Property Valuations in Commercial Real Estate Deals

commercial real estate, Wheaton real estate attorneysIf you have decided to acquire any type of commercial property, it is important to be sure that the price you will pay is a fair one. Commercial real estate transactions typically involve the exchange of large amounts of money, which makes a proper valuation critical. In fact, a valuation is generally a requirement for real estate deals that are backed by lender financing.

Understanding Appraisals

A commercial property valuation is accomplished by means of an appraisal that is conducted by an approved appraiser. In order to be qualified as an appraiser, an individuals must undergo specialized education or training, and, in most cases, be certified by a professional organization of appraisers. A real estate broker is not considered to be a qualified appraiser—unless, of course, he or she has completed the necessary certification and training. Therefore, if the broker sets the initial sale price of the property, it is not necessarily backed by a qualified appraisal.

A qualified appraiser may choose from three methods of establishing a property’s value. The most appropriate method will depend on the type of property and how the property will be used in the future. An appraiser may utilize the:

  • Income capitalization method: This approach is most often used to evaluate properties that produce income, such as rental residential and commercial rental properties and shopping centers. The income capitalization method focuses on the property’s potential to generate revenue and the expected rate of return for the investor. Factors such as the condition of the property or its location are not given significant weight;
  • Sales and market comparison method: This method is commonly utilized to establish a value for single-family residential properties, but it can have commercial property applications as well. Under this approach, the appraiser will compare the recent sale prices of similar properties while taking into account the health of the local real estate market. A property sold during a boom, for example, will not be a good comparison if the market is currently slowed or depressed.
  • Cost method: The cost method takes into account the property’s value, including any improvements and the land itself and subtracts any depreciation that may have occurred. The goal is to determine if the buyer  would be better off buying the property or building a new, similar property.

In addition to being a requirement for a bank-financed transaction, appraisals are often needed for commercial real estate disputes. If the dispute reaches the courtroom, multiple appraisals may be conducted and it will be up the court to determine which value will be used in deciding the outcome of the dispute.

Call a Wheaton Real Estate Lawyer

If you are in a situation where you need a commercial property appraisal, the experienced DuPage County real estate attorneys at Stock, Carlson, Oldfield & McGrath LLC can help. We work with a network of trusted appraisers, and we will assist you in obtaining an accurate valuation of the property in question. Call 630-665-2500 for a confidential consultation today.

Sources:

https://www.investopedia.com/articles/realestate/12/real-estate-valuation.asp

https://homeguides.sfgate.com/three-methods-appraising-commercial-real-estate-value-1567.html

Commercial Real Estate Leases – What Every CRE Investor Should Know Before Renting Out Their Property

Wheaton CRE investment attorneysWith more investors breaking into the commercial real estate sector, demand for reliable and comprehensive information on the selling and leasing of property increases. Granted, the information that one finds on the internet must be carefully vetted, and investors are highly encouraged to run all decisions and potential changes by their attorney, as this can help avoid the risk of lawsuits and financial loss. However, with a better understanding of the potential pitfalls, landlords can be better prepared, which can allow them to better plan for their future. 

Being Prepared for the Challenges in Commercial Leasing 

The stakes and risk of financial loss are far greater for the commercial landlord and tenant. There are also some nuanced issues in the CRE market that can significantly alter the needs and concerns of an investor. For example, there are different asset classes in the CRE market, and the challenges tend to vary for each one. In other words, the owner of a low-income apartment will have different needs than a hotel or casino owner. 

Negotiating – whether it be during the purchase or sale of a property, or while trying to re-negotiate a lease or establish a new one – is a skill, in and of itself. Most investors are not negotiators, though some do seem to have an innate ability. In either case, the negotiation process should never be done alone. There are different types of leases, and you can never be certain that you are getting a fair deal until all aspects of the sale have been carefully weighed and considered. An experienced commercial real estate investor can help. 

