FAQ – Tampa Commercial Real Estate
ROSS REALTY TAMPA BAY
COMMERCIAL REAL ESTATE SELLERS SINCE 1984
FAQ – Tampa Commercial Real Estate
General Concepts
CRE includes property used for business purposes to generate a profit, such as office buildings, retail centers, industrial warehouses, and multifamily apartment complexes.
The main types are:
- Triple Net (NNN): Tenant pays base rent plus property taxes, insurance, and maintenance.
- Gross Lease: Tenant pays a single, set rent amount, and the landlord covers most operating expenses.
- Modified Gross: A hybrid where the landlord and tenant share some expenses.
NOI is a property’s total income minus all operating expenses (excluding mortgage payments and income taxes). It is a key metric for assessing profitability.
The cap rate is the ratio of a property’s NOI to its market value or purchase price, expressed as a percentage. It helps investors estimate and compare potential returns.
Properties are typically valued using three methods: the Income Approach (based on NOI and cap rate), the Sales Comparison Approach (based on recent sales of similar properties), and the Cost Approach (based on replacement cost).
Most owners of commercial real estate hire real estate agents to sell or lease their property on their behalf. The real estate agent їs responsibility is to represent the owner in the sale or lease of the property; not to represent the tenant.
CRE agents receive a commission upon the signing of the sale or lease between the owner and a buyer or tenant. The amount of the commission of most often calculated as a percentage of the sale or lease value, which usually ranges between four and six percent. For instance, if a tenant signs a 3-year lease for a 2,000-square-foot building at $18.00 per square foot, a 4% commission to the real estate agent would amount to $4,320.00 (3 years x 2,000 sq. ft. x $18.00 x 4%). The owner of the leased building pays the agent commission; typically one-half on the signing of the lease and the remaining one-half when the tenant begins occupying the building. For instance, if a tenant buys a 2,000-square-foot building at $1800.00 per square foot, a 4% commission to the real estate agent would amount to $144,000.00 (2,000 sq. ft. x $1800.00 x 0.04). The owner of the sold building pays the agent commission; typically in full at the close of the sale of the building.
The sale or leasing agent has the listing of the property and represents the interest of the owner of the building. A buyer or tenant representative (rep) represents the interest of the buyer or tenant in the lease. Some agents work exclusively on listing while others take on buyer or tenant representation only. Other agents will work with both. Ross Realty works exclusively as a listing agent with property owners looking to sell or lease their property,
A knowledgeable broker, who is a vital part of your team of professionals, uses comprehensive marketing expertise and valuable resources to ensure maximum results in every commercial property sale or lease transaction. The use of an experienced brokerage firm will complement the rest of the team allowing others to do what they do best in their profession.
Sellers and landlords almost always use a broker to represent themselves in a sale or lease negotiation. The broker’s fee is paid by the seller or landlord anyway so a lessor should certainly get the benefit.
Appraisals in commercial real estate can be much more complicated than appraisals on residential properties. It’s essential that you learn what to ask for and also what to provide the appraiser. Here are “10 Things to Know About Commercial Real Estate Appraisal,” from Inc Magazine.
Look for training that goes beyond a basic real estate license. NAR (National Association of Realtors) offers the CCIM designation (Certified Commercial Investment Member) to train commercial real estate owners, investors, and users in interest-based negotiation, ethics, market analysis, financial analysis and more. REALTORS® earning CCIM are recognized experts in commercial real estate.
Investment & Acquisition
The answer depends heavily on the specific market and property type. Current trends show price declines in some sectors like offices, while industrial properties have shown growth.
You need a significant down payment, typically at least 25% for a commercial loan, plus reserves for vacancies and operational costs.
Location is crucial. Key factors include sustained demand, area growth, accessibility, and visibility.
Due diligence involves reviewing financials (pro formas), checking zoning codes, verifying property lines via a survey, inspecting the building for major issues, and ensuring a clear title.
A 1031 exchange, or like-kind exchange, allows investors to defer capital gains taxes when selling an investment property and reinvesting the proceeds into a new “like-kind” property within specific time frames (45 days to identify, 180 days to close).
Investors assess the current NOI, the property’s ability to maintain that income, and future projections for increasing income or cutting expenses.
Current challenges include high financing costs, soaring insurance expenses, significant existing debt, and ongoing office vacancies.
Financing & Loans
Loan terms often span five to ten years with up to 25-year amortization periods, a minimum debt-service coverage ratio (DSCR) of 1.25, a minimum credit score of 660, and a substantial down payment.
Lenders require business tax returns, financial reports, bank statements, collateral information, a third-party appraisal, and a business plan.
Changes in interest rates directly impact borrowing costs and can influence capitalization rates and property values.
Management & Selling
It depends on the specific improvements and market conditions. Upgrades can justify higher rents and attract tenants, potentially improving the sale price, but costs need to be weighed against potential returns.
The time it takes to sell varies widely based on market conditions, property type, and pricing strategy.
The buyer will thoroughly examine all aspects of the property, including financial records, leases, physical condition, and legal standing, to uncover potential problems.
A property manager handles daily operations, including tenant relations, rent collection, maintenance, budgeting, negotiating vendor contracts, and preserving the property’s value.
Engaging qualified legal counsel and ensuring all documentation, contracts, and disclosures are in order helps mitigate legal risks.
Rental rates should align with market rates and consider the property’s features, location, and total occupancy costs (including shared expenses in some leases).
Market & Trends
Identifying building issues early, such as expired permits or structural problems, is crucial during acquisition or management to avoid costly surprises.
Indicators like GDP growth, employment data, and inflation rates influence the demand for various property types (e.g., job growth increases office space demand).
Zoning is critical. You must confirm the property’s zoning code allows for your proposed use; otherwise, your investment goals may not be achievable.
Key players include landlords, tenants, landlord representatives (brokers/agents), and tenant representatives, who facilitate sales and leases.