Commercial Real Estate Terms - Northern Colorado Commercial Real Estate

Should You Invest in Cold Storage?

October 23, 2024

What is Cold Storage?

Cold storage is a specialized category within the industrial sector of commercial real estate. Generally, cold storage facilities are designed to house perishable goods such as produce, dairy, meat, and medications at controlled temperatures.

To provide temperature control, cold storage warehouses have robust refrigeration and insulation systems, and therefore tend to be more expensive than traditional warehouse property but offer higher returns. Cold storage properties can look like large-scale refrigerated warehouses, a cold room within a traditional warehouse, or temperature-controlled distribution centers.

The agriculture, pharmaceutical, and distribution industries rely heavily on cold storage facilities to keep their goods at specific temperatures prior to releasing them to consumers. Increasing awareness of opportunities in cold storage investing is driving many to add this subcategory to their commercial real estate portfolios.

Why Invest in Cold Storage?

Here are a few reasons why you might want to consider investing in cold storage facilities:

Demand: With significant increases in online shopping and shipping of perishables, such as grocery delivery services, there is strong demand for cold storage which will remain steady for the foreseeable future, thus increasing property values.
Recession Proof: While no investment is fully recession proof, cold storage is a vital part of our economic infrastructure and is much less impacted than other sectors of commercial real estate during a downturn.
Diversification: To build wealth, it’s crucial to have varying types of assets, and cold storage is the perfect opportunity to diversify your real estate portfolio with its unique nature.
Steady Income: Being able to provide service to customers in several different industries makes for consistent cash flow.

Your Next Purchase

If you are considering your next commercial real estate purchase and aren’t sure which direction to go, we would love to be a resource! Please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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What to Look for in Commercial Real Estate Leases

October 10, 2024

The Structure of a Commercial Lease

Before implementing a commercial lease as a landlord, be sure you understand its structure and ramifications. On the other hand, it’s crucial for tenants to be familiar with the different portions of a commercial lease agreement prior to signing to avoid any future confusion or conflict.

While there are several different types of leases in commercial real estate, each with its own set of obligations, there are a handful of general things to know as you prepare to rent your property.

Parts of a Commercial Lease

The following are the different parts of commercial leases that should be considered:

Rent Amount: Most importantly, the lease will explain how much it costs to rent the property.
Payment Due Date: Is rent paid on a monthly basis? If so, be sure your renter knows what date it must be paid by and how that aligns with the cash flow of their business.
Security Deposit: Read the contract to understand if the landlord will collect a security deposit upfront and how they may use the funds once the lease has ended.
Lease Term: How long the lease agreement lasts should be clearly outlined.
How to Renew: Will the lease automatically be renewed at the end of the first term? Is there an option for a month-to-month agreement after the first year?
Type of Business Allowed: Typically, leases will explain what types of businesses may operate in a given building per the zoning guidelines. Ensuring the tenant’s business meets the criteria is paramount.
Common Area Maintenance: Many commercial spaces will have common areas that need to be maintained. Is this the tenant’s responsibility, the owner’s, or split?
Subleases: Depending on the size of the building, a tenant may want to sublease a portion of their rented space. Some leases will allow subletting, and some will not.
Improvements: If any improvements need to be made while a renter is in place, the lease will specify who is responsible for the associated costs.
How to Terminate: Tenants and landlords have different rights when terminating the lease contract. The agreement will state if and how each party can end the lease.

Not Sure What to Look For?

If you are a landlord or tenant and aren’t sure what to look for in commercial leases, we would love to help! Northern Colorado Commercial Real Estate is experienced in helping clients understand and negotiate the terms of commercial leases.

If you have questions about commercial real estate or lending options, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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Bridge Loans in Commercial Real Estate

September 24, 2024

Purchasing commercial real estate generally requires financing, as the price tags can easily be in the multi-millions. There are several types of loans you can use to acquire a property, each with its own benefits and drawbacks.

When deciding which financing strategy to use, consider terms, interest rates, fees, and pay-off period. Your commercial real estate broker can connect you with an experienced lender who will help you find the loan program that best suits your business’s situation.

Bridge loans are one of the more unique types of financing. These programs allow a potential buyer to purchase a new property without having sold the current property. The bridge loan ultimately gets replaced by longer-term financing options.

