WHEN IN DOUBT, REFER IT OUT

CCIM Advises Residential REALTORS® to Listen Carefully

CAR’s residential REALTORS® are sometimes confronted with a tough question from clients, “You’ve been so helpful with the sale/purchase of my home. Can you help me with a commercial property deal?”

According to Certified Commercial Investment Member Institude (CCIM), the answer is that usually, you should refer it out to a commercial REALTOR®. If you are hoping to be helpful to your client and just make the initial call, there are a few terms that you can use to make sure you get a call back for your client.

Letter of Intent (LOI): The LOI is used before a fullblown offer is made and outlines the terms: price, timeline, disclosure, and buyer's agent name. It will also state who and when a seller will get paid, such as on execution of the sale or commencement. Using a template from a legal document template with only one signature line (the buyer or seller) is the best practice. Writing this LOI will help you flesh out the terms of the deal so that the other party’s lawyer doesn’t have to (Hint* This is part of a REALTOR’S® unique selling proposition).

TYPES OF LEASES:

1)Net Lease determines how much the lease owner pays

-NNN (Property tax) Net costs. Also known as Tripe Net.

-NN (Property Insurance) Must have insurance.

-N (Operating Expenses) Such as maintenance, this should be itemized.

If your client is asking you to look at a lease that is not NNN, ask a lot of questions as to why.

2)Gross Lease is common for landlords and lessors.

3)Land leases are uncommon in Colorado and are more prominent on the East coast.

Parts Of A Lease

Common Area Management (CAM) rate. This part of the lease determines the charges and costs dedicated to the common areas and is not specific to one tenant. This part of the lease should be scrutinized. Tenant improvement is listed separately from this.

CAP Rate. Another good place to ask lots of questions is when you see the CAP rate, which is the rate of return on a property based on income. It is either built on pro forma or actuals. It is a shortcut to calculating value. Investors use the CAP rate to determine the value of their investments, while lenders use it to help underwrite loans.

Estoppel. A signed statement by a party certifying for another's benefit that certain facts are correct, such as that a lease exists, that there are no defaults, and that rent is paid on a certain date. It’s given to a tenant to prove there is no issue with the property, such as a bad roof. This protects your client from having a dispute with a tenant. Commercial REALTORS® typically use Colorado’s form for this.

Abstract. Use this for a purchase agreement or a lease. Both sellers and buyer’s agents can write an abstract, which is a summary of the very long lease document that provides the lease term, legal issues, duration, deposit, tenant, unusual lease provisions, financial obligations, or other important issues. (Hint* it’s a time saver for you!) the cannabis industry is impacting sales because of the zoning differences for growing marijuana versus distributing it.

Useable vs. Rentable square feet. One of these terms is usually listed on a retail lease as the amount of space a renter is paying for. Rentable space is usually the larger number on the lease. This can confuse the price for square footage on the deal.

Multi-family commercial sales are booming, however, in metro areas around Colorado, construction defect law remains a problem in sourcing affordable housing. Developers wanting to price homes at lower price points are facing these defect laws, which make condos and townhomes much more expensive to build.

Land commercial sales are the hardest to complete in terms of time spent, zoning designations, and capital costs. These deals can take years to close. REALTORS® must consult and process through different government agencies for utilities, and zoning. Agriculture is a subset of this category where local politics can play into negotiations.

THINK YOU WANT TO GET INTO COMMERCIAL SALES?

Trends In Different Commercial Sale Specialties

Commercial real estate is tribal, and many professionals deal in one of these areas: office, retail, industrial, multifamily, and land. Each area comes with some unique traits, which is why many larger commercial real estate firms will not allow a REALTOR® to work in more than one area.

Office, retail, and industrial are separate commercial sales specialty areas, however, with post-pandemic issues such as decreased consumer traffic, home officing, and supply chain issues, these specialty areas are blending. Companies like Amazon with more than one need are blending sales for offices, warehousing, and distribution. Previously, these would have been traditionally served by an agent who specialized within Industrial sales: warehouse, distribution, or manufacturing. For example, now some REALTORS® must combine specialties to flex between industrial and office space, buying and selling property to accommodate the smaller companies that distribute to Amazon. In Colorado,

Commercial realty might be a good fit for you if you are good at research, numbers, and analytics. As with most anything, patience is a virtue, but it is put to the test when some deals can take years to close. That said, those looking to put a foot into both residential and commercial real estate might find it challenging. For REALTORS® in smaller communities, your only option may be to do both.

Becoming a Certified Commercial Investment Member will provide you with expertise in financial, market, user, and investment analysis, as well as negotiations. For less than $1,000 a year, a CCIM membership can bring a practitioner the training, tools, resources, and a network that is the gold standard in commercial real estate. Contact Lousie Bowen for more information at 303-748-2231 or louise.richardson@ comcast.net.