Investing in commercial real estate is a significant decision, and having knowledge about the factors that can enhance the value of your property can be beneficial. This added value can then be used to reinvest in your business by incorporating new technologies, providing employee training and development, or expanding into new markets. To ensure that your commercial real estate investment remains profitable, there are various strategies you can utilize to maximize its potential and prevent it from losing value.
Things to Remember and Ask Yourself
For those who are new to the world of commercial real estate, we define commercial properties as income-generating assets used for business purposes. These can consist of different types of buildings and land. Examples of commercial properties include:
Shopping centers and storefronts
Warehouses and other industrial properties
Condominium buildings or residential housing with more than five units
Hospitals and other medical buildings.
Now that we’ve established its definition, it is crucial to ask oneself these important questions:
1. Why should I know why I am investing in commercial real estate?
2. How can I ensure that I weigh all options when investing in commercial real estate?
3. Why is it crucial for me to secure financing before shopping for commercial real estate?
4. How important is it for me to partner with the right people when investing in commercial real estate?
5. What are the key factors I should consider when locating the perfect property for commercial real estate investment?
6. Why is it important for me to exercise due diligence when investing in commercial real estate?
7. How can I ensure a successful closing when investing in commercial real estate?
Proven Investment Strategies
Below are (5) excellent techniques to optimize your commercial real estate investment, which will guarantee that your property's value continues to appreciate.
1. Seek out zoning that allows for multiple uses.
To increase the resale value of a commercial building, it is advisable to search for multi-use zoning. According to Brett Prikker, a Major Accounts Manager at BDC, the greater the range of allowable uses for a building, the more valuable it will be in the market. Therefore, before deciding to purchase a commercial space, it is crucial to evaluate the zoning restrictions carefully. For instance, buying a building that is zoned for manufacturing only might be less desirable for future buyers who have different needs. It is recommended to look for commercial spaces with multi-use zoning, which will provide an advantage when selling the property in the future.
2. Acquire the quantity of commercial space that corresponds to the current market demand.
Entrepreneurs often fall into the trap of purchasing excessive commercial space, which can have an impact on the future marketability of the property. The larger the building you buy, the smaller the pool of potential buyers who will be interested in the place when you sell. When purchasing a property exceeding 50,000 square feet, it is generally considered to be dealing with a limited number of buyers. Such properties are less in demand because they are not affordable for most entrepreneurs and harder to resell.
3. Establish a separate holding company to manage your commercial real estate purchase.
It is advisable to create a separate holding company for commercial real estate, apart from the operating business. This separation can be beneficial for the future sale of the business since some buyers may only be interested in the operating company. For some, it may also result in a more affordable acquisition, and for others, it makes relocating operations across town or to another city more manageable.
Moreover, creating a separate holding company makes it easier for an entrepreneur to retain the real estate and utilize it as a retirement income source after the business's sale. This is an excellent source of retirement income down the road and also simplifies the succession of the business.
4. Opt for a building that has received a top-notch green certification (LEED) through investment.
LEED certification offers an independent and unbiased evaluation that a building, home or community was constructed and designed using techniques aimed at achieving high performance in significant areas, such as environmental and human health, sustainable site development, water preservation, energy efficiency, material selection, and overall indoor environmental quality. Opting for a new building or retrofitting an existing one that has achieved LEED certification may be beneficial as it could increase the value of the property.
Although entrepreneurs may have to pay a higher price initially while scouting for LEED-certified buildings or retrofitting properties, they can recover the costs by enhancing energy efficiency and improving employee productivity through better air quality and design.
5. Work with an experienced commercial real estate broker.
Some entrepreneurs often fail to conduct proper research and rely too much on speculation when making decisions about the space they require. However, hiring a broker can be beneficial in such cases, as they not only assess the space that caters to the specific requirements of your business but also help you utilize every dollar spent. In addition, brokers can analyze the commercial real estate market to determine which types of properties are in demand and evaluate the space required to accommodate future growth.
If you're looking for a reliable solution in this regard, Pacific Partners offers its solutions to assist investors and entrepreneurs in making informed commercial real estate decisions. They have experienced brokers who can help identify the most suitable properties that cater to your business needs and budget.