Fees to Know in Commercial Property Management

Kaitlyn Page

Vice President of Property Management

North Star Commercial Real Estate Advisors

Fees to Know in Commercial Property Management

Managing a commercial property can be a complex endeavor with many moving parts. One important aspect to understand is the various fees involved and how they impact property expenses. In this blog post, we’ll explore some common fees associated with commercial real estate management.

Management Fees

One of the primary fees in commercial property management is the management fee charged by the property management company. This fee is typically a percentage of the gross revenue collected at the property. Management fees often range from 3-6% of gross revenue, but can vary depending on the size and complexity of the property. This fee covers the manager’s time and effort for overseeing the property, including activities like collecting rent, maintaining systems, supervising vendors, budgeting, accounting, lease administration, and responding to tenant issues.

Leasing Fees

When space needs to be leased or re-leased at a commercial property, leasing fees are commonly charged by the manager. Leasing fees range from 1-2% of the lease value and compensate the manager for executing new leases. This covers activities like marketing vacant space, showing spaces to prospects, evaluating applications, negotiating lease terms, and preparing lease documents. Some managers also charge an ongoing monthly fee over the lease term.

Construction Management Fees

For larger capital improvement projects or tenant build-outs, the manager may charge a construction management fee around 5% of the total construction cost. This compensates the manager for overseeing and coordinating the construction process, including soliciting bids, selecting contractors, securing permits, monitoring timelines and budgets, and inspecting work.

Maintenance Fees

Some managers charge additional monthly maintenance fees, especially for tasks like HVAC maintenance, landscaping, or janitorial services. This provides ongoing upkeep for common areas and building exteriors. Fees are set based on the scope of services provided.

Administrative Fees

Beyond the base management fee, some additional administrative fees could include charges for tasks like preparing annual budgets and reconciliations, procuring insurance policies, property tax administration, handling legal issues, preparing leasing reports, and responding to specialized owner requests.

By understanding the key fees involved, property owners can better evaluate and budget for the costs of professional management. With the right manager, the expertise and services provided should more than justify the expense.

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com

The Appeal of Small Bay Industrial Space for Businesses

warehouse building with loading docks and parking lot.

Scott Naasz

President Broker

North Star Commercial Real Estate Advisors

The Appeal of Small Bay Industrial Space for Businesses

For many businesses, commercial real estate decisions boil down to finding the right balance between cost, location, and facilities. Industrial space often checks all these boxes for businesses that don’t require high foot traffic or luxury furnishings. In particular, small bay industrial warehouses, ranging from 1,000 to 1,500 square feet, offer an appealing opportunity for startups and small businesses looking to lease their first commercial space.

Lower Costs

The number one appeal of industrial space compared to other commercial real estate like retail or office is cost. With fewer amenities and utilitarian spaces focused on warehouse and production capacity, small bay industrial real estate can be leased at significantly lower per square foot rates than other commercial buildings. Rates will vary drastically depending on location, but small bay industrial space often goes from between $8-$12 per square foot in many markets. This compares favorably to upwards of $30 per square foot for classroom-style office space in the same regions.

In addition to lower leasing rates, small warehouse spaces also offer savings on property taxes and insurance. Since the spaces themselves are relatively simple, insulation, electricity and other construction costs landlords have to factor into leases are also less. For small businesses working with tight budgets, these cost savings from industrial real estate make fitting a lease into their finances much more feasible.

Strategic Location

In addition to budgetary factors, many small industrial bays also provide fantastic location. Typically situated in light industrial zones on the outskirts of metro areas, small industrial warehouses grant quick access to highways, airports and shipping infrastructure. The exact proximity depends on the market, but even being within 15-30 minutes of major transportation and shipping thoroughfares lends itself perfectly to small manufacturing, distribution or ecommerce businesses.

These locations also tap into vital labor pools, with access to blue collar and manufacturing workers in industrial neighborhoods or suburbs. For any business relying on semi-skilled labor for production or shipping operations, having a location accessible to where this workforce lives pays dividends. Contrast this to offices in more white collar central business districts which require workers to commute against heavy traffic.

Optimized Facilities

Lastly, the facilities built into small bay industrial spaces perfectly match the operations of target tenants. Warehouse spaces optimize ceilings for indoor racking and storage systems to maximize inventory capacity. They also support heavy equipment via reinforced floors and wide loading doors to accommodate freight trucks. While unfinished, these warehouses suit operational needs much better than attempting to retrofit excess space unused by office staff in a retail building.

