Category: Consulting

The Benefits of Investing in Office Buildings

Posted on 04/27/23

Investing in the CRE-Office sector can offer an excellent opportunity to diversify one’s investment portfolio. A CRE office property is a hard, tangible asset which has historically performed well over time. When the opportunity presents itself and if the time is right for you, it is wise to engage the services of an experienced CRE agent who can help evaluate and develop an investment strategy that is suited specifically for your needs and goals. It is also advisable to engage your CPA and attorney for their expertise at some point in time as well.

There are two types of investors: owner/users who intend to occupy the purchased property and those who strategically invest for the income stream and future appreciation value.

OWNERS/USERS

If you are an owner/user, you have better control over occupancy costs as you can manage levelized mortgage loan payments and have more control over operating costs such as real estate taxes, building insurance costs, property management fees, and grounds and building maintenance expenses. This provides an advantage tenants cannot have as they are often subject to annual rent increases, escalating operating costs, and a fair rate of return added for the landlord.

INCOME-GENERATING INVESTORS

Others chose to invest in CRE office property assets as an alternative way to diversify their portfolio while at the same time building a steady reliable cash flow. This type of investment also provides tax-favored treatment such as depreciation and capital gains treatment when you sell. You may also defer your gains via a 1031 tax deferred exchange by rolling your gains into a like-kind property when you sell. The 1031 tax deferred exchange has specific rules which one’s CPA can assist in analyzing for you. Read more about 1031 Exchanges by clicking here.

Both scenarios are considered excellent diversification strategies that may allow investors to achieve an attractive rate of return that can continue to grow over time, as well as the opportunity to sell and realize a gain resulting in a more favorable capital gains tax rate treatment than that of an ordinary income tax rate. And one doesn’t need to start with a large investment. You may decide to invest as a sole owner of a small property or as a partner/member of a larger entity. The latter provides the advantage of spreading out your risks, as a larger property likely has more tenants, which means if a tenant vacates a space, it is less impactful than losing a tenant in a smaller building with a single or very few tenants.

And last but certainly not least, investing in the CRE office sector provides another incalculable benefit: the pride of ownership!

As with any investment opportunity, risks are involved. This is why it is important to work with a professional commercial real estate broker who understands the market and can help you identify and carefully evaluate any potential investment opportunity to ensure that it aligns with your goals and risk tolerance. With the right approach, investing in office buildings can be a great way to build long-term wealth and generate passive income.

Bill Puddephatt, CCIM

Bill Puddephatt, a distinguished veteran of the Central Arkansas banking industry, made a seamless transition into the real estate brokerage field with Kelley Commercial Partners. With a remarkable career that included originating over $1 billion in loans without a single loss, Bill’s expertise in financing encompasses a wide range of real estate ventures, from office buildings to multi-family projects, hotels to subdivision developments. Renowned as a trusted advisor, he offers clients tailored solutions in the ever-changing realm of real estate.

Kelley Commercial Partners has an award-winning team of real estate professionals with the experience and knowledge to ensure you maximize your potential and reach your financial goals. Let us help you create a clear plan and provide the guidance you need to confidently move forward. Contact us today or click the links below to learn about current office property investment opportunities in Central Arkansas.

Office Building Investment Opportunities

1900 Malvern Ave, Hot Springs

212 Center St, Little Rock

720 W 3rd St, Little Rock

4 Shackleford Plaza, Little Rock

5414 Landers Rd, Sherwood

Tenant Improvement Allowances

Posted on 03/03/23

Tenant improvement allowances, or TIAs, are a common aspect of commercial leases. They refer to the amount of money that a landlord is willing to contribute towards the cost of renovations or customizations made to a leased property by the tenant. These allowances can play a critical role in determining whether a tenant can afford to take on a lease, and they can also be a point of negotiation between the landlord and tenant.

The first step in determining the amount of a tenant improvement allowance is to establish the scope of the project. This typically involves creating a detailed list of all the renovations or customizations that the tenant would like to make to the property, including the materials and labor required. The list should also include any necessary permits or approvals that will be required for the project.

Once the scope of the project is determined, the next step is to estimate the cost of the project by obtaining quotes from contractors or suppliers for the materials and labor required. The landlord can then decide on an allowance amount they are willing to contribute, which is generally a percentage of the total project cost. The percentage will vary depending on the landlord and the specific circumstances of the lease.

It’s important to note that the tenant improvement allowance is typically applied to the rent. This means that the tenant will pay a higher rent to the landlord to compensate for the allowance. Tenants should carefully consider the total cost of the lease, rent plus allowance, when deciding about whether to take on a lease.

From the landlord’s perspective, offering a tenant improvement allowance can be a way to attract and retain tenants in a commercial space. It can also be used to incentivize tenants to improve or upgrade a space in a way that benefits the overall property. A tenant improvement allowance can also benefit a tenant as it can reduce the costs associated with outfitting a space to meet their specific needs. Additionally, the tenant may be able to negotiate a higher allowance from the landlord if the tenant improvements benefit the property overall.

Tenant improvement allowances can play a key role in commercial lease negotiations and greatly benefit both tenants and landlords. When discussing tenant improvements, it’s crucial to have a defined goal and a well-thought-out strategy. At Kelley Commercial, our experienced professionals are ready to assist you in creating a clear plan and provide the guidance you need to confidently negotiate the best possible outcome as a tenant or landlord. Contact us today to learn more about how we can help you make an informed decision.

