by Chad Massaker | Mar 2, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Industrial, Multifamily, Office, Retail
The income approach is one of the most common methods used to value commercial real estate. This method is based on the idea that the value of a property is directly related to the income it generates. Here are the basic steps to valuing commercial real estate using the income approach:
- Determine the property’s net operating income (NOI): This is the annual income the property generates, minus any operating expenses such as property taxes, insurance, maintenance, and management fees.
- Estimate the property’s capitalization rate (cap rate): This rate is used to convert the property’s NOI into an estimated value. Cap rates vary depending on the property type, location, and market conditions. The cap rate can be estimated by researching recent sales of similar properties in the area and analyzing their cap rates.
- Calculate the property’s value: Once the cap rate is determined, the property’s value can be calculated by dividing the NOI by the cap rate. For example, if the property’s NOI is $100,000 and the cap rate is 7%, the estimated value would be $1,428,571 ($100,000 / 0.07).
It’s important to note that the income approach is just one method of valuing commercial real estate, and it should be used in conjunction with other methods such as the sales comparison approach and the cost approach to arrive at a more accurate value. Additionally, market conditions and other factors can affect the value of a property, so it’s always a good idea to consult with a professional appraiser or real estate agent to ensure an accurate valuation.
by Chad Massaker | Feb 22, 2023 | Commercial Real Estate, Ft. Lauderdale, Industrial, Leasing, Miami, Multifamily, Office, Palm Beach, Retail, South Florida
Negotiating a commercial lease can be a complex and challenging process.
Here are some tips to help you negotiate a favorable commercial lease:
- Understand your needs: Before you start negotiating, it’s essential to have a clear understanding of your business needs, including the type of space you need, the location, and the budget. This will help you to identify your priorities and negotiate a lease that works for your business.
- Research the market: Do some research on the local commercial real estate market to gain an understanding of the typical lease terms, rental rates, and concessions offered in the area. This information will help you to negotiate from a position of strength and make informed decisions.
- Get professional help: Consider working with a commercial real estate broker or lawyer who has experience negotiating commercial leases. They can provide valuable insights and help you navigate complex lease terms and negotiations.
- Negotiate lease terms: Negotiate lease terms that are favorable to your business. These may include the length of the lease, rent escalation clauses, renewal options, and the amount of the security deposit.
- Negotiate rent: Negotiate a fair rental rate based on the current market conditions, the condition of the space, and your budget. You may also be able to negotiate rent concessions, such as free rent or reduced rent for the first few months of the lease.
- Review the lease carefully: Once you have negotiated the terms of the lease, review the lease carefully before signing. Make sure you understand all the terms and conditions, and ask questions if anything is unclear.
- Consider future needs: When negotiating a lease, consider your future needs as well as your current needs. Think about how your business may change in the future and negotiate lease terms that provide flexibility to accommodate those changes.
Negotiating a commercial lease can be a complex process, but taking the time to understand your needs, do your research, and work with professionals can help you to negotiate a favorable lease for your business.
by Chad Massaker | Feb 20, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Ft. Lauderdale, Industrial, Miami, Multifamily, Office, Palm Beach, Retail, South Florida
A Delaware Statutory Trust (DST) is a legal entity created under the laws of the state of Delaware, USA. It is a type of trust that allows investors to hold an ownership interest in income-producing real estate assets, such as commercial properties, multifamily apartment buildings, and industrial facilities. DSTs are commonly used in real estate investment, especially in 1031 exchanges, which allow property owners to defer capital gains taxes by reinvesting the proceeds from the sale of one property into another.
DSTs are similar to traditional trusts in that they have a trustee who manages the trust and its assets on behalf of the beneficiaries, who are the investors. However, the key difference between a DST and a traditional trust is that a DST is a separate legal entity, which means that it can own and operate property in its own name. This provides the investors with limited liability protection, as they are not personally liable for any debts or obligations of the trust.
One of the advantages of investing in a DST is that it allows investors to own a fractional interest in a large, professionally managed property, without the hassles and responsibilities of direct ownership. Investors receive regular income distributions from the rental income generated by the property, and the trust can also sell the property and distribute the proceeds to the investors upon the termination of the trust.
DSTs have specific requirements to meet the legal definition, including having a trustee, a beneficial interest, and being managed by a business trust entity. They are regulated by the Delaware Statutory Trust Act, and investors should consult with an experienced attorney or financial advisor before investing in a DST to ensure that they understand the risks and benefits of such an investment.
What is the Difference Between a Deleware Statutory Trust vs a Deferred Sales Trust?