The safety and security of potential patrons may also be an issue for certain investors (but not all). Restaurant investors will likely need to account for the risk of fires and premises liability. Investors who focus their time and energy on office buildings or parking garages may be less likely to face these same issues. Instead, they may need to worry about things like crime on the premises, or whether they could be held liable for the damage of someone’s property. 

Thankfully, you do not have to understand all the exact nuances of your asset class or investment type. In fact, it is highly recommended that you resist the urge to manage your portfolio alone. The most successful people in the world probably got to where they are because they had a skilled and educated support team – and while the members of your team may change over the years, depending on your needs and goals, the one person you should never go without is a seasoned real estate attorney. 

Contact Our Wheaton CRE Investment Lawyers

Whether you are just starting out in the CRE market or a seasoned veteran, Stock, Carlson, Oldfield & McGrath, LLC is the firm to call for your legal real estate needs. Backed by over 40 years of knowledge and experience, our skilled DuPage County real estate lawyers can assist you with everything from performing your due diligence to successful commercial lease and purchase or sale agreements. Call 630-665-2500 to schedule your consultation today. 

Sources:

https://www.cnbc.com/2019/01/11/5-money-blunders-that-keep-you-from-getting-rich.html

https://www.forbes.com/sites/forbesrealestatecouncil/2018/12/11/how-to-prepare-commercial-real-estate-for-premises-liability/#86706b871248

https://www.bizjournals.com/birmingham/news/2018/06/01/expert-tips-for-negotiating-your-commercial-lease.html

 

Old Buildings and State-of-the-Art Technology: How to Have the Best of Both Worlds in Your CRE Investment Properties

DuPage County real estate attorneysAlthough simpler times have long since passed, a great many people still feel a sense of nostalgia when they step into an old building. Older, convertible buildings can also be a boon for real estate investors, as they are often priced below market value. Unfortunately, it can be difficult to retrofit these buildings to ensure they offer the state-of-the-art technology that most commercial real estate tenants want and need for their businesses. The solution? Find a way to have the best of both worlds. 

When is Retrofitting an Old Building Worth the Cost and Effort?

Not every building can or should be retrofitted. Consider New York’s Pennsylvania Station as an example. The building, though a historical and architectural work of art, had become dilapidated to the point that it was a safety hazard, and the cost of repair was prohibitive. Without another practical use for the space, retrofitting seemed not only impossible, but also pointless. There are buildings that can be retrofitted, however – ones that would greatly benefit the community, investor, and potential tenant.

Consider a building that can be converted into an eco-friendly, high-tech space in a high-demand location with little additional building space. So long as the possible return on investment (ROI) and demand are high enough, the cost of retrofitting could be well worth the investment. As an added bonus, the investor is able to walk away from the project, knowing they benefited their community and the environment by not requiring a new space or additional resources.

Taking the First Steps – Due Diligence and Determining the Potential ROI

Before deciding to retrofit an older building, investors are encouraged to conduct their due diligence. First, determine the cost of repairs (which can be especially costly in older buildings). Be sure to consider things like bringing the electrical wiring and building structure up to code. Then determine if retrofitting is even possible, and calculate its total cost. It is also important to know what your potential ROI on the property might be. To reach an answer on this, you may want to look at what similar structures have rented or sold for in the area. If no transactions like yours have recently taken place, consider looking at structures in areas with similar demographics. Lastly, ensure you have the assistance and knowledge of a skilled legal professional on your side. 

Contact Our DuPage County Commercial Real Estate Lawyers

Whether you are considering retrofitting an older space or would like to build something completely new, Stock, Carlson, Oldfield & McGrath, LLC is the firm to call. Seasoned and backed by more than 40 years of legal experience, our Wheaton real estate attorneys can assist you with every legal aspect of your next real estate project. Call 630-655-2500 and schedule your consultation wth our offices to get started today. 

Sources:

https://www.crainsnewyork.com/real-estate/commercial-real-estate-conundrum-investors-want-old-buildings-new-tech

https://www.smithsonianmag.com/arts-culture/how-nostalgia-plays-into-our-love-of-buildings-old-and-new-180947649/