This month I’m going to offer a two-part series. Both articles will examine the advantages of leveraging the expertise of a commercial broker for commercial real estate transactions. This first article will cover the benefits of a commercial broker from a seller’s perspective; I’ll follow up in part two with a look at the benefits from a buyer’s point of view.

Before we delve into the many reasons why using the services of a commercial broker is a good idea for anyone looking to sell commercial real estate, let me just make a few general comments …

 

Commercial real estate is truly a specialty. A commercial real estate transaction is a complex undertaking that involves thousands of details and interrelated tasks. It can be very difficult for someone without a thorough knowledge of the commercial real estate business to manage a transaction efficiently and without missing details that would result in unnecessarily wasted time and money. The commercial real estate industry, along with all of the rules and regulations that govern it, is very dynamic. Things can change so quickly that even seasoned professionals can fall behind if they are not diligent about staying current.

I sometimes compare commercial brokers to attorneys. When people (that are not legal professionals) have legal issues, they could try to represent themselves, but it’s not a good idea. Without the vast knowledge and understanding of the minute details that a qualified attorney possesses, there’s a high probability that details could be overlooked and costly mistakes be made. Good attorneys know the most current laws and the smartest strategies and tactics for addressing legal issues. An attorney is an expert consultant for legal issues, and a commercial real estate broker is an expert consultant for real estate transactions.

A commercial broker can represent buyers, sellers, landlords and tenants. So let’s take a look at what a broker can do for sellers.

One of the most important benefits that a reputable broker offers a seller is effective marketing. Obviously, when sellers list properties, they need to get the word out to viable buyer prospects. This is how they reach the best prospects and they get the best price for the property. Unlike most property owners, quality brokers have a wide variety of marketing tools and resources at their disposal and the expertise to use those tools to maximize the exposure of the property to the target audience most likely to be interested in buying. Because a broker has these tools in place and uses them often, he or she will be able to run each marketing campaign efficiently and cost effectively. Marketing for-sale properties is something most brokers do practically every day, so the process usually runs like a well-oiled machine. Once the seller submits the details of the property, the broker will have it in the MLS system, on multiple internet real estate sites, and in all the right print publications almost immediately. In most cases, signs, flyers, email blasts, direct mail and other communications channels will also be used to enhance the campaign. In addition to the standard marketing channels, if a broker has been working in the area for an extended period of time, he or she has probably built up a network of relationships with clients, investors and other brokers that will result in some excellent leads.

An experienced broker may also have the talent and ability to look at the property from different perspectives and recognize variables that the owner didn’t notice. A broker can frequently help the seller identify the highest potential for the property based on factors such as location, square footage, property type and more. For example, a property near the hospital may have the most value as a medical facility. A building near the courthouse may be ideal for an attorney’s office. A specific example in Wilmington is on the corner of Oleander Drive and Independence Boulevard. Remember the old Exxon station? Today it’s a thriving Starbucks. It’s on the corner of a busy, high-visibility intersection that’s easily accessible from either side, and near business and residential areas – it’s the perfect spot for a Starbucks.

Proactive commercial real estate brokers also will offer sellers ideas about the best way to utilize their properties. Understanding the variety of ways a particular property can be split or subdivided can expand the appeal of the property to a broader audience. A good broker will run scores of analytics to determine the true value of the property for a range of business scenarios, and then find the appropriate target buyers.

The bottom line is, a commercial real estate broker is a specialist that has the tools, knowledge and connections to help sellers locate buyers efficiently and cost effectively.

Continue reading “The Benefits of a Broker In Commercial Real Estate (Part 1 of 2)”

