Charleston Commercial Market News

The Rules Have Changed - Expectations Have Not

2011-06-03T10:27:00.000-07:00

The money lending rules have changed.
Businesses'/People's expectations have not.

Banks will not lend money for business purposes unless the borrower is a financially strong owner user.

There are alternative sources of money available from private and non-depository lenders. These sources have money available and make money only by lending money BUT their underwriting is strict and their fees are perceived to be high.

The fact is that their fees are no higher than regular banks. They do not hide their fees like banks do.

These lenders can refinance and do not require or want the operating account. Banks do not want the loans but want the operating accounts.

Some loans available in this market are as follows

SBA back loans - Banks offer these loans often as a last resort and more often than not do not know how to handle them. These loans have true 20 year amortization w/no call. For Owner - Users.

Interest only - 3-5 years 6%-7% interest. Up front fees 4%-5% 75%-80% LTV

Interest only - SECOND POSITION - 3-5 years - interest rates 12%-14% - fees 4%-6%

Bank type loan - 20-30 yr amortization - 3-5 year call 6%-7% interest Fees 2%

Rather than think banks are going to "come around" realize that it will be along time, if ever, things will be as they used to be and look into the new sources of funding your business and projects.

Hold her on the road

2011-05-11T09:55:00.000-07:00

It has been a while since my last blog. The reason is that there are not too many positive things in the commercial real estate world to write about. Banks are taking loan prospects to the church door and dumping them.
Some times it is difficult to understand this. The reason must be that banks do not want to come right out and say no. They think it is better to blame a refusal on an often fabricated finish line trip by the prospective borrower than to admit that they are not lending. In many cases the Fed will not allow them to make or renew certain loans. Bankers blame this on the Fed not on their flimsy underwriting during the hay day.
The difficult thing about these times is that there does not seem to be the spark necessary to make people feel good. During past difficult times there was always the work ethic. If you worked hard and smart enough you could get back on the road. Things are different now and the reward of hard work often seems to be spinning wheels.
Things will get a lot better in the future. The population is expanding. The good thing about the week dollar is that our manufacturing sector is cranking. It seems that the politicians really get it and that a plan to work out the deficit will evolve.
If we do feel a little down, all we have to do is read the newspapers or check out the news on TV to realize our good fortune.
It is difficult to determine whether or not getting up at 4AM to see a royal wedding is a good or bad sign.

Realty Check

2011-01-28T08:12:00.000-08:00

In the last few years commercial property values have decreased by as much as 60%. Remember that appraisals in 2005/06 were done at the height of the one of the hottest commercial real estate markets of all times.

Commercial real estate values are based on the economic value to the purchaser. Will market rents provide me with the returns I want? Will the price of this land and construction costs allow me to rent or sell at a profit commensurate with my profit objectives and with the risk of development?

Also, many appraisals done in 2005/06, were up dated several years later before the decreases in values were understood. Many of these updated appraisals did not reflect the decreases in value - true market value. Individual owners and banks continued and still do carry these properties at "old" inflated values.

Investors are not willing to pay these inflated prices and lenders are not willing to finance them. Investors cannot get the return they need. Lenders do not want or need more non-performing loans.

POINT - If you want to sell your property, be aware of the current market conditions. Do not be offended if your property which was appraised in 2006 for $3 million and updated in 2009 for the same price brings an offer of $1.6 million.
The $1.6 million offer is the amount the investor is willing to pay to get the return he/she seeks - regardless of whether they are buying to stock pile for later sale or plan to develop immediately.

In selling your property, you need to assess the price you are willing to accept within your time frame and see if your objectives are in line with the realities of the market. If not,you must make adjustments or wait until the market does.

We can help you with this assessment.

Get Gu-ment Help

2011-01-18T10:26:00.000-08:00

Two things you should know

1.If you qualify you can get a good loan through the SBA to purchase property for your business. Now is a good time to purchase property because land and buildings are cheap
You can buy an existing building or buy land and build as long as your business occupies 51% of the building.

2. A new accounting rule is coming out which will require tenants to carry their total lease payments as a liability on their balance sheet. Final regulations and interpretations will be out later in the year. In light of this rule it really makes sense to consider a purchase of a building for your business rather than lease.

We can help you get a 504 SBA loan. Contact us for more information.

How To Get A Business Loan

2011-01-11T11:47:00.000-08:00

Getting a business loan is not easy especially in these times. There is a huge demand for money. Contrary to what their representatives say traditional banks are not making many loans with reasonable terms.

Money is available but it is a sellers market and all of the following rules apply if you want the loan.

You must be able to demonstrate that you need the money and what it will be used for and how this money will enhance your business.

You must prove that you have the experience to use the money to achieve the objective.

You must be able to prove that you can pay the money back

You must have sufficient collateral.

You must be willing to divulge to the lender all of your business and personal and financial information including bank statements and tax returns.

You must have a business plan which includes every detail and contingency including contingencies for untimely deaths, disabilities and an exit strategy.

The business plan must be summarized in a one page summary called an executive summary. The effectiveness of the executive summary will determine whether the loan underwriter will read further, issue a term letter or dash your hopes in the trash can.

Your personal credit score must be close to 700.

This applies to anyone who has a 20% or greater ownership interest in your business.

You must realize that you get no benefit of the doubt.

Let me know if you have any questions or if we can assist you in getting a business loan.

Another One Is Nearly Over

2010-12-20T12:12:00.000-08:00

Christmas is at the end of the week. The year will end a week later.
2010 is unlike any year I have ever experienced in my life.

Business is more difficult then I ever remember. I was having coffee with a colleague and he said that this was the first time in his life that he could not overcome problems with his work ethic. He then said he was not finished working.

I agree with him. We also reflected on the opportunity we have to be able to "never give up". There are people who dream about the opportunity we have in this country.

People in other countries come here because they have experienced first hand that the government cannot do it better.

As this year ends, I am frustrated at the many walls I have run into in the last few years. I am optimistic that things will get better. I know that as long as I work smart and hard and never give up, I will participate in the rebound in a major way.

I cannot imagine what it would be like not to have the opportunity we have here.

I am frustrated but very thankful that I live and work in the USA.

Keep Information up to date and realistic

2010-11-29T06:52:00.000-08:00

Traditional commercial banks for the most part are not lending money for commercial projects. The available money is from non-depository lenders and financial institutions, hedge funds, off shore investment funds etc. These sources make money lending money not from checking accounts,savings accounts, credit cards etc.

There is great demand for money from these sources and the underwriters are cherry picking the best loans.

These sources require complete,up to date and realistic information. A realistic valuation of assets used for collateral is especially important.

Many appraisals done two or three years ago and updated last year do not reflect true market value to a lender who is looking at the worse case scenario if the loan fails and the property has to be sold as soon as possible.

Leased office,retail and industrial property constantly is depreciating in value because tenants are leaving and there is excess space available. Landlords often have to cut rents to keep existing tenants or lure new tenants.

Another factor is that because income stream is low, there may not be enough money for maintenance and up keep and the building looses value in the eye of an appraiser.

It is important that you do the best you can to keep the information about your property current. If your information is complete and credible, when you apply for a loan, the underwriter will put your loan on the top of the pile and you have a much better chance than the applicant who is trying to sell old information.

Let us know if we can help you.

Give Them What They Want - Now

2010-11-16T08:25:00.000-08:00

Every business needs money. The owners know that, with rare exception, commercial banks give lip service only to their claim that they are willing lenders.

There is plenty of money available through mortgage banks and mortgage brokers who represent non-depository lenders. There is great demand for money from these sources and they are cherry picking.

To get money from these sources, there has to sufficient collateral, demonstrated ability to repay the debt, experience in the business, good credit ratings and no jail time.

Business owners know whether or not they qualify for loans.

The businesses who are getting loans are those who submit all the data in a timely and complete manner. If the lender needs one more thing and does not get it, the loan will not be made. Lenders who get information piecemeal do not give the same attention they give to applications which include all the information.

Loans take a long time because, the lender does not have all the information they need to make the decision. If a business does not qualify, the lender will let them know immediately upon initial inquiry.

It is important that business owners know what they have to provide to the lender and provide it in a complete and timely manner.

Let us know if we can assist you in getting a loan. If you qualify, there is money available.

Abundance - Come and Get It

2010-10-19T07:09:00.000-07:00

October is the best month in the South Carolina Low Country. The heat of summer has passed. The water temperature is cool enough to discourage Hurricanes from coming our way but is still warm enough for swimming. It is also the time of the year when the bait fish are restless, the shrimp are large and fish are feeding in near frenzies.

In the creeks and along the beaches, schools of cruising bait are endless with larger fish regularly attacking them. The urge to play hooky from what you do during the other eleven months and fish is irresistable.
This is the time of the year to catch big Red Fish in the surf and Red Fish,Flounder and Trout in the creeks.

Standing in the surf waiting for the bite is a great time to reflect on the available abundance of everything in this country. All that is needed is a fair chance to work for it.

If people have the opportunity to fish enough, they will learn how to catch fish. If people have the opportunity to learn about business and work enough they will be successful.
Fish in October and opportunities year round abound. Come and get it.

What a Great Idea

2010-10-08T07:37:00.000-07:00

In yesterdays Wall Street Journal there was an article by Michael Milken.
He commented that bank loans for businesses are safer than home loans. This makes sense.
Think about how this country would flourish if 30 year loans were made to businesses.

It is obvious that Government because of the way it regulates banks has no clue that business success is a long term proposition. Businesses are under constant pressure to roll notes, scrap for cash flow, try to get extensions etc. If they cannot, they fire employees and many fail.

If businesses could count on the cash they need to develop over the time they require, their owners and managers could devote their time to being creative and building the business rather than worrying about money, paying taxes and complying with destructive regulations.

Building a business and hiring people is what a healthy economy is all about.

Hopefully,relief is on the way. Twenty four day until the election.

Resiliency - Opportunity

2010-10-01T08:00:00.000-07:00

In spit of what the Nattering Nabobs of Negativism(sorry Spiro) say the US people and businesses want to clear the air of pessimism and doom. They are tired of government announcements of plan after plan of ineffective solutions. Because it is apparent that Republicans will be back in control, optimism seems to be seeping back.
The programs that have been initiated are ones of entitlement not opportunity. People at all economic levels want opportunity. They want to know how to do it. If the poor knew how to work their way out of their poverty they would. Teach them how to do it. Don't give them more dole to exacerbate their condition. It would cost far less to give businesses tax credits to train people and make them productive than to give them welfare.
The basic problem is that the current crew of politicians do not understand this or much else about business. The new small business bill in it's short term approach to the problems of small business is a clear example of this lack of understanding.
Legal and illegal immigrants come here for the opportunity they do not have elsewhere. The current pod of politicians thinks they should be allowed to come here to participate in the welfare system. The immigrants want opportunity not sympathy.
We all have to vote and clear the air. As soon as there is hope there will be recovery.
We are a country of free thought and enterprize, let's get it going again.

Look Beyond The Traditional

2010-09-09T10:08:00.000-07:00

For the last three years we have heard over and over and read in the newspapers that banks will not lend money even to the most credit worthy customers; even though they say they want to. During the past year, many businesses have decided not to borrow money irregardless of it's availability. Businesses are rightfully scared as there is very little good economic news.
BUT - Money is available and you do not have to participate in a weird,recession inducing government recovery program to get it.
We represent non-depository lenders who are looking for good business investments and you don't have to switch your checking account. These lenders make their money from making good loans; not from giving away toys if you open up a saving account that pays a wopping 2% interest rate. If you own a business and have assets, good credit and the demonstrated cash flow to cover the loan repayments, you will likely qualify.
We can let you know quickly whether or not you qualify and work with you toward a quick closing.
Give us a call. At least we have something positive to discuss with you.

Extend and Pretend

2010-07-08T10:44:00.000-07:00

An article in today's Wall Street Journal says it all about banks and commercial real estate. Only about 60% of loans due in the next year are covered by sufficient equity and this number is falling. Banks are keeping loans on their books to make their books look good. This is like showering and shaving on a Saturday Night and not having a date. Maybe if I take a shower someone will come to my house for a date. Maybe if I pretend that this loan will be repaid at full price, my bank will get back in good shape. OK I'll extend your loan for 90 days and maybe things will get better and you can pay it back.
The sooner reality is dealt with at all levels and in every sector of the economy,the sooner our economy will get back on track.

The Reality is

2010-06-22T10:44:00.000-07:00

I spoke with a client who owns commercial property which he bought for development. He has only developed a part of it and is having a very difficult time getting tenants and now dealing with his bank. When the bank initially approved his loan, they gave interest only for several years. They accepted the land and improvements as collateral. He was the signator for his LLC.
His wife is not involved. He pledged no personal property. Now the bank wants his wife as a co-signator, $25,000 more cash and his personal property as collateral. He has always been current on his loans. As with all real estate investors these days his cash is limited. He asked advice.
I suggested that the reason for the change in the deal was probably the result of requirements by bank regulators. I pointed out to him that banks do not want to own more commercial real estate than they do now; they do not want to foreclose; they do not want litigation and they do not want short sales(YET). They do want to work deals out but are reluctant to say it publicly.
The US banking system is leaderless. Bankers do not know what to do. Politicians are calling for banks to lend more money and cannot understand why businesses do not want to borrow more money when the only businesses banks will lend money to are those who do not need money.
Regardless of what bankers say, as long as you pay them money, they will accept it. Even though bankers threaten, keep paying what you can afford. Do not listen to anything else. Tell them what you can do. You are not alone.
It makes no sense to pay banks money you cannot afford and face hardships caused by the banking system and government in the first place.

The Banker From Ipanema

2010-06-14T08:07:00.000-07:00

I read and article in the Wall Street Journal today which suggested that a good solution to our on going irresponsible banking practices at every level would be the Brazilian approach.
In Brazil if a bank makes a bad loan the directors are personally responsible. Can you imagine how quickly this would tighten up our system. Banks would have to elect directors who knew what they were doing and pay attention to where the money was going before the fact rather than after the fact. Bankers pay would be based on performance which should be at a high rate but if they made mistakes,their compensation would be negatively affected. In order to make money they would have to lend money - prudently. Businesses would have to give banks all the information they needed to make a decision. Banks in essence would have to understand the business and act as the business' partner and make sound suggestions.
The best part of doing it this way would be that politicians would not be involved because the system would take care of itself.
The success of our economy will be to implement common sense approaches like this one for every sector. Government programs and intervention should only be based on need. We need a strong military. Indigent people need to have access to government funded health care. The areas where government programs and intervention are needed seem very apparent to everyone except politicians.

HELP

2010-06-08T07:34:00.000-07:00

Help me understand a few things before I vote now and in November.

Federal Reserve Chairman Ben Bernanke and politicians say it's time for banks to lend small business money.

Banks say they have plenty of money for the RIGHT customers.(Bank to RIGHT customer - do you want to borrow $10 million dollars? Answer - No I don't need it) (Bank to WRONG customer - We can lend you $50,000 but our LTV ratio is 20%-80% and we need a 2nd mortgage.)

The Bank Regulators says it's time for banks to increase all of their reserves to cover all of the bad loans that were made over the last few years as a result of political mandates. Therefore, don't lend any money.

We hear there are valuable tax credits available under the new healthcare plan.
If we could borrow money to make money we would have taxable income and could take advantage of the tax credits.

In the current economic scenario, the government will have to increase taxes.
Consequently, business will have less money to invest in their businesses.
Consequently they will hire fewer people
Consequently they will produce less
Consequently they will have less income.
Consequently they will produce less capital.
Consequently they will pay less taxes.

I think I have figured this out on my own but thanks anyway

It George Bush's Fault

2010-05-26T10:47:00.000-07:00

This morning I overheard someone say in a very passionate manner," God Dammit, I know it's not your fault but I have to yell at somebody". In this fit of frustration, he did not know how philisophical and apropos this comment was for these times.
The joy of self employment is to be able to make money by helping small business owners solve their business problems. Most of the problems these days are money related and there are no sources of money at reasonable terms. People with cash are holding tight. Banks are not lending because they are scared of the loans they already have. Small business owners have had to use credit cards over the last few years. These credit cards are maxed out and many businesses are unable to make any payments.
Credit ratings are falling as never before.
The delema is that when the Government( as they will be involved) requires banks to lend to credit worthy businesses, there will be no credit worthy businesses.
My sales are off. I have laid off half my employees. My rent is two months behind. My landlord has offered to lower my rent and is politely asking if I can catch up but he is gratful that he has a tenant. I told my employees I might have to cut their wages and they think it is a good idea because they have jobs. One of my key suppliers is going out of business and another has to cut my terms to net 10 days. And as always, the baby needs a new pair of shoes
I have to yell at somebody. I guess it will have to be George Bush as no one else will take the responsibility.

Green Is the Only Way

2010-05-13T08:44:00.000-07:00

To often Green development is viewed as the ultra liberal, tree hugging, impractical approach to building and design. Maybe they get it mixed up with Greenpeace.

It has been my observation that even Republicans over 50 recycle.

The US Green Building Council's LEEDS(Leadership in Energy and Environment Design) program makes sense. This sensible approach is good for everyone. The theme is reuse as much as possible and minimize the impact on the environment. LEEDS has a rating system. The more you design,develop and build according to their standards,the more positive impact you have on the environment and the higher your LEEDS rating.

As Jeff Foxworthy would say you might be LEEDS certified if

Your building is on a bus stop

You are refurbishing an old building instead of rebuilding

You have self flushing urinals

Your lights are low energy UltraMAX electronic ballasts

The inside of your inside furniture is made of pressed wheat chaff

Your paint is made of Volatile Organic Compounds

Your appliances and office equipment have Energy Star ratings

There are plants intentionally growing on your roof.

GREEN buildings make economic sense.

Construction costs are not much more if at all.

Tenants seek out Green buildings and stay longer.

Quit Treading On Us

2010-05-11T07:49:00.000-07:00

Everyone wants to work. Small businesses want to crank up. All the factors which make the US such a vibrant place to live and work are at the mercy of politicians who have no clue as to what to do other than introduce legislation and increase taxes.
I am amazed daily that politicians think they can do it better than anyone else. Most of these politicians have never signed a paycheck nor experienced the exhilaration of running a successful small business.
Many politicians view employer-employee relations as adversarial. They think employers are exploiters and employees are victims. This is an obsolete and self-serving thought process. Most employers treat their employees well because they realize the importance of their contribution in building the business. Most employers try to pay a high and fair wage. Employees want their employers to be successful because they know that their futures depend on their employer's success. Most employees do not want the responsibility of owning and running a business. Most employers and employees like each other.
But we are talking about the private sector where importance and success are earned not entitled.

Wall Street and Main Street.

2010-05-03T09:18:00.000-07:00

I recently read "The End of Wall Street" by Roger Lowenstein. It is an excellent summary of what caused the Recession and clear explanations of events and the techniques the Wall Street boys used. These actions directly effect Main Street. The current Goldman Sachs investigations should be the last chapter but the book was written before the investigations.
This book is an example of American business ingenuity and Capitalism at it's best - like it or not. Banks needed more money for mortgages, Wall Street figured out how to get it. It took the regulators too long to understand what was happening if they ever did.
The self righteous politicians are pontificating about the evils of Goldman Sachs but refuse to admit that their excessive demands for affordable housing for unqualified people had as much to do with the problem as anything. They are about to bring criminal charges against Goldman Sachs and do not understand what they are trying to prosecute.
Some Wall St business practices need to be regulated. But first politicians should try to understand what they are regulating. It seems that most of the time it is against the nature of a politician to know what they are talking about. Because of this, right or wrong, politicians will always be outsmarted by our best and brightest on Wall Street who do know what they are talking about- right or wrong.

THIS PLACE IS TOO GOOD TO BE TRUE

2010-04-23T09:15:00.000-07:00

Charleston is The Place.
Boeing is building.
The US Navy has more of a presence than EVER. As they say here, there are more Navy people here now than when the Navy was here.(Yogi did not say that) SPAWAR the acronym for Space and Navy Warfare Systems Command is growing and hiring and subcontracting at the highest levels. The typical swabbie at SPAWAR has an electrical engineering degree and does chemistry experiments on weekends.(No wonder we don't have any high level sports teams)
Clemson University has received a $100million grant to research, test and develop wind turbines.
All of these organizations will attract high tech support companies and suppliers. SPAWAR still contracts with 95% of it's engineering firms and suppliers out of state.
All of these companies will have employees who needs services which will require additional employees such as school teachers, firemen,store clerks etc.
In addition to this growth, the Port of Charleston is growing again and is one of the few East Coast Ports which can naturally accomodate the large, deep draft container ships which are being built to go through the new Panama Canal which will open in 2014. When this happens, goods will come directly from SE Asia to the East Coast rather than off load and ship cross country from California. There are 11 million sq. ft. of distribution space under planning and construction to accomodate the anticipated increase in volume.
The Medical University of South Carolina is growing and doing significant Bio-tech experiments which is giving birth to another industry.
A visit to Charleston is on every travelers short list.
The Wando High principal was named National Principal of the year.
For fun we have the beaches and creeks,world class dining and arts and politicians who are constantly getting into trouble.
We are a Right to Work State.
It has snowed five times in over thirty years.
I asked a vacationer why they did not move here. Answer was that they like a change of seasons.

Tall Ships and Opportunity

2009-07-02T09:09:00.000-07:00

The Charleston Maritime Festival recently ended with a parade of the Tall ships out of the harbor through the Jetties and out to sea. This exit was dramatized by the mist just off the Jetties. The ships seemed to disappear just as all things good and bad do.
During the festival we visited the Eagle, the US Coast Guard training ship and the Kruzenshtem, the Russian Tall Ship. Both ships were manned by a skeleton crew and 100-200 cadets. The US Coast Guard cadets were crisp and helpful and seemed glad to be there. The Eagle was spotless. The cadets on the Kruzenshtem seemed very unhappy. In all fairness to them, it was probably hotter than they had ever experienced and they did not speak the language; however, they acted like they were struggling to do their job. They did not seem proud of their Tall Ship. The Kruzenshtem was shabby looking and smelled of diesel fuel.
The thought behind these comments is that in spite of all of the current problems we are facing, we still have more opportunity than any of the people of any other country. It is up to us to act not to be told what to do.
We are proud of this freedom and put our best foot forward as the cadets of the Eagle did. We should keep the faith in our country and systems and continue to work hard. It is apparent that for the most part our politicians have no or very little understanding of the long range damage they are doing to our country in thinking they can do things better than our business owners and leaders.
To visit China or any third world country or to visit the Eagle and compare it to the Kruzenshtem should make us realize that we have the ability to make changes and these folks do not.
Think about these things. Isn,t this is what the 4th of July is all about?

How to sell your Commercial Real Estate in Charleston SC

2009-02-13T07:18:00.000-08:00

Selling your commercial real estate in Charleston or anywhere requires a few steps

* Regardless of how great you think your property is, it must be be priced competitively or the purchaser will not meet his/her return objectives.

* To sell or lease commercial property within your time frame requires a thorough assessment of all market forces and the availability of capital.

* Why your property vs. others on the market is a question that is often overlooked.

* Who is likely to buy or lease your property?

* How will you reach them?

* Do you hold your sales representitives accountable?

* You will be best served by a broker who understands the market and your objectives and is accountable to you.

We understand the market and know how the Charleston area works. If you have commercial real estate to sell or lease or are looking to buy or lease, contact us.

Inspiration

2009-01-23T07:36:00.000-08:00

Making a living has never been easy, although it has been fun most of the time. It seems a little harder and maybe a little less fun today than ever. Sometimes we have to dig a little deeper. I pulled the following thoughts from a newspaper a long time ago and find great inspiration in reading them. I do not know who wrote them. If you know let me know and we will give you a free years subscription to our newsletter.