Due Diligence Explained

Posted on 02/01/23

Due diligence typically involves reviewing and gathering a variety of information about a property, including financial records, legal documents, appraisals, and physical inspections before a buyer or seller enters into an agreement. The role of a commercial real estate agent in the due diligence process is to act as a facilitator, helping to gather and organize information, and to serve as a resource for the buyer or seller as they assess the potential risks and liabilities associated with the purchase or sale of a commercial property.

Our job is to facilitate transactions for either buyers or sellers.

Due Diligence for Buyers

From the buyer’s perspective, due diligence is an important step in the process of purchasing commercial real estate because it helps them make an informed decision about whether to purchase the property and to understand the potential risks and liabilities associated with the purchase. Some specific tasks that may be involved in due diligence for a commercial real estate transaction from the buyer’s perspective include:

Reviewing financial documents, such as tax records, budgets, and income statements, to assess the financial health and performance of the property.
Examining legal documents, such as leases, contracts, and deeds, to understand the property’s ownership and any legal liabilities or obligations associated with it.
Conducting physical inspections of the property to assess its condition and identify any potential issues or repairs that may need to be addressed.
Reviewing environmental reports and assessments to ensure that the property is in compliance with local and national environmental regulations and to identify any potential environmental hazards.

Due Diligence for Sellers

From the seller’s perspective, due diligence is the process of providing information and documentation about the property to the potential buyer. The seller is responsible for disclosing any known issues or problems with the property, as well as providing any relevant financial and legal documents for the buyer to review. In addition to providing information to the buyer, the seller may also want to conduct their own due diligence on the buyer. This could involve reviewing the buyer’s financial situation and ability to purchase the property, as well as their plans for the property once they take ownership.

Our associates at Kelley Commercial Partners have the experience and knowledge to ensure seamless property transactions for either buyers or sellers. If you’re considering the acquisition of a property or the sale of property, consider representation from our team. Contact one of our experts today.

Rising Interest Rates Present Opportunities for Commercial Real Estate Investors

Posted on 12/27/22

When interest rates rise, it can potentially make borrowing more expensive for commercial real estate investors. This may lead some investors to shift their focus to properties that have stable, long-term cash flow, as these properties may be able to generate enough income to offset the higher borrowing costs. However, rising interest rates can also create opportunities for certain types of investments.

One potential opportunity for commercial real estate investors when interest rates rise is to focus on investments that are relatively insensitive to changes in borrowing costs. For example, properties with long-term leases or properties that have stable, predictable cash flows may be less affected by rising interest rates.

Another option for commercial real estate investors is to invest in properties with strong demand, such as properties in high-growth areas or properties that are leased to creditworthy tenants. These properties may be able to command higher rents, which can help to offset the higher borrowing costs associated with rising interest rates.

Investors might also consider exploring alternative financing options, such as private lending or crowdfunding, which may offer more favorable terms than traditional bank financing.

Finally, commercial real estate investors might negotiate interest rate swaps or caps with their lenders, which can help to mitigate the impact of rising rates on their investment portfolio.

For nearly 40 years, Kelley Commercial Partners has helped provide clients with a competitive advantage. We have the knowledge and experience to help clients navigate through the ever-changing market. Whether you are new to the commercial real estate market or an experienced investor, we are here to help you meet your real estate goals. Contact us today.

Tenant Estoppel Certificates

Posted on 11/08/22

Are you a tenant? A landlord thinking about selling? Or an investor looking to buy a leased property? If you have answered “yes” to any of these questions, it is important that you understand what a tenant estoppel certificate is and the benefits and protections it offers.

What is a tenant estoppel certificate?

A tenant estoppel certificate is a legally binding document signed by a tenant verifying the current status and terms of a lease and specifying any modifications to the original agreement, defaults by the landlord, or other issues relating to the lease. Typically, an estoppel certificate is requested by the landlord as part of the due diligence process before closing on the sale of a property. This statement of facts regarding the lease and the premises estops either party from making a claim that contradicts those facts post transaction.

If you lease, own, or want to purchase a tenant-occupied property, it’s important to understand how a Tenant Estoppel Certificate can protect you.

Most commercial real estate lease agreements include a provision requiring a tenant to complete an estoppel certificate within a specified amount of time after receiving the Landlord’s request. However, only a landlord wishing to sell or refinance the property would request the estoppel. If a lease does not have a provision requiring a tenant to complete an estoppel certificate, it is in the best interest of the tenant to carefully review and complete the estoppel certificate to verify all pertinent lease information.

Why sign a tenant estoppel certificate?

From the tenant’s perspective, an estoppel certificate informs and certifies to the purchaser of the property (i.e., the new landlord under the lease) and, in the event of financing, the lender of any existing issues they will need to address after closing. For lenders and purchasers, the estoppel certificate verifies information presented by the landlord regarding the tenant, the premises, and certain material terms of the lease, which helps prevent any costly surprises after closing.

As a full-service commercial real estate firm, Kelley Commercial Partners provides landlord and tenant representation. And no matter which side we represent, we are committed to successfully guiding you through the process from the beginning through closing. For all your commercial real estate needs, let us be your partner to success.