Displaying items by tag: investment property
When you think about it, owning real estate is considered by many to be part and parcel of the American Dream. If fact, the U.S. Declaration of Independence’s original draft featured the language, “…Life, Liberty and the Pursuit of Property'' until the last word was ultimately changed to “Happiness” by Thomas Jefferson. There’s nothing that compares to the pride and financial freedom that comes with owning your own property. Beyond that, investing in commercial real estate (CRE) can be a fantastic way to diversify your investment portfolio and earn passive income. But if you’re new to the world of CRE investing, knowing where to start can be confusing—or even downright daunting. Fortunately, Fountainhead Commercial is here to help. Here are three ways to invest in real estate from our experienced property investment advisors.
So, you want to invest in commercial real estate. That’s great! Commercial real estate has consistently produced better returns with a lower risk compared to many other types of investments. But investing in this type of real estate can be complex. Even if you’ve invested in residential properties before, this is a whole different ball game. And the larger price tags on most CRE properties can be intimidating. For the best results, you’ll want to work with a commercial property investment advisor. In today’s article, we’re breaking down everything you need to know about Denver investment properties.
Investing in commercial property can be a great way to build wealth and acquire a steady source of passive income. But for many people, commercial property is an intimidating type of investment to get involved with. And we get it – commercial real estate investing can appear complex. Today, we’re going to break this investment strategy down and provide helpful tips and tricks for getting started.
Types of commercial properties
Commercial properties typically fall into three main categories: office, industrial, and retail:
- Office - As you may have guessed, office property refers to real estate leased by professional service firms, administrative users, and other ‘white collar’ tenants. This includes highrise towers and skyscrapers in city settings to mid-rises and office parks in suburban areas. Office properties come in a wide range of sizes and styles offering investors many options to choose from depending on their investment goals. Office building leases often are firm commitments in the 5-year to 15-year range.
- Industrial - Industrial properties refer to real estate that’s used for e-commerce distribution, manufacturing, and other ‘blue-collar’ business operations. Most often, this includes buildings such as warehouses, distribution centers, product assembly factories, etc. Historically, industrial properties are located in outlying but logistically key areas that would be seen as undesirable for retail or residential properties. Leases for industrial properties typically last for 5-years to 20-years.
- Retail - Retail properties refer to spaces that are used by retail businesses to conduct business directly with the public. This could include clothing shops, restaurants, storefronts, strip malls, shopping malls, factory outlets, etc. Leases for retail properties tend to fall in the 3-10 year range.
How investing in commercial property generates returns
Your commercial real estate investment strategy will start with the acquisition of a property that either has an existing, rent-paying tenant in place already or a vacant property that is (or can be made) desirable to that market’s tenant-base. Through this purchase, you’ll generate a return on your investment in three ways: 1) by leasing the property and collecting rent from a tenant(s), 2) by taking advantage of property tax benefits (depreciation and interest payments write-offs), and 3) appreciation of the asset over time while the property is owned. Here’s a little more on how commercial real estate investing can generate returns.
Investing in CRE is a great way to acquire a steady stream of income due to the longer lease terms associated with commercial tenants, which often provide a corporate guaranty of lease payments. On average, commercial properties yield a 6-12% return on investment according to Fortune Builders.
The second - Depreciation: IRS acknowledges that for rental properties, natural wear and tear is a tangible factor that impacts the overall value of the property. Depreciation is a tax benefit that allows commercial real estate owners to recover the cost of maintaining their income-producing properties but always consult with your accountant who focuses on real estate tax laws.
In addition, property mortgage interest deduction provides excellent tax benefits. This deduction helps investors own property while it appreciates and enjoy a positive cash flow with lower tax liability.
Appreciation and value-add
The third—but equally as important—way to gain returns on your investment is through the increase in the property’s value, or appreciation, throughout your period of ownership. For an investor that has a larger appetite for risk, value-add properties can generate very strong yields. To identify potential targets, you’ll want to look for buildings that:
- Have higher vacancy;
- Need cosmetic renovations;
- Have deferred maintenance issues;
- Have functional obsolescence;
- Or have the opportunity for significant exterior or landscaping improvement;
- Commercial real estate investment strategies
At its core, commercial real estate investment is about acquiring an existing or potential, durable income stream while also identifying demand for a particular product type (e.g. office, industrial, retail) or particular tenancy (e.g. ‘essential’ business) in a given submarket/city and purchasing property while supply is limited. Checking all of these boxes can be complicated. To ensure you get the best return on your investment, based upon your unique risk vs reward tolerance, you need a sound investing strategy. Some examples of common commercial real estate investment strategies include:
- Lowest risk – STNL Cash-Flow MOB: Identify a medical office building fully-leased to a single national credit-rated tenant (with corporate guaranty) that is committed on a longer-term NNN lease of 10+ years in a larger urban area.
- Lower-to-moderate risk – Multi-Tenant Light Industrial; Target a light industrial/flex (part office & part warehouse) that is 85%+ leased to local and regional-credit tenants with existing lease terms of 2-5 years remaining in proven submarkets.
- Moderate risk – Office Building for Renovation: If you identify an office in an established suburban submarket with older common area finishes, outdated suite features, smaller suite sizes, and moderate vacancy, purchase the building and renovate the vacant suites & common area finishes so you can increase rental rates and achieve overall appreciation after fully stabilized.
- Higher risk – Industrial Property for Redevelopment: Identify a distressed submarket that has opportunity for economic resurgence over the next few years. Then purchase an industrial property with a shorter-term commercial tenant in place. In the long term, plan to have the property up-zoned and redeveloped into retail, office, or mixed-use real estate as the neighborhood begins booming.
- Highest risk – Land for Entitlement then Develop: Target a land parcel that has virtually no development but is ripe for population and economic growth in the coming years. Then acquire the properly-zoned land, obtain the necessary permits, and develop the land after forming joint venture with a proven contractor.
Learn more about investing in commercial property with Fountainhead Commercial
If you’re interested in learning more about investing in commercial property, reach out to us at Fountainhead Commercial. We are your one-stop-shop for all of your commercial real estate needs. We take pride in ensuring every client we work with is buying, selling, or exchanging their real estate at the right time, to the right entity, and at the right price.
Contact us today to learn more about commercial property investments.
Investing in industrial real estate can seem daunting at first. And if you’re unfamiliar with what to look for when purchasing industrial property, it can seem scarier still. However, with the right investment property advisor working with you, you can reap a long list of benefits. In this article, we’ll cover the top five reasons to consider industrial property investment in Denver.
But first, let’s ensure you have a strong understanding of what defines industrial real estate.
What qualifies as industrial real estate?
Industrial real estate is a type of commercial property that typically includes warehouses, factories, logistics and distribution centers, manufacturers, depots, and industrial businesses. Industrial real estate is often considered to be one of the lowest-risk and most appealing asset classes because it can provide a more consistent cash flow than other types of real estate investments, such as office with gross leases or ‘non-essential’ retail. However, just like all types of investing, it’s important to do your research.
Why invest in industrial real estate
E-commerce in America is booming. In fact, as many as 75% of people in the United States shop online at least once a month, and the vast majority of those consumers shop online more frequently. The number of online shoppers is only expected to increase in the coming years. Fast delivery of those online purchases to the consumer is necessary and well-located industrial distribution facilities help make same-day delivery possible. All that’s to say, real estate investors are quickly realizing that industrial real estate can be a profitable place to invest. Here are five reasons why.
1. Hassle-free passive income
One of the biggest benefits of investing in commercial real estate is that it’s a hassle-free way to earn passive income. Compared to multi-family (apartments), hospitality (hotels), office and multi-tenant retail investments, industrial investment properties require far less maintenance due to NNN lease structures, have lower upfront costs as it relates to tenant improvements and real estate commissions/fees and it typically has lower vacancy rates (depending on the market), which ensures a more steady stream of rental income.
2. Higher yields
Historically, industrial real estate investments offer some of the highest yields of any real estate sector. On average, industrial properties generate a cash-on-cash yield of 6%-7% on average, compared to 5%-6% for stand-alone retail & apartment complexes. The yield difference between 5% and 7% is not 2% as you might think...it is a 40% higher yield. A 5% yield will take 14.4 years to double your money. A 7% yield will only take 10.3 years (using the Rule of 72).
3. Fast and easy to build
On average, industrial properties are built in a year or less. Thanks to the relatively simple design, tilt-wall construction and lower-density submarkets (with less ‘neighborhood approvals’ required), industrial buildings are often built faster and can quickly be occupied once finished. The same cannot be said for office buildings, apartment complexes, or retail spaces. And with e-commerce taking up more market share with each passing year, it’s easy to see why investors opt for industrial investments.
4. Easier to liquidate
At one point or another, you’ll want to exit your industrial investment. The good news is, with increasing demand for online shopping, there’s always going to be a retail business (tenant) that wants to lease a well-located industrial space. With high tenant demand, industrial real estate properties can lease quickly, sell fast with a large pool of investors interested, giving you a strong incentive to invest.
5. Affordable re-leasing costs
One of the least attractive parts about investing in real estate is preparing the space for a new tenant. But let’s face the facts: people’s destructive habits are often more expensive to repair compared to items like machinery and equipment. When a lease ends at an apartment complex, office building, or retail space, there’s a lot that needs to be done to get the vacant space ready for the replacement tenant. Between leases, you may have to replace carpets, tear-down, rebuild and repaint walls, attend to mechanical systems that may need upgrades or replacement, and complete other costly and time-consuming steps to get the space ready for a new tenant.
But with industrial properties, the maintenance needs between leases are much more basic and the new tenants typically pay for part of, or all of, the required upgrades. Since industrial spaces generally are occupied by a lower-density workforce and less visitors, the releasing costs are less expensive.
Learn more about industrial property investment in Denver
If you’re ready to take the next step and seek an investment property advisor, reach out to us at Fountainhead Commercial. We offer industrial real estate investment property representation for both investors and owners/occupants who are considering buying or selling industrial real estate.
Contact us today to learn more about industrial property investment.
Investing in real estate has proven to be a great way to build wealth. Commercial real estate (CRE) investments, in particular, can provide consistent streams of income compared to residential real estate properties. If you’re interested in commercial real estate investment opportunities in Denver or elsewhere in Colorado, you’ve come to the right place. We’ve put together a comprehensive guide of need-to-know tips for commercial real estate investing in the metro area as well as statewide.
Investing in commercial real estate (CRE) can yield secure but modest returns as well as high investment returns if you go about it strategically and understand the risks. Comparatively, U.S. Treasury yields are at/near all-time lows in 2020. In this article, we’ll cover the ins and outs of commercial property investment in Denver so you can determine if it’s right for you.
Let’s examine the different types of investment.
Investing in commercial property has a high barrier to entry, but it can be an extremely lucrative route for those who choose to do it right. Investing strategically is the key, though. Without an investment property expert guiding your decisions, you won’t be able to achieve the returns you’re looking for. With many years of experience serving as the commercial broker for those investing in commercial property, we’ve developed the industry prowess to help our clients build a portfolio of investments that is right for them. Let’s discuss what you need to know about the commercial real estate investment opportunities available.
The responsibilities of a commercial real estate landlord are extensive and when you own multiple large properties, fulfilling the marketing and leasing responsibilities that make your investments highly profitable becomes even more challenging. More often than not, the daily efforts of an experienced landlord representative can significantly improve your long-term financial outcomes. That’s the decision this Texas-based client made and it paid off in spades.
The client owned multiple Class A and Class B multi-tenant office properties in 6 major cities, including Dallas, Texas. They engaged Lowrey Burnett to handle the commercial real estate portfolio marketing and leasing duties. They wanted to ensure an experienced professional was actively working to keep the multiple properties leased to high-quality, credit-worthy tenants.
The client maintains their portfolio in a first-class manner but had some of the most stringent financial underwriting criteria compared to competitive property owners. This can be a major deterrent for tenants when considering various office space options.
Additionally, there were social and economic factors over the eight years Burnett was representing the property owner, including the Y2K fallout, 9/11 terrorist attacks (We Will Never Forget), and the early impacts of the 2008 financial crisis. With nearly twenty years of experience in the commercial real estate industry, Burnett was effective in his role as the landlord representative.
For approximately eight years before moving to Colorado, Burnett consistently kept the mid-rise and high-rise office portfolio leased to 85-95 percent capacity, despite intense market competition, economic headwinds, and other factors noted above.
As the landlord representative for this Texas-based institutional landlord, Lowrey Burnett maintained an 85-95 percent occupancy rate across multiple Class A and Class B office properties in the Dallas area.
If your investment portfolio is underperforming and you want an experienced professional on your team to increase your occupancy and net operating income (NOI), contact the landlord representative at Fountainhead Commercial today.
A Texas-based real estate development company was considering other markets as they continued to grow their brand. In prior years, they had successfully penetrated Austin, San Antonio, Dallas, and, most recently, Seattle, by developing single-family and multi-family properties. They were now exploring Denver as their fifth market.
The client was seeking suitable land for the development of an urban, multi-family condo complex. Having explored a variety of markets, the client knew an experienced broker could be a strong asset to help them find the perfect development parcel late in the development cycle. The client engaged CCIM-designated broker, Lowrey Burnett, to identify sites available for purchase that aligned with the client's location and purchasing model.
Denver was the target market that the client and their stakeholders began considering as the city for their fifth flag - though it was late in the economic cycle. Unfortunately, that meant that many desirable infill urban sites had already been acquired and, in some cases, already redeveloped. The majority of the remaining, available urban development parcels had zoning issues or were excessively priced by sellers who hoped to take advantage of inexperienced or under-represented buyers.
As an experienced buyer's representative, Burnett knew that there were hidden gems left in the city. He performed extensive research to find an under-valued parcel. What he found was a 0.8 acre parking lot that had fallen out of contract, but was situated in an ideal location, just northeast of Denver's Central Business District. Improving upon the already attractive nature of this parcel, the parking lot generated rental income that would offset the client's debt-service expense during the preconstruction phase of the project. Additionally, Burnett was able to negotiate favorable sell-financing to the benefit of his client.
The condo development was underwritten, for purchase pricing purposes, based upon a three-story development. However, the client was able to achieve a much higher-density development that results in a much higher return on investment.
The client successfully closed on the covered-land play, acquiring the parking lot for $3.75 million. Depending on the final project height, the client expects to spend $16 to $20 million on the new development project.
Burnett acted as a buyer's representative for the acquisition of land for development near downtown Denver, Colorado.
A California-based investor sought out CCIM-designated broker, Lowrey Burnett, after selling their family business and the related real estate for $14 million. Because they wanted to defer 100 percent of the capital gains taxes, they were interested in pursuing a 1031 Exchange transaction. The client enlisted Burnett's guidance and expertise to adhere to the IRS restrictions that make such a tax-deferral transaction possible.
Though based in California, the client was interested in pursuing commercial properties nationwide. With a $14 million acquisition budget, Burnett presented the client with a variety of investment options, including investing in a single property or diversifying into several different properties, as well as numerous types of commercial real estate, such as single-tenant industrial, multi-tenant retail, single-tenant flex, multi-tenant office, or single tenant medical office building (MOB). The client consulted with their financial advisor and tax attorney to ensure they made a decision that supported not only their current cash flow needs but also their long-term goals.
The client opted to incorporate a number of highly-specific diversification strategies, including geographic, product-type, tenancy, lease expiration, yield diversification, and more. Because of this, as well as the strict deadlines required to comply with 1031 Exchange rules, Burnett set to work immediately to identify properties that met the client's requirements. Of all the options presented, the client decided to pursue the following:
- An industrial single-tenant asset in Houston, TX - international credit tenant
- A multi-tenant retail asset in Kansas City, KS - national and local credit tenants
- A multifamily DST in Atlanta, GA - institutionally managed Delaware Statutory Trust
- A single-tenant retail asset in Augusta, GA - national credit tenant
The next steps involved negotiating deal terms with each seller that afforded the client the investment returns they sought, completing the necessary due diligence for each investment in each market, and closing all transactions relatively quickly to adhere to the 1031 Exchange requirements.
Burnett, a leading buyer's representative, not only successfully negotiated mutually-agreeable deal terms for the purchase of multiple commercial properties but he also coordinated travel to each city while thoroughly reviewing all due diligence materials. The purchase price for several of the properties was negotiated down more because of due diligence findings. All investment properties were successfully acquired within the required 1031 Exchange timelines and 100 percent of the client's captial gains taxes were deferred, saving them $3.5 million.
Burnett served as the buyer's representative during a successful 1031 Exchange of investment properties across the United States.
If you're looking for an experienced commercial real estate investment broker to help you navigate a 1031 Exchange transaction and defer 100 percent of your capital gains taxes, contact Fountainhead Commercial today.
To Who It May Concern – 1031 Exchange Real Estate Investors:
Our family-owned and operated an award-winning dairy in California for 24 years. When we decided to sell the business and related 1,200 acres of land, we wanted to use the $14M in proceeds to acquire income-producing commercial real estate while deferring the payment of all capital gain taxes.
I engaged Lowrey Burnett, CCIM to provide his expertise and assist with the purchase of multiple investment properties in multiple out-of-state cities. Lowrey performed a very thorough nationwide search & identified numerous high-quality investments that aligned with my investment criteria. Before the 1031 Exchange deadline, I closed on 4 different income-producing properties in 4 different cities as part of our diversification strategy. We successfully deferred 100% of the capital gain taxes…estimated savings of $3.5M!
If you intend to invest in commercial real estate anywhere in the U.S., I recommend that you also take advantage of Lowrey’s experience, expertise, and professionalism. He worked very hard for me & I’m sure he will do the same for you.