Recently I was showing a potential Leasing Client spaces for a Med Spa usage. While some of the potential locations were in good shape and clean; we walked in the to perfect location that was filthy, had an unflushed toilet if you know what I mean-even a broom would have made a difference. Leasing agent called before during and after the showing; it is too bad that if she was so motivated (she told me to bring ANY offer) that she did not at least bring out a broom herself or strongly encouraged the Landlord to bring out a cleaning crew. Windows were so dirty that you could not even look in. This had me thinking on Commercial Space. A couple of years ago I sold a beautiful office condo-in a very competitive market. But while it was vacant; the owner lightly staged (for Commercial) and my showings were very positive. I certainly had property brochures onsite along with CCRs.
One of my favorite television channels is HGTV. I love the Property Brothers, Love it or List it, Design on a Dime, and Flip or Flop.
Given my vocation, this is predictable as I do a similar thing for a living – although not residentially.
One thing universal in all of the HGTV offerings – the condition of a house during showing is critical. If the house shows poorly with outdated colors, visible repair needs, oversized furniture or evidence of residents – your purchase price will suffer as potential buyers will discount their offers to deal with the shortcomings.
OK, I get it! But, is there a parallel in commercial real estate?
My answer is a resounding YES! Staging your commercial real estate is not as easy as a few v-dinted pillows and strategically placed sofas, however. Staging commercial real estate involves the condition of the building and how it shows to prospective tenants and buyers.
If the condition of your commercial real estate is tantamount to achieving maximum value, what improvements should you consider before selling or leasing?
Leasing improvements: If your goal is to lease your commercial real estate quickly and for an above market lease rate, you must invest some dollars placing the property in “rent ready” condition. The carpeting in the office should be replaced or at a minimum removed so that a prospective tenant knows that new flooring is in the plans. A fresh coat of paint throughout the office and warehouse brightens things and adds an air of new. All of the systems – plumbing, heating, ventilating, air conditioning, roof, sprinkler system, loading doors, electrical panels, fire alarm system should be checked and certified. The outside of the building is important as well. Remember, if your commercial real estate lacks curb appeal, the tour might hop-scotch your building for one that looks good. Paving, landscaping, and truck loading areas should be shored up and maintained during the vacancy. Most potential tenants have a limited imagination or patience for the way “things could be”. Therefore, delaying the above could cause an occupant to bypass your building for another that is move-in ready.
Sale improvements: If your goal is to sell your commercial real estate for top dollar, you want to plan your refurbishment wisely. If you cannot justify a 100% return or greater – question the investment. Said simply, if you repaint the building at a cost of $20,000, that investment should translate into a $20,000 increase in value. In my experience, the items in a building purchase that give buyers the greatest heartburn are the condition of the roof and air conditioning. I generally advise my clients to perform an inspection of these systems. We then know if any issues exist and can plan accordingly.
Biggest mistake: Some owners will adopt the attitude of “waiting until the occupant appears before investing in any building refurbishment.” Certainly, there are reasons for this position – no available funds for investment is the most common – but the downside is steep. If a prospective occupant perceives the owner is not “open for business”, he will scatter like ashes in a Santa Ana wind.
Showing condition: If the property is vacant during showings – and your broker is not present during showings – complete literature should be available to prospective occupants.
While many Investors have their favorite type of Real Estate that they like-most Investors do not know about or understand the different kinds of Investments.
When I sit with Investors-even experienced ones; I find it interesting how many times that they have not heard of or do not understand the different opportunities that they may not have explored! Assisted Care? Triple Net? Self Storage? Even Raw Land? Of course there is Multi-Family, Office, Retail or Industrial-all solid and more well known types of investment.
Here is my thought-open your mind and explore the different avenues to make money! Sit with professionals and at least hear about the opportunities. The worst that can happen is that you lost a bit of time to learn something new.
Often sitting with Clients we explore the different avenues and we find that they may want to explore a completely different aspect of Real Estate.
If you decide to invest in real estate, particularly if for residential or commercial rental use, you have essentially gone into business and there are many tax benefits to owning such a business.
First, it is important to consider all of the possible forms of ownership and the tax benefits of each. You can own a business as any of the following:
- Sole Proprietorship
- Limited Liability Company (LLC)