Glossary of Commercial Real Estate Terms

Glossary of Commercial Real Estate Terms


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  • Abatement
    Often referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease.
  • Above building standard
    Upgraded finishes and specialized designs necessary to accommodate a tenant’s requirements.
  • Absorption rate
    The rate at which rentable space is filled. Gross absorption is a measure of the total square feet leased over a specified period with no consideration given to space vacated in the same geographic area during the same time period. Net absorption is equal to the amount occupied at the end of a period minus the amount occupied at the beginning of a period and takes into consideration space vacated during the period.
  • Ad valorem
    Meaning “according to value,” this is a tax imposed on the value of a property that is typically based on the local government’s valuation of the property.
  • Adjusted funds from operations (AFFO)
    A measure of REIT performance or ability to pay dividends used by many analysts with concerns about the quality of earnings as measured by funds from operations (FFO). The most common adjustment to FFO is an estimate of certain recurring capital expenditures needed to keep the property portfolio competitive in its marketplace.
  • Administrative fee
    Usually stated as a percentage of assets under management or as a fixed annual dollar amount.
  • Advances
    Payments made by the servicer when the borrower fails to make a payment.
  • Adviser
    A broker, consultant or investment banker who represents an investor in a transaction. Advisers may be paid a retainer and/or a performance fee upon the close of a financing or sales transaction.
  • Aggregation risk
    The risk associated with warehousing mortgages during the pooling process for future securitization.
  • Alpha
    Alpha is a risk-adjusted statistical measure of performance. Alpha takes the volatility (price risk) of a managed portfolio of equities or alternative assets and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha. Alpha can be thought of as the abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM). It typically is thought of as a measure of the “value-added” (or subtracted) by the portfolio manager in selecting the individual components of and engineering the interplay between components when constructing the portfolio. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%.  If a CAPM analysis estimates that a portfolio should earn 12% based on the risk of the portfolio, for example, but the portfolio actually earns 14%, the portfolio’s alpha would be 2%. This 2% is the excess return over what would have been predicted using the same original inputs by the CAPM model.
  • Alternative or specialty investments
    Property types that are not considered conventional institutional-grade real estate investments. Examples include congregate-care facilities, self-storage facilities, mobile homes, timber, agriculture and parking lots.
  • Amortization
    The liquidation of financial debt through regular periodic installment payments. For tax purposes, the periodic deduction of capitalized expenses such as organization costs.
  • Anchor
    The tenant that serves as the predominant draw to a commercial property, usually the largest tenant in a shopping center.
  • Annual percentage rate (APR)
    The actual cost of borrowing money. It may be higher than the note rate because it represents full disclosure of the interest rate, loan origination fees, loan discount points and other credit costs paid to the lender.
  • Appraisal
    An estimate of a property’s fair market value that is typically based on replacement cost, discounted cash flow analysis and/or comparable sales price.
  • Appreciation
    An increase in the value or price of an asset.
  • Appreciation return
    The portion of the total return generated by the change in the value of the real estate assets during the current quarter, as measured by both appraisals and sales of assets.
  • Arbitrage
    Buying securities in one market and then selling them immediately in another market to make a profit on the price discrepancy.
  • As-is condition
    The acceptance by the tenant of the existing condition of the premises at the time a lease is consummated, including any physical defects.
  • Assessment
    A fee imposed on property, usually to pay for public improvements such as water, sewers, streets, improvement districts, etc.
  • Asset management
    The various disciplines involved with managing real property assets from the time of investment through the time of disposition, including acquisition, management, leasing, operational/financial reporting, appraisals, audits, market review, and asset disposition plans.
  • Asset management fee
    A fee charged to investors based on the amount invested into real estate assets for the fund or account.
  • Asset turnover
    Calculated as total revenues for the trailing 12 months divided by the average total assets.
  • Assets under management
    The current market value of real estate assets for which a manager has investment and asset management responsibilities.
  • Assignee name
    The individual or entity to which the obligations of a lease, mortgage or other contract have been transferred.
  • Assignment
    A transfer of the lessee’s entire stake in the property. It is distinguishable from a sublease where the sublessee acquires something less than the lessee’s entire interest.
  • Attorn
    To agree to recognize a new owner of a property and to pay him/her rent.
  • Average common equity
    Calculated by adding the common equity for the five most recent quarters and dividing by five.
  • Average downtime
    Expressed in months, the amount of time expected between the expiration of a lease and the commencement of a replacement lease under current market conditions.
  • Average free rent
    Expressed in months, the rent abatement concession expected to be granted to a tenant as part of a lease incentive under current market conditions.
  • Average occupancy
    The average occupancy rate of each of the preceding 12 months.
  • Average total assets
    Calculated by adding the total assets of a company for the five most recent quarters and dividing by five.

Continue reading “Glossary of Commercial Real Estate Terms”