Simple Answers to 10 Common Commercial Real Estate Questions

Posted By @ Aug 21st 2019 7:29pm

If you’re new to commercial real estate, understanding the industry lingo, how commercial transactions operate, and exactly what commercial brokers do can be confusing. In this blog post, we’re compiling the 10 questions we get asked most often and answering them in the simplest terms possible.

If you’re still learning all the terms that frequently come up in the CRE industry, you can browse through these posts from our CRE101 Series:

CRE101: The Types of Commercial Properties
CRE101: Breaking down commercial real estate lingo – Part 1
CRE101: Breaking down commercial real estate lingo – Part 2

What is the biggest difference between commercial and residential real estate? Residential deals are emotional purchases that can usually be closed in a month or two. Commercial deals revolve around property that is being used for business, so there is more liability. Commercial real estate transactions are generally more costly, more complicated, and involve many more parties than residential property transactions which often lead to a more extensive inspection process and a longer closing period.
Is commercial and industrial real estate a better investment than residential real estate? There is a greater opportunity for larger gains in commercial real estate, but it comes with greater risks and any individual considering real estate investment should evaluate what’s best for them and their financial goals. If you’re wondering which is the best option for you, start here: Residential vs. Commercial Investments – Which is right for you?
What does a commercial real estate broker do? There are two main sides to the commercial real estate industry – transactions and leases – and brokers assist with both. Brokers help investors find and purchase commercial properties like office buildings, retail space, manufacturing or warehouse buildings. Commercial property owners also hire agents to manage their property, including leases and tenant management. Essentially, a commercial real estate broker acts as the middleman between a potential owner and a property or between a property owner and business owners who lease space from them.
How do commercial brokers make money? Commercial real estate brokers receive a commission when a commercial property is bought or sold. They also receive a commission when a lease is signed between the owner and a tenant. The amount of the commission is usually calculated as a percentage of the lease value, generally between 4% and 6%. Monthly property management fees vary based on the level of service the owner desires.
What is the difference between a leasing agent and a tenant representative? A leasing agent has the listing of the property and represents the interest of the owner of the building. A tenant representative represents the interest of the tenant in the lease. Some agents specialize in one or the other, but many work on both sides.
Do I need a broker to help me find space? Local brokers not only understand the local area and current market; they also have their ears to the ground and can drastically improve your search. Trying to go at a search alone can be frustrating, and you may be missing out on the best properties for your overall investment goals. If you’re not familiar with local brokers or brokerages firms in your area, we strongly suggest you interview a few before moving forward. Before you do, read this: 5 Things to Look for When Choosing a Commercial Real Estate Agent
I’m buying commercial property and I have hired a broker. Do I also need an attorney? We recommend having both a broker and a real estate attorney as part of your investment team. A broker is an expert in your local market and uses their experience to guide you to make the best possible business decisions, but they are not able to provide legal advice. A real estate attorney looks out for your best interests and will advise you on any legal matters involved in the property transaction. They review zoning ordinances, purchase agreements, mortgage information and closing documents to ensure you won’t be caught off guard with an expensive lawsuit or legal issue down the road.
Do I need to a commercial property manager? Can’t I just collect the rent? Managing a commercial property, especially one with multiple tenants, can be a lot more involved than it seems. Unless you are prepared to deal with tenant relationships, tenant turnover, maintenance issues, record keeping and other everyday nuisances, you will greatly benefit from hiring a professional. Read more into this matter here: Do I Really Need A Commercial Property Manager?
I am leasing a new space for my business. Can I make changes and who pays for them? It all depends on your lease agreement. If at all possible, these needs should be worked out prior to signing a lease but if that isn’t the case, most property owners will be willing to work with you. Simple improvements like paint and flooring should be doable with owner approval but you’ll likely be footing the bill. If you want to make changes that will improve the overall marketability of the property in the long-term, the owner may be willing to help out with the cost. Either way, the best thing to do is to communicate with the owner directly or through your tenant representative. Commercial buildings thrive off of happy tenants and the owner will most likely be willing to compromise on a solution that works for everyone.
I have questions that are not covered here, where do I go for help? Whether you’re looking to get started in commercial real estate investing, are on the hunt for your next investment property, or need some help managing a property, our team of experienced, local brokers are available to help. You can always get in touch with us or stop by our office in downtown Charleston. If you’re not in the Lowcountry, we recommend finding a reputable CRE firm in your area.