The income producing commercial real estate

In general, commercial real estate “follows” residential. First, homes get built,then you get a shopping center.
However financing commercial real estate is completely different from residential. Commercial lenders
on the whole are quite conservative. Portfolio lenders, banks, and specialty lenders that fund loans with
their own capital, are dominating the commercial lending market.  Since they hold loans until maturity,
they have avoided the capital markets turmoil. Commercial real estate reflects the underlying economy,
which is very strong.
Commercial real estate covers a wide range of properties, including apartments, malls, office buildings, shopping centers, distribution locations, warehouses, and research properties. Some properties fit into two of these categories at once, such as buildings that combine office and industrial uses. These are referred to as flex properties. If the property contains more than half its area in office space, it’s called office/flex. When it’s mostly industrial use, it’s called industrial/flex. Other flex properties may include shopping areas or laboratory and research and development areas.

Hotels may also be included in the category of commercial real estate. However, some investors consider a hotel to be more of an operating business, and categorize them with the subset of properties including nursing homes or assisted living facilities and casinos. The one thing that all commercial properties have in common, with the exception of raw land, is that they’re capable of producing income. That income may come in the form of capital gains, or it may be through the receipt of rents from tenants.

In addition to these major property types, you may also see commercial real estate categorized as niche property. This category includes specialty properties like apartments built for students, age restricted living meant for older residents, self-storage, and office buildings that are suited to a particular sort of business, such as the medical field.

Raw land is the last category of commercial property. This is undeveloped land without any existing structures on it. Some investors acquired this land, intending to obtain the right permits to build commercial properties on it, within local zoning laws. These properties can then be used to obtain income, either as rentals or in the form of capital gains. So, raw land can eventually produce income, too. It just does so less directly.

Each type of commercial property comes with its own benefits and problems. For instance, raw land allows the developer to build as he or she chooses. However, the cost of building and the time required is often greater than fixing up an existing property to your standards. Raw land can make up for this by being less expensive than property which has already been developed, and is a great choice if your project needs a specific location or you’d like to control the building process. Raw land can also be a great choice if you can buy it while it is still zoned agricultural and change the zoning to commercial. The change in zoning alone can add great value to the property.

Shopping malls provide a great deal of rental income, provided that they’re properly designed. Shopping centers are similar, but may require a lower initial investment, since they can be purchased at a smaller size. It’s important, when building these kinds of facilities, to plan properly. Provisions for food and beverage outlets and adequate parking make a big difference in the amount of trade that is available to provide income for your property.

Warehouses and self-storage units have the benefit of requiring minimal staff and upkeep, although it’s important to maintain them. Properties such as research and development or research laboratories may sell for a greater amount than if the building were put to a lower use.

commercial lenders concentrate primarily on the physical real estate – specifically, the income produced by the real estate. Therefore, proper development and prudent analysis of the property’s operating statement and rent roll is paramount to understanding the likelihood of funding and preparing a professional loan package that demonstrates the financing issues of the property in order for a lender to provide a loan commitment.

Tags: apartments, commercial property, franchises, hotels, income producing, nursing homes, office space, shopping areas, tenants