Every business deserves workspace tailored to how they function, which small bay industrial real estate provides for product and inventory centric companies. The stripped down nature may not have luxury finishings, but these facilities allow small businesses to focus their capital on the equipment, technology and people powering operations versus expensive facilities they don’t fully utilize.

Getting Started with Small Bay Industrial Leases

For startups and small businesses wanting to secure their first commercial lease, small bay industrial space checks a lot of boxes. The combination of lower costs, strategic locations and custom facilities supports scaling operations. While class A office space may impress investors and clients, small industrial space often empowers the business itself.

The key is finding the right market and property within your budget. Reputable real estate brokers familiar with local zoning policies can help identify ideal locations to suit geographic and labor needs. They also navigate negotiations to help achieve favorable leasing terms. For any small business needing warehouse capacity, check out available small bay industrial space in your metro area. The cost savings, location perks and custom spaces give startups and growing businesses infrastructure to reach the next level.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com

Evaluating Commercial Real Estate Investments

Scott Naasz

President Broker

North Star Commercial Real Estate Advisors

Evaluating Commercial Real Estate for Investment Potential

Commercial real estate can be an extremely lucrative investment opportunity if done properly. However, accurately valuating commercial properties and determining their income potential requires an understanding of unique factors you don’t encounter when investing in residential real estate. Unlike houses and apartments purchased by individual homebuyers, commercial buildings are income-generating assets bringing in money for investors through tenant rents and property appreciation over time.

Assessing Property Value and Expected Returns

The first step in evaluating a commercial real estate purchase is retaining the services of a certified commercial real estate appraiser. An appraiser considers the property’s location, condition, usable space, likely operating expenses and market conditions to determine a property’s market value. This assessment allows you to set a fair purchase price when negotiating with the seller.

You’ll also want the appraisal to contain a NOI (net operating income) capitalization rate for the property. The cap rate divides the property’s NOI by either its purchase price or market value. It represents the expected rate of return from owning the asset. The higher the cap rate, the better the investment potential. For example, a property purchased for $1 million that generates $100,000 per year in NOI would have a 10 percent cap rate.

Checking Market Fundamentals

Thoroughly research population growth, job expansion, and other commercial real estate trends in the metro area where you want to invest. Growing companies need additional office and industrial space, increasing the occupancy rates and rents landlords can charge tenants. Make sure there is healthy demand from business and consumers to fill any space you acquire so that you can keep it rented.

Visit the Area in Person

The actual location of the property on the ground reveals much more useful information than what you can glean from a property listing. Drive or walk around the neighborhood during weekday business hours to check foot traffic volume, area amenities, access to public transit and highways, and the overall viability of the investment’s specific submarket. This allows you to spot any potential drawbacks the area may have for supporting commercial tenants long-term.

Choosing the Right Property Type

Each commercial real estate category comes with its own pros, cons and valuation methods that investors must understand before purchasing.

Office Space: This sector is most heavily influenced by job and rent growth. Target metro areas creating white-collar jobs. Evaluate the property’s Class rating and rents per square foot against competing nearby buildings.

Retail: Customer traffic counts and proximity to highways/residential areas are critical. Property value is highest for grocery/necessity-anchored community centers. Avoid declining malls with high vacancies.

Multifamily: Value is based on a complex’s NOI and cap rate. Properties in neighborhoods with rising rents and low vacancies make the best investments.

Industrial: E-commerce and logistics have boosted demand significantly. Choose smaller flex/warehouse spaces near ports, railways and highways in high-growth regions.

Specialized: Hotels, self storage, medical offices, etc. each have unique valuation methods. Study their economics before investing.

Leveraging Outside Expertise

Consider partnering with an experienced commercial real estate investor or sponsoring a deal with a private equity firm for your first few investments. Tapping into their location-specific market knowledge, tenant relationships and other expertise can remove much of the guesswork from decision making. Many sponsor firms source and negotiate the best deals, handle property management, then sell fractional ownership shares in the asset to passive investors.

The Bottom Line

A profitable commercial real estate purchase requires thoroughly researching regional market conditions, physically inspecting potential assets, setting realistic valuations and cap rates, and partnering with knowledgeable sponsors if they lack direct experience. While commercial real estate investments present higher risks and large capital requirements, their income potential over the long run significantly outpaces most other alternatives.

Let me know if you would like me to clarify or expand on any part of this blog post. I aimed to give an informative overview of key factors to evaluate when assessing investