A Beginner’s Guide to Investing in Commercial Real Estate


Beginner's Guide to Investing in Commercial Real Estate-min

Investing in commercial real estate is a great way to diversify your portfolio as well as make some extra money. Unlike stocks and bonds, commercial real estate is a hard asset that provides income via rent collection and, in most long term cases, an appreciation of value. The best way to begin investing in commercial real estate is to thoroughly research your options – we’ve compiled a few tips to help you get started.

What is Commercial Real Estate?

Investing of any kind requires a good amount of research and before taking the plunge you should understand what commercial real estate encompasses. Office buildings are the most commonly known category of commercial real estate, but it also includes apartment complexes and high rises, retail strip centers, industrial buildings such as warehouses and special purpose spaces like amusement parks, hotels and sports stadiums. Once you have an understanding of what commercial real estate is, then you can devise a plan to invest.

Be Patient

Investing in real estate should not be about the short term. It should be about the long term and building equity. Everyone wants to make a quick buck, but investing takes time. Before investing in a plethora of properties, start small and take on a just one or two investments that you are certain will cover any associated costs you have – like the mortgage, taxes and operating expenses. Keep in mind how much you can charge for rent, and from there, weigh the amount of loans you would need vs your projected income after all expenses are taken out to make the best decision.

Understand Hidden Costs

Make sure to do your due diligence and understand the real estate taxes on the property, the condition of the property, and what kind of financing your lender will provide. Additional costs such as renovations, licenses/permitting, and vacancies can arise during the investing process. By keeping your properties leased up, there are tremendous tax and cash flow advantages real estate ownership can provide.

Make Sure to Have the Right Advisors

To make the most of your commercial real estate investments, work with industry experts. Before signing your name or committing to any property, seek out the guidance of a knowledgeable broker who can show you properties that may not be listed, and advise you on locations that will be the most fruitful for your investment. Work with an attorney to ensure that there are no legal issues with your potential investment. By failing to work with an attorney, you could suffer financially if any unknown legal issues arise. Finally, set up a discussion with a lender before you begin looking into properties to get a better idea of your borrowing guidelines and a realistic understanding of what properties you can afford.

By doing the right research, understanding your financial situation and working with industry experts, you can start investing in commercial real estate knowing you made the best decision for your financial well-being and portfolio.

Here’s When You Should Walk Away From a Deal


Here's When You Should Walk Away From a Deal-min

Negotiating a deal for an office space, home or retail space is a delicate art that takes thoughtfulness, precision and a clear idea of what you want. Walking away from a deal is not only the best leverage to get everything on your list of asks, but can also be necessary if the deal is headed in a direction that’s not in your best interest. Here’s how you can determine when it’s time to walk away.

When You Lose Focus of Your Original Goal

When looking for a new office space, it’s not uncommon to get caught up in a particular space or location and get lost in the idea of it. For instance, perhaps you’re on the hunt for a new office space in an attempt to shorten the commute for your employees. In the process, you happen upon an office space you love at a reasonable price, but it’s nowhere near where most of your employee base is located. If the original goal was to alleviate the commute for your team, and you end up looking at a potential office space that isn’t in alignment with that, no matter how nice it is or how many amenities it may boast, it’s best to take a step back and reevaluate why you decided to search for a new space in the first place. This is also the type of thing that can happen when you are looking to save money by reducing your square footage, but then start looking at nicer and higher class properties than you were in before. If the per square foot price becomes higher than you were paying before, you may end up taking a smaller space without any real cost savings.

When the Risk Far Exceeds the Potential Gain

Searching for the perfect location can be exhausting, especially when you have a large list of necessities. After a few less than impressive viewings you might be tempted to start to lower your standards. If you find yourself in a position where there are a laundry list of maintenance issues or you’re not 100% comfortable with the lease term the landlord is insisting on, it’s better to err on the side of caution rather than taking a risk that may negatively impact you in the end.

When It’s No Longer a Win-Win Scenario

If a potential landlord is using your interest in the property as a bargaining chip in their favor, rethinking the deal and even walking away from it could be in your best interest. For example, if the person on the other side of the negotiation gets emotional, is making threats, or is lying to you, this should tell you that you do not want to get further involved with these people even if the property you found hits all of your wants and needs. Remember, this will potentially be your landlord for years to come. In this situation it’s also beneficial to work with an experienced broker to ensure that you aren’t being taken advantage of in the negotiation process or setting yourself up for a frustrating leasing situation.

At the end of the negotiation process, you should feel good about the deal you signed, and by utilizing your ability to walk away, you can ensure that your lease and space are both tailored to your exact needs.

Why You Need a Real Estate Attorney During Lease Negotiations


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When negotiating a new lease or lease renewal for commercial office space, many business owners and operators believe they can use a trusted family lawyer, IP, tax, corporate or other non-real estate attorney to help mediate terms. While it may be tempting to choose a lawyer you’re familiar with over an expert in real estate, it’s critical to find legal counsel that specializes in real estate law to ensure the best outcome. Together with a skilled broker, a commercial real estate attorney will save clients money and mitigate the risks inherent in any transaction. Here are a few of the most common scenarios during lease negotiation that demonstrate the importance of going with a real estate lawyer.

Prioritizing the Essential Elements

Attorneys that specialize in real estate law know how to prioritize the numerous clauses in a lease and fight for their client on issues of crucial importance. A common trap for lawyers who are unfamiliar with commercial real estate are the provisions dealing with unforeseen incidents or disasters, such as how quickly a landlord is required to repair a space after a fire. While this may seem like an important item to negotiate, there are more urgent areas to focus on, such as hold over rate or relocation language. Attorneys familiar with the intricacies of real estate know that disasters, such as fires, are extremely rare in today’s commercial office buildings. Haggling back and forth for extended periods of time on issues that may never occur only costs a client more money.

Capitalizing on Opportunities

Real estate lawyers know how to take a potentially negative clause in a lease and turn it into a positive opportunity for their client. For example, landlords frequently wish to reserve the right to relocate an existing tenant after a lease has been signed in order to create room for an incoming tenant that requires a larger, contiguous space. Rather than sink a deal over this issue, a real estate attorney will negotiate the terms of the lease so that any relocation will be to a higher floor with better views, with the landlord covering the costs of the move and build-out of the new space.

Learning on the Fly

It’s no secret that legal counsel is costly and work is billable by the hour. Thus, clients shouldn’t want their attorneys to be learning on the job. Unfortunately, this is what often happens when you hire a lawyer that you have a personal relationship with but who has no real estate experience, as they will need to study the new terms. This can also reduce the effectiveness of the broker, whose deal-making prowess can be stifled by an inexperienced attorney. All in all, going with a real estate attorney can save you substantial money on legal fees.

The field of law is much like medicine, in that lawyers specialize in a specific area of expertise. You may trust a long-time general counsel who has helped out in other matters, but working with an attorney who’s well versed in real estate will help mitigate risk, save money and ensure the lease you sign is the best possible deal. Lease negotiations can be complex and contentious, and you’ll want an expert on your side to secure a successful transaction.

New Services Offered by Tenant Advisory Group


We are proud to announce our newest partnership with Dan Porcaro of PSM Partners. This exclusive partnership enables us to offer you premium phone and data brokerages services, as well as cloud services. Through this new affiliation, TAG will be able to provide even more services and solutions to help grow your business. Click here to learn more about Dan Porcaro.

About PSM Partners

Porcaro Stolarek Mete Partners, LLC (PSM) is a business and technology consultancy located in downtown Chicago. They focus their business strategy efforts on strategy development and strategy execution for firms under 500 million in revenue. Their technology consulting offerings center around getting small and mid-sized businesses to the cloud, managed services and IT strategy consulting. PSM also has a carrier services group that brokers voice and data services for their clients.

What to Expect When Looking for Office Space


Chicago is the third largest city in the United States which means there is a deep pool of potential office spaces to fit just about any business. Prior to beginning the search for new space, many of our clients are interested to know what exactly is involved in the process. Through our experience we’ve assembled a list of the most important steps involved along with tips and tricks we think will help business owners.

Timeline

Aim for a minimum of nine months before you’re ready to lease or purchase a space. Keep in mind that at least six months worth of time is essential to account for site selection, business term negotiations, attorney review, architectural design, permitting and any interior construction or design work to fit your specific office needs. 

The Search

A tenant representative will start with a survey of the market to deliver relevant property options that fit your specifications in terms of a budget, location, type, size and quality of a space.

In addition to the standard software that all CRE firms use, Tenant Advisory Group has established a network of resources to efficiently uncover both newly on- and off-market listings that will be increase the quality of your search.

Assuming a budget of a certain amount per month, desired office size, building class and neighborhood proximity to transportation are all variables that can be adjusted to stay within your means.

After you’ve selected a list of properties of interest, a tenant representative will organize tours of all potential buildings, helping to guide you through considering all the logistical factors involved with each space.

One great way to get the most out of your dollar is to consider reducing the number of private offices in exchange for a larger bullpen area to reduce the square foot per capita. However, if individual offices work better for your type of business, and you are not looking to compromise on size, then shifting from a Class A to a Class B building can still maintain relative quality building finishes with amenities while substantially reducing rental rates.

Business Term Negotiations

Once the list is narrowed down to a handful of properties that seem like a potential fit, the next step is to submit RFPs that seek to achieve all of your goals, both financial and in terms of space quality and layout.

Even if you’ve chosen one property for your top choice, seeking proposals from multiple properties will provide you with market comparables to facilitate more negotiating leverage.

In addition to appropriate rental rates, a tenant representative broker will understand terms and be an advocate for you to achieve fair market concession packages such as rent abatement; tenant improvement allowances; escalations; securitizations; rights to expand or renew; and termination rights.  Working with a tenant representative who possesses a deep knowledge of fair market values will be indispensable to this process and overall cost savings.

Upon receiving proposals, a broker will run analyses to outlay the financial impact of the Landlord’s response and will submit counters to advance the negotiations toward your goals until acceptable business terms are agreed upon.

If there is a need for a build out, this will also be the time that a tenant representative will coordinate efforts of an architect to design the space to your specifications. A space planner might be provided from the building, particularly if they will turnkey the work, or an independent architect may be involved.

One thing to keep in mind during the negotiation process is to organize your paperwork. Prior to signing a Letter of Intent with a particular property, the landlord is most likely going to require you to show them financial statements and/or the last two years of your tax returns to be assured that you will be able to pay your rent in a timely and stable manner.

Attorney Review

Once both sides have come to agreement on the key business terms, a tenant representative will coordinate the attorney review process. The will work alongside your attorney to ensure the legal language reflects the negotiated terms.

If your business does not have an attorney you use that specializes in real estate, Tenant Advisory Group is available as a referral source to qualified and affordable real estate attorneys.

Navigating Construction

Upon lease signing, Tenant Advisory Group will continue to assist with coordinating walk-throughs of the space for meetings with the architect and contractor bidding. We will be there to track progress against the project completion dates to make sure everything and everyone is moving forward efficiently.

Tenant Advisory Group is also available to make introductions to quality furniture vendors, movers, phone & data brokers, IT vendors, insurance brokers, and other ancillary professionals to help facilitate the process.

Moving Checklist

  • Receive quotes from several movers and line up a company well in advance
  • Line up the phone and data broker to set up the phone and data lines so they are ready by the time you move
  • Contact your IT support and let them know about the move at least six months in advance, but no later than 90 days
  • Recycle or donate unwanted electronics and furniture
  • Consider meeting with a furniture vendor to decide on reusing existing furniture, purchasing new or purchasing refurbished furniture
  • Gather any necessary paperwork for potential tax write-offs
  • Obtain a copy of the building rules and regulations
  • Identify the best point of contact from the building for all moving-related, space buildout and daily space operations questions
  • Understand the acceptable moving procedures in terms of hours, parking, unloading and elevator access
  • Establish a packing schedule to determine what can be packed in advance or last minute to reduce disruption to productivity
  • Setup mail forwarding from your old address
  • Order stationery, business cards and envelopes with the new address printed on them
  • Change your mailing address on your business registration with the city, website, social media, Google, credit cards, bank accounts and other professional organizations
  • Notify your network of clients and vendors that your company has a new space and address to proactively avoid any interruptions in productivity

Why Use a Tenant Representative

  • The tenant does not pay any commission for the brokerage services they receive. The services are paid by the landlord. Even if the tenant negotiates direct, the landlord still pays a commission to its in-house brokers. Shouldn’t you have an experienced advocate on your side, too?
  • An attorney can negotiate legal terms, but typically does not have sufficient micro-knowledge of the changing local real estate market conditions to ensure you receive favorable business terms.
  • Tenant Advisory Group has established a network of trustworthy, qualified and affordable real estate-adjacent professionals to incorporate into the transaction, in order to fully service all of our client’s needs.  
  • Tenant Advisory Group is committed to bringing best-in-class commercial real estate services to every end user, and proudly saves our clients an average of $15,000 per person on leasing costs and over 20% on purchases.

Subtle Differences Between a Residential and Commercial Real Estate Broker


Real estate is a complex industry with many different disciplines. The innate structure of the industry demonstrates just how quickly it can become complicated. Even within the commercial space there is a tremendous difference between industrial, retail, and office specialties. The types of properties, client use and lease terms will vary greatly depending on the commercial domain. Between commercial and residential real estate, the disparity is massive, which makes finding the right broker for the job crucial to efficiently and smoothly closing a deal on the right space.

Running the Certification Gauntlet

While residential and commercial real estate may overlap in some areas and begin with the same initial licensing, they are vastly different. An exceptional broker who specializes in one area will often receive additional training via courses and professional development workshops. Certified brokers can choose to become accredited in different areas such as the Accredited Buyer’s Representative (ABR), or earn additional designations such as Certified Commercial Investment Member (CCIM), Certified Negotiation Expert (CNE), Certified Residential Specialist (CRS) or Certified Short Sale Negotiator (CSSN). Becoming a successful broker requires time and dedication, but the most invaluable asset is on-the-job experience.

Discerning Between the Similarities

There are many differences between commercial and residential real estate, but upon closer inspection, they can also be quite similar. Commercial revolves around the purchase, sale or leasing of a property for business objectives. This is typically thought to rely on investment-centric numbers, whereas residential, focusing on the needs of a family, will involve more intangible qualities such as emotion about the property. Of course, anyone who has grown a business from the ground up will understand how much emotion can be involved. In turn, someone making a residential sale or purchase for the sake of an investment will be able to make decisions with a lot less sentiment. Therefore, it’s always important for a broker to understand each client’s innate set of circumstances in order to best guide them through the transaction process.

Staying Current with Trends and Establishing Relevant Connections

Throughout the course of a real estate agent’s career, they will obtain a deep understanding of the current trends within their market sector. For example, knowledge of the commercial market allows a commercial real estate broker to leverage more business terms during a lease negotiation. Another key factor that sets the different disciplines apart are the types of connections built over a career. Relationships that are made in the residential real estate world will be different than those established in the commercial realm. For example, the process of a family moving into a new home will involve outside assistance from appraisers, inspectors, mortgage lenders, residential attorneys and an array of subcontractors. This differs vastly from a company moving into a new office space who will need to be connected with architects, commercial attorneys and contractors, furniture vendors, IT consultants and phone & data brokers. Working with an experienced real estate broker who has built relevant connections in that field can make a big difference in the quality of each process.

Regardless of the classification of the property you’re interested in pursuing, it is important to find a quality broker that knows how to negotiate terms depending on the type of contract that is being written. Real estate is a complex industry and a specialized broker will best suit your needs.

Infographic: How a Commercial Real Estate Broker Will Save You Time


Infographic: Chicago’s Next Neighborhood to Watch


How a Commercial Real Estate Broker Will Save You Time


There are never enough hours in the day when you’re a small business owner. Try adding relocating your business to your list, and you’ll really have your head spinning. While important, finding a new office is a daunting task and can soak up drastic amounts of time. Thankfully, there are Chicago Commercial Real Estate professionals who want to help you.

Find a Space

With a sea of options available, how do you narrow it down to the handful of spaces that are perfect for your business? A large part of a broker’s job is to understand the market and what’s available for potential tenants. A commercial real estate professional will be able to identify what your business needs, and find the right space much more efficiently than you could, saving you time and frustration.

Schedule Walkthroughs and Meetings

Scheduling meetings with landlords and space walkthroughs take much more time than you’d think, taking away from the day-to-day of running your business. Commercial brokers will simplify the process by prescreening the space to ensure it’s worth your time to visit. From there, they will work with your schedule to find the best time to tour the space. The added benefit of having a broker on your side during a meeting is their knowledge of the market and fair lease terms, which can provide additional negotiating leverage

Negotiation and Paperwork

Negotiating a commercial real estate lease requires skill and knowledge of what can and can’t be conceded. While an attorney’s role in the lease negotiation process serves to minimize risk, a commercial broker’s role is to minimize cost. Only a season professional, who is keenly aware of the market, will know what to ask for with regard to items such as tenant improvement dollars and rent abatement. Your broker’s intimate knowledge of commercial leases will help ensure you are getting the best possible terms.

Chicago real estate is all about local market knowledge. Working with a professional who is an expert in their discipline can save you an immense amount of time, money and frustration.

Close the Deal Before Someone Else Does


Chicago’s commercial real estate market favors sellers, presenting high demand and low supply in the downtown area. This means the window to moving into your dream office may be closing faster than you think. If you find that perfect property for your business, be prepared to act fast and close the deal with the property owner before someone else does.

Be Prepared to Negotiate

The near-record low vacancy rates have made spaces in Chicago harder to come by and more valuable. Lack of available offices combined with increased demand means property landlords are receiving multiple offers more often. This is where a skilled negotiator comes in to make sure your offer is competitive yet beneficial to you and your business. Don’t back down from the challenge!

Jump on an Open Space

As with anything, being prepared will speed up the process. Make sure you have any documents filled out and ready to go at a moment’s notice. Persistence is another essential element to jumping on a space you want. Keep in constant contact with the landlord, and any other involved parties, to make sure the process does not get unexpectedly halted in any area. There are a lot of moving parts to a transaction, and the best way to make sure the process goes as smoothly as possible is to have a professional on hand.

Work With a Professional

Moving your office is an important decision and a complex process. Hiring an outside commercial broker who can easily navigate the ins and outs of the industry is a great way to ensure you find the best space for the best price. Professional brokers have access to a wide range of connections to help smooth the process of moving. They also have the expertise to negotiate and close a deal faster than you would be able to on your own. This is especially critical in today’s fast-paced real estate market. A seasoned professional will help you avoid falling into any commercial real estate pitfalls that arise from rushing into a lease.

In a low vacancy market, spaces are highly contested. Speed and efficiency are the keys to landing the office of your dreams. Knowing how to negotiate contracts, expedite the process and having the right connections can all help guarantee a smooth closing. Hiring a professional commercial broker can keep you from missing out on a great opportunity.

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