1. Believe that miracles are possible.

2. Live as if you're free to do what you want.

3. Relax as if everything is going to be OK.

4. Talk to God as if you are being heard.

5. Feast as if you can have whatever you want.

6. Work as if money doesn't matter.

7. Learn as if you are a beginner.

8. Love as if you are loving for the first time.

9. Give as if you already have what you need.

Net Income Investments

2008-10-08T07:18:00.000-07:00

There are various ways to invest in commercial real estate. The most risk free is the purchase of an income producing property. An income producing property is one in which the user and the owner are separate entities. For example, many national pharmacy and fast food chains are owned by an investor or developer and leased to the pharmacy or fast food chain.
The reason a business would lease the property rather than own it is to keep their capital to operate and expand their business rather than tie it up in real estate. Leases and related expenses are 100% deductible business expenses and do not impact a business's availability of capital.
At times when a business needs to raise capital and owns real estate, it will sell the real estate to a net income investor and lease it back. Banks have done this recently.

Commercial real estate loans require a cash down payment. An early question should be will this investment in commercial real estate provide me with a competitive return on the cash portion of this investment( e.g 20% down payment). vs. mutual funds, individual securities etc. As with other investments, the risk to get this return should be assessed and accepted.

Factors in assessing the risk are as follows:

1.Financial strength of the tenant. If a tenant is not financially strong and the business is not doing well, there may be problems with collecting the rent in a timely manner.

2. The net return after expenses. Is there enough left after expenses to cover mortgage payments and to provide a competitive return.

3.Length of the lease. Options to renew and likelihood of the tenant to renew the lease are critically important. The longer the lease the better as long as the lease rates stay competitive.
The lease payments are use to meet mortgage payments and for other reasons, living expenses, business expenses etc. If a tenant leaves, the bank still has to be paid and the bills keep coming. If the lease is too long; there might not be enough rent in the future to cover expenses or to demand a competitive sales price if selling.
An interview with the tenant/s is often an important due diligence requirement prior to sale. Often financing terms are better with longer leases.

4. Number of tenants. One good tenant with a high credit rating and a lease which has competitive increases in the rent and a good prognosis to remain and pays the rent 10 days in advance is the ideal which of course is rare. One tenant is the easiest to service but if they leave, there is the no rent period.
Multiple tenants are more difficult to service but if one leaves, there is still cash flow.
Both scenarios have pros and cons and have to weighed separately.

5.The potential to lease when a tenant leaves. What is the property like now. Ownership requires that it be kept up to keep the current tenant and to be attractive to new tenants. Also, leases must be kept up to remain competitive.

6. Exit strategy - When do want to get out of the deal and what do you want to do with the money. Currently if the property is held for a year or more, the profits receive capital gains treatment. The property can also be sold and exchanged into another property on a tax favorable basis.

7.How will depreciation and tax write offs impact my overall financial situation?
These are important advantages of commercial real estate investments and their consideration should play role in the decision.

If these factors are evaluated, you will be able to determine whether or not a commercial real estate investment should be part of your portfolio.

Medical Office Buildings

2008-09-09T11:58:00.000-07:00

There are four new hospitals in the construction or planning stages in the Charleston area.
Since every hospital is staffed by doctors, there is a tremendous opportunity to develop Medical Office Buildings to house their practices.
Although many offices which house medical practices are called Medical Office Buldings, a true Medical Office Building is a thing unto itself. There are significant developmental and operational differences.
Some of the differences are smaller office bays, heavier structural requirements, special HVAC considerations, more parking, elevators, and more spacious common areas.
Tenant improvements are more expensive because of the non-standard requirements.
Many doctors want to own their offices. Some Medical Office Building are divided into condos and sold as individual units. In other instances, the doctors are members of the investment LLC and agree to lease back the space. There are pros and cons to each approach.
Hospitals want to keep their staff and make them happy and will often develop and invest in Medical Office Buiuldings for their staff.