A Delaware Statutory Trust (DST) and a Deferred Sales Trust (DST) are both types of legal structures used in real estate investing, but they are distinct from each other in several ways.
A Deferred Sales Trust (DST) is a strategy used to defer taxes on the sale of a business or investment property. It involves setting up a trust and transferring the property to the trust in exchange for a promissory note. The note is then sold to a third-party buyer, and the proceeds are held in the trust. The property owner can receive payments from the trust over a period of time, and the taxes on the sale of the property are deferred until the payments are received.
While both DSTs and Deferred Sales Trusts use the structure of a trust, the main difference between them is the purpose for which they are used. DSTs are typically used for real estate investing and can provide investors with regular income and potential appreciation, while Deferred Sales Trusts are used to defer taxes on the sale of a business or investment property.
by Chad Massaker | Oct 6, 2022 | Commercial Real Estate, Ft. Lauderdale, Miami, Palm Beach, Retail, South Florida, Storefront, Strip Malls
Sorry for the inflammatory, click-baitish title and header graphic, but I needed to get your attention.
I’ve written this blog because there still appears to be a disconnect between retail landlords and their knowledge and perceptions of the CBD retail industry. If you are a retail landlord that has chosen deliberately not to rent to a CBD retailer due to any number of perceived stigmas that get attached to this industry, PLEASE READ THIS ENTIRE ARTICLE.
Whatever You Think You Know About CBD is Probably Wrong
- The Federal Farm Act of 2018 removed Hemp from Schedule 1 making “hemp” a regular retail product.
- The United States Treasury, Financial Crimes Enforcement Network, issued guidance to all financial institutions, via FIN-2020-G001, explaining that the Bill “removed hemp from the definition of marijuana in the Controlled Substances Act (CSA)”.
- Accordingly, financial institutions are no longer required to file a Suspicious Activity Report (SAR) on customers engaged in hemp distribution
- This also means that Hemp-based retail operations are “bankable”. We don’t have to be a cash-only business like many marijuana dispensaries.
Addressing The Perceived Stigma with Facts
Roughly 25% of the population say they don’t trust CBD/hemp-based products
These 25% are most likely unaware of 3 very important things which could drastically alter their perception:
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- CBD is not derived from the same plant as marijuana
- The active ingredient for this product is Cannabidiol (CBD), not THC as with marijuana
- CBD products may have some THC, but it is less than 0.3%. Translation: You can’t get “high” from CBD
You wouldn’t restrict a prospective tenant that sells seafood, rice, certain cereals, mushrooms, poultry, fruit juices or health supplements from selling those products, would you? Of course not…. except…… All of the products mentioned in the previous sentence have arsenic in them – even some of your prescriptions from the pharmacy. Dietary supplements can often have too much arsenic in them.
Retail Landlords of Higher-End Luxury Class Properties Are Missing Out
Many CBD retailers are often forced to find tenancy in less-than-desirable locations, often near gas stations or vape stores, even though they are willing to pay top dollar for rent. While many CBD retailers are making due, arguably thriving, despite their physical retail locations. The other issue with this is that it can create roadblocks to differentiation.
You May Already Have Retail Tenants Selling CBD
& You Just Don’t Know It
The U.S. CBD market grew over 700% in 2019 and is on track to grow to $23.7 billion through 2023. The bulk of this growth is coming from large retailers like CVS, Walgreens, and Kroger entering the market and providing that availability to consumers. These retailers now comprise 57%+ of the CBD retail sales per year. That’s not including other retailers coming on board with CBD product sales like Gyms, and Heath Stores (GNC, Vitamin Shoppe, etc.) Pet Stores and other Big Box Retailers
Translation:
If your anchor tenants are demanding the exclusion of CBD retail from the shopping plaza, you should not make the assumption that they are doing so because of any negative perception of CBD Retail stores. They want in on the action!
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In Closing
If you have been against renting to CBD retailers, I would strongly encourage you to reverse your position. And, if you still choose to keep your position, then I encourage you to walk into the retail tenants that you have right now to see if they are selling it already anyway.
If you don’t lease to a CBD Retailer, someone else will. And right now, you’ll most likely get what you want from the deal. CBD retailers have money and are willing to spend top dollar for the right space. Once enough landlords get wise to this and it becomes mainstream, and it will, you may find yourself asking your South Florida commercial real estate advisor that handles your listing to directly seek out CBD retailers for vacant space. But, by then, you will have been too late and the CBD retailers, who have gone mainstream, will have the negotiating leverage, unlike now.
Negotiating a commercial lease can be a complex and challenging process.
