor, who in turn pays rent to the landlord. Some advantages include: Cheaper and easier to obtain, the ability to start small, turnkey ready, access to common areas, free amenities, no CAM or unpredictable fees, etc. Some disadvantages would be: Not your own private space, default by sublessor, delays in maintenance, limited design options, unfavorable lease terms, etc.

What is an estoppel certificate?

A document often used in due diligence in real estate and mortgage activities. It is a document often completed, but at least signed by a tenant used in his or her landlords proposed transaction with a third party.

What is the CCIM designation?

A (certified commercial investment member) is a recognized expert in the commercial and investment real estate industry. The designation process ensures that CCIMs are proficient not only in theory, but also in practice. Fewer than 5% of all commercial Realtors have earned this designation.

I am buying a commercial building and my lender says we need to do an environmental study. What is that and why?

A Phase I Environmental Site Assessment (ESA) is conducted by an Environmental Professional to determine if “recognized environmental conditions” (RECs) exist in association with a property. A REC is defined as the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to any release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment. The Phase I ESA provides an independent professional opinion about the environmental condition of the property and involves a review of regulatory and municipal records, historical land use records, a site inspection, and interviews with owners, occupants, neighbors and local government officials.

Other reasons include:

1.      The costs of remediation could impair the borrower’s ability to repay the loan and/or continue to operate the business;

2.      The value and marketability of the Property could be diminished. If the borrower defaults, lender or SBA might have to abandon the Property to avoid liability or accept a reduced price for the Property;

3.      Lender or SBA could be liable for environmental clean-up costs and third-party damage claims arising from contamination if title to contaminated Property is taken as a result of foreclosure proceedings and/or lender or SBA exercises operational control at the Property; and

4.      If a Governmental Entity cleans a site, it may be able to file a lien for recovery of its costs which may be superior to SBA’s lien.

What is a mitigation bank?

A mitigation bank is a wetland, stream, or other aquatic resource area that has been restored, established, enhanced, or (in certain circumstances) preserved for the purpose of providing compensation for unavoidable impacts to aquatic resources. Even after avoiding and minimizing impacts, projects that will cause adverse impacts to wetlands, streams and other aquatic resources typically require some type of compensatory mitigation. The Army Corps of Engineers (or approved state authority) is responsible for determining the appropriate form and amount of compensatory mitigation required. Methods of compensatory mitigation include restoration, establishment, enhancement and preservation.