Bridge Loans in Commercial Real Estate

Here are a few details to know about how bridge loans function in commercial real estate:

Term: Typically, bridge loans have a 12-36 month term, after which the borrower is expected to have more permanent financing in place.
Fees: Due to their unique nature, these loans can have higher processing fees than standard lending options.
Interest Rate: Similar to the fee structure, bridge loans tend to have higher interest rates because of their shorter terms.
How to Qualify: As with other loan types, lenders will analyze loan-to-value ratios, assets, and creditworthiness to determine if your business qualifies.
Where to Go: To find bridge loan options, you can go to traditional banks, online lenders, or direct lenders. Remember always to compare rates, fees, and customer service to find the best lender!

The Perfect Fit?

Whether the perfect property just hit the market and you need immediate financing or you are looking to invest in a short-term fix-and-flip, a bridge loan might be the perfect fit. Bridge loans are a great resource for accessing funds quickly when traditional lending may not work.

If you have questions about commercial real estate or lending options, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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When to Choose a Class A Commercial Building

September 11, 2024

Your Investment Goals

Knowing your investment goals is crucial in purchasing commercial real estate.

Real estate investments generally tend to perform well over time as there is consistent demand and limited supply. Other options, including fix-and-flips and development opportunities, may provide a quicker return.

Typically, the best investment path is not only the one that suits your skill set and financial needs, but also the one that you are most passionate about. Consulting a local commercial real estate expert will help you determine the properties that align with your lifestyle and objectives.

When to Choose a Class A Building

Three classes (A, B, and C) help categorize commercial properties. Class C buildings typically require substantial work or renovations, are in less appealing areas, and receive lower rents. Class A properties provide the best locations, ideal amenities, and the highest rents, and Class B falls in the middle.

So, when does it make sense to purchase a Class A building?

Risk Level

Class A properties are the least risky investments in commercial real estate. If you are a buyer looking for a ready-to-rent property that needs little to no work, look no further. Class A properties are also easier to sell no matter the market conditions and draw top-tier tenants.

Location

Sometimes, investors target up-and-coming areas as they can yield major returns on investment. However, if the area doesn’t turn out to be the next hot spot, owners can find themselves in a difficult position. Class A buildings, on the other hand, command high rents right away as they are in areas that are already considered the most desirable.

Timeline

Your timeline may be a deciding factor. Do you have the margin, resources, and contacts for renovations? If not, a Class A property may be the perfect fit, as it shouldn’t require remodeling.

Budget

You must have the proper budget to choose a Class A building. Class A properties are likely to be listed and sell for top dollar. A Class B or C building may be a better fit if you’d rather pay less upfront and invest in updates over time.

Where to Start

If you have questions about how to get started in commercial real estate investing, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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What You Need to Apply for a Commercial Real Estate Loan

August 28, 2024

Commercial vs. Residential Loans

While commercial and residential real estate loans have their similarities, they are actually quite different. Residential loans are typically focused entirely on an individual or family’s financial situation. Debt-to-income ratios, credit scores, and down payment funds help loan originators determine if the individual or family qualifies for a mortgage.

On the other hand, commercial loans focus on a business’s creditworthiness. The lender heavily scrutinizes the company itself, as they are supplying money to purchase property for business purposes.

Commercial lenders must see that an organization’s business plan and finances are strong enough to take on the additional debt. Rather than looking at personal metrics of financial readiness, commercial loans are almost entirely dependent on the business’s history and trajectory.

What You Need to Apply

To apply for a commercial real estate loan, you will need to have the following ready:

Business Plan: Showing a lender your business’s path forward and how you plan to get there is a crucial aspect of qualifying for a commercial loan, as it shows income projections.
Income Information: Income documentation is always required, as lenders need to see that your company is earning enough money to pay off potential debt.
Tax Returns: One of the easiest ways for loan originators to determine income information is to review final tax returns from previous years.
Expense Details: How much money does your company spend on a regular basis? This is a telltale sign of whether your business is ready to take on an additional mortgage payment.
Current Debts: Similar to residential real estate loans, the type and amount of current debts a business has will be examined and may hinder their qualification if the debt is deemed excessive.
Business Bank Statements: Lenders always need to verify bank accounts, cash amounts, and a proper paper trail of where down payments are coming from.
Appraisal: Since the property is viewed as collateral for the loan, a third-party appraisal is always required to determine the building’s unbiased market value.

Commercial real estate lending comes with many intricacies. If you have questions about where to start, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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Building Classifications in Commercial Real Estate

August 14, 2024

Building Classifications

Building classifications are categories that the commercial real estate industry uses to group properties based on their characteristics. Rental rates, building age, amenities, types of finishes, and condition all factor into how a building is classified.

