By David Earl Morgan

In order to understand commercial real estate values, you must understand how an appraiser professionally appraises a property. An appraiser is tasked with the responsibility of estimating or giving an opinion of the value of a commercial property. You can apply his or her techniques to estimate the value.

Comparable Sales Approach

The first and probably the easiest method in valuing commercial real estate is called the comparable sales approach. If you recall when you bought your first house, the bank had an appraiser come out and give the property a value that you hoped would at least equal your purchase price. The same applies to commercial property. The commercial appraiser goes out and compares prices of recently sold local properties that are similar in form and function to the property they are appraising. The analysis will produce an average price and that price is what your property will be valued at. In commercial properties, they not only look at the price, but they also look at the sales price per square foot of the building.

Although the comparable sales approach is the easiest method for figuring out a value for commercial property, there are a couple of problems when using this approach.

• When values go up and down or aren’t stabilized, this can nullify the use of the comparable sale approach
• In some small markets, there are no or only a few comparable sales due to the lack of overall sales

The Income Approach

In determining commercial real estate values, this is the most important one that you should learn.

You will find that commercial properties are chiefly valued by the amount of income they bring in. To be more precise, it is actually the net operating income that is the most important factor. When you have accurate operating and financial information on the property, the income approach can be utilized.

This approach is based on the capitalization rate being calculated for a property. In order to calculate the cap rate, you must first know the property’s sale price and its net operating income.

After you calculate the cap rate of the property, you then compare the cap rate to similar property’s cap rates that were sold in the area. The appraiser goes out and finds the cap rates of the other properties and averages them. He then utilizes that average cap rate to calculate the property’s value knowing the net operating income.

The Cost Approach

The final approach to figuring out a property’s value is the cost approach. This approach is the least often used as you are trying to figure out the value of the property based on what it might cost to construct in today’s market, plus adding in the value of the land. The cost approach is most accurate for newer buildings because in determining the value of older buildings, you must account for the depreciation which can be hard to determine.

By Dwaine Clarke

In this article I will continue where real estate investors can find quality deals. The next on the list is obtaining information online.

The way we do business has been revolutionized with the internet and, in some ways, the internet has made doing businesses and finding information even easier. The internet has many benefits and, in many cases, it is highly recommended, but for searching for properties to buy, I tend to not depend on it so much. Online commercial property resources, such as LoopNet, Costar, CIMLS and other listing services, provide lots of information on properties for sale, but they are available for everyone, so there is tons of competition. I always teach having some sort of leverage, especially when it comes to negotiation.

CLASSIFIED ADVERTISEMENTS

Another good way to locate deals is to place an ad in the newspaper. Many larger metropolitan newspapers have specific Multifamily or Commercial Investment Property sections, which will allow you to target specific brokers or investors, allowing them to get a hold of you for more information.

INDUSTRY TRADE JOURNALS & PUBLICATIONS

Your local trade associations publish magazines and books that reserve space for ads to be placed. Whether it is national or regional, this will allow you to market to a well defined group of investors and brokers. Many of these publications also contain information on specialized brokers, lenders, appraisers and other team members vital to the purchasing process.

NATIONAL AND LOCAL CONFERENCES AND INVESTMENT CLUBS

These organizations, which are in all major markets in the country, provide a forum for real estate professionals of all trades. This is a great venue to connect with investors and brokers that can assist you in sourcing deals and valuable resources.

FINDING DISTRESSED AND UNDERVALUED PROPERTIES

With our current market, there are plenty of distressed deals available. You can be able to access deals from banks from owners that were not able to meet their payment obligation. Lenders are not in the business of managing real estate and, in some cases, they have to take over. These properties are then transferred to the lender’s real estate owned or REO portfolio. In some cases, a bank will manage and sell their own portfolio of REOs, but in other cases, they will assign a firm that specializes in the management and disposition of REOs for banks. Banks are pretty flexible about terms and conditions about selling, as they are trying to minimize their losses and get bad debt off their books. Therefore, there is a huge opportunity to reach an agreement that will be acceptable for both parties.

The process of finding REO deals is a daunting task and requires consistency and patience. If you believe you are just going to make a phone call and think you will be supplied an endless amount of deals, think again. To find REOs, you should make a contact within a bank who can point you in the direction of opportunities or representatives from REO management firms that are assigned by the bank.

The best path would be to start locally at your bank that you do business with, introduce yourself and find out who is the individual or department that handles REO/Non Performing notes disposition or special assets. When meeting these people, you want to make sure you know exactly what you are looking for, that you are a serious investor and have the ability to close on projects when an agreement is made.

Purchasing an REO usually requires a cash type deal, banks rarely accept financing through conventional sources. Each day the lender is losing money on that property and they want a quick and easy transaction.

SHORT SALE

A short sale is the sale of a property in which the price that the lender is selling is short of the balance that is owed on the property’s loan. This happens when the borrower cannot repay the balance and the lender decides to sell the property at a smaller lost than proceeding with a foreclosure. This allows the lender to save on fees and processing of a foreclosure and allows the borrower to avoid extremely poor credit rating on their report.

By John Highman

One of the biggest problems in commercial and retail property management is to find the time to do all the tasks that come at you each and every day. A typical day for a property manager will include major issues in each of these following categories:

• Lease management including rent reviews, options, vacancy management, and new lease negotiations.
• Tenant communications on current matters relating to occupancy including compliance to lease documentation, maintenance, tenancy mix, and building operational issues.
• Reporting to the landlord on up to date matters of financial performance, maintenance activity, contractor issues, vacancy management, and budget performance.
• Managing the finances of the property including the payment of invoices, remittances of income to the landlord, and the payment of statutory accounts.
• Compliance with risk management, heritage, environmental, and essential services legislation that can have an impact on the property in its daily function.
• Response to unexpected events and crisis matters
• Monitoring local issues and communications into and out of the local business community that can have an impact on the property or the landlord.

Each of these issues has the potential to derail your well planned day. That being the case you should always be flexible for the unplanned event of high priority.

Planning is the Key

Many property managers leave the industry simply because they cannot control the workload and produce the quality results required on a consistent ongoing basis. Such severe action is not necessary and simple changes to the work patterns and mindset of the property manager is all that is required to get back on track. Here are some ideas to help:

1. Every working day should be built around a simple plan that allows you to do the most important issues first thing in the morning in the office. This time should generally be between 7.00 and 10.00 AM each day. Avoiding Email and mobile telephone calls during this time will allow you to get to the big issues requiring momentum and decision. There is a discipline here to be implemented.
2. Between 10.00 AM and 12.00 PM is the best time to get on top of emails and incoming telephone calls. Emails and telephone calls will create problems and issues that have not been considered in your well planned day. Only the highest priority problem or issue should be handled immediately. Everything else can be prioritised for action at a later time.
3. The time between 1.00 PM and 6.00 PM should be reserved for activities away from the office and includes meetings with landlords, tenants, and contractors.

Simplicity is the key to the above process and this time management plan. Yes there will be days where this plan will not be achievable due to some unplanned event, however 70% of the time you should be able to stick to this plan.

This basic time management plan will give you a way through the great workload normally associated with commercial and retail property management activity. A controlled property manager works more efficiently and accurately for the landlords and tenants they represent