Some investors focus on Class C properties, others lean towards A and B, and many are open to all three. Depending on a buyer’s investment strategy, they may focus more on finding a specific type of building (multifamily, industrial, office, etc.) than on a particular class.

Additionally, a building’s class is subject to change as it ages, undergoes renovations, or rental rates improve or decline.

Class A

Overall, Class A buildings are the top tier. They are the most recently built, with the best amenities and high-end finishes. Generally, they are low-risk investments in the most desirable locations and, therefore, come with the highest price tags and rental rates.

Class B

Class B properties are often in good condition but need updating. Having been well cared for, they come with limited risk, but their rental rates are lower than Class A’s, as they don’t have the trendiest finishes or amenities. Properties in Class B are great options for investors who are looking for something rental-ready but would like to avoid paying top dollar.

Class C

Class C buildings are often dated, need repairs, and have subpar rental rates. These properties are much less expensive than their Class A counterparts and are targeted by investors looking to renovate for price appreciation opportunities.

Class A, B, and C properties can all make great additions to your commercial real estate portfolio. If you have questions about which property class would be the best choice based on your specific situation, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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Tax Benefits of Owning Commercial Real Estate

July 18, 2024

A Holistic Approach to Investing

Every type of investment, from the stock market to real estate, must be looked at holistically. The initial purchase price, cost of ownership, and tax liabilities are all crucial facts to consider when assessing a potential return.

Taxes, in particular, come into play in various ways: at the time of purchase (sales tax), throughout ownership (property taxes), and at the time of sale (capital gains). Like owning your own home, purchasing commercial real estate has several tax benefits you may not be familiar with.

Tax Benefits of Commercial Real Estate

Below are a handful of the tax benefits that come with owning commercial real estate.

Mortgage Interest Deductions: As with a residential property, you can deduct the interest payments associated with your mortgage.
Post-Sales Tax Savings: This tax strategy allows beneficiaries to only pay taxes on the amount the property has appreciated from the time of the owner’s death to the time of sale.
Depreciation: Depreciation schedules allow investors to reduce their taxable income through yearly deductions as the building depreciates over time.
Lower Capital Gains: Compared to other investments such as IRAs, commercial property has a lower capital gains tax rate, thus saving you money.
Qualified Business Income: Depending on how the investment functions, you may be able to take a QBI deduction against your income to reduce your tax liability.
1031 Exchange: While not necessarily a strategy to lower taxes, a 1031 Exchange allows investors to defer taxes, keeping more money in their pocket to continue investing.
Tax Credits: Programs such as Opportunity Zones, Low-Income Housing Tax Credits, and Historic Tax Credits provide tax breaks for investors who purchase specific types of buildings or in certain areas.
Other Deductions: Specific maintenance or renovation costs can be considered deductions with investment properties.

Talk With Your Tax Professional

Be sure to talk with your tax professional about the benefits of purchasing and owning commercial real estate. If you have questions about where to start with your investment plan, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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New Development vs. Resale: Which is Right for You?

July 2, 2024

New Development vs. Resale

There are two paths in commercial real estate: new development and resale. Depending on your investing strategy, one might better suit your portfolio.

New development and resale each have pros and cons. Your real estate broker likely has experience with both and can help you determine which is the right fit for you.

New Development

New developments in commercial real estate provide unique opportunities that can make it the ideal option.

Pros

The pros of new development primarily center around being able to design and build the exact property that you envision. You often make compromises in resale, as no building will check every box perfectly. With new developments, however, you are free to create the space that will function perfectly for your business or tenants.

Cons

The most obvious cons of new development are the time and expense of building something from the ground up. Coordinating contractors, getting permits, obtaining construction loans, and dealing with zoning and code requirements can be a hassle.

Resale

Resale purchases are an effective way for many to start investing in commercial real estate.

Pros

Resale transactions are very efficient in comparison to new developments. In a matter of weeks, you can own an income-earning commercial property. Eliminating the construction phase makes resale an attractive option for those on a shorter timeline.

Cons

In the resale market, you may face elevated levels of competition for a highly desirable property. In a competitive market, property values can become inflated, decreasing cash flow opportunities. Additionally, a resale property may require renovation or remodeling to make it the right space for your business.

Which is the Right Path for You?

If you are unsure which path (new development or resale) is right for you, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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Balloon Loans in Commercial Real Estate

June 19, 2024

Many commercial properties come with a substantial price tag. Businesses that don’t want to incur such a significant cash expense turn to a variety of financing options.

One of the financing structures offered in commercial real estate is a balloon loan. Balloon loans typically have shorter terms (only a few years) and require monthly payments during the life of the loan, followed by one large balloon payment at the end of the term to pay off the remaining balance.

Compared to a traditional mortgage or fixed loan, where the total loan amount is amortized over many years, balloon loans can be a much riskier means of financing.

What to Know About Balloon Loans

Here are a few things you need to know about balloon loans:

Length: Unlike more traditional loans that have a length of 15-30 years, balloon loans commonly have only a few-year term.
Cost: In some cases, borrowers will select a balloon loan and plan to refinance down the road. If, however, the owner continues to refinance repeatedly, the fees and closing costs from each refinance can make a balloon loan a costly financing option.
Refinancing: If borrowers are not making large enough fixed payments to keep up with the loan’s interest rate, a lender may not be able to refinance a balloon loan as there will not be enough equity. A lender may require an additional down payment to consider a refinance.
Fixed Payments: One perk of a balloon loan is that the monthly fixed payments are typically lower than other types of financing.
Balloon Payment: While the fixed payments are lower, some borrowers can be caught off guard by the size of the balloon payments. The final balloon payment can be as high as a hundred times the fixed payment, so it’s critical that a business understands the risk and has enough income to meet the final payment.

Funding Your Commercial Real Estate Investment

Funding your commercial real estate investment the right way is the path to long-term success. Be sure to discuss your options with a commercial real estate broker and lender before committing to a specific type of financing.

If you have questions about commercial real estate, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

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Four Types of Property Management

June 6, 2024

Property Management Types

Property management is often a crucial part of owning commercial real estate. Before hiring a property manager to oversee your investment, ensure they have the necessary experience, as each building type requires a unique skill set.

The following are the four most common types of property management to be familiar with before taking the dive into owning investment properties.

Residential Property Management

Residential property management involves overseeing single-family homes, townhomes, and condos. A residential property manager is in charge of single units and up to a quadplex (4 units). Their main focuses are acquiring and retaining qualified tenants, collecting monthly rent, and managing maintenance requests.

Commercial Property Management

Commercial property management relates to apartment complexes (5+ units), retail spaces, and office buildings. Lease management is the primary task of a commercial property manager, as each building type requires a different leasing structure. Commercial property managers also typically take on a larger scope of facility maintenance and need a solid understanding of zoning, building codes, and safety requirements to ensure the property stays compliant.

Industrial Property Management

Industrial property management centers around warehouse space, distribution centers, and manufacturing facilities. A property manager in this field focuses mainly on security and efficiency. Often, industrial facilities manufacture, handle, or store costly goods, making security a top priority. Additionally, the efficiency of these properties can make or break the investment potential, so creating proper systems is vital.

Special-Purpose Property Management

Special-purpose property management involves specialized buildings such as hospitals, education facilities, and recreation centers. Each building requires expertise in specific maintenance and scheduling needs, as well as solid marketing and connections to find the right tenant for that niche.

Have Property Management Questions?

If you have questions about property management or commercial real estate, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.

We give out $250 gift cards for referrals that become our real estate clients.

Like, Share & Follow us on LinkedIn and Facebook.

#longmontcommercialrealestate #commercialrealestatebroker #northerncocommercialrealestate

Should You Invest in Cold Storage?

What is Cold Storage?

Why Invest in Cold Storage?

Your Next Purchase

The Structure of a Commercial Lease

Parts of a Commercial Lease

Not Sure What to Look For?

Bridge Loans in Commercial Real Estate

The Perfect Fit?

Your Investment Goals

When to Choose a Class A Building

Risk Level

Location

Timeline

Budget

Where to Start

Commercial vs. Residential Loans

What You Need to Apply

Building Classifications

Class A

Class B

Class C

A Holistic Approach to Investing

Tax Benefits of Commercial Real Estate

Talk With Your Tax Professional

New Development vs. Resale

New Development

Pros

Cons

Resale

Pros

Cons

Which is the Right Path for You?

What to Know About Balloon Loans

Funding Your Commercial Real Estate Investment

Property Management Types

Residential Property Management

Commercial Property Management

Industrial Property Management

Special-Purpose Property Management

Have Property Management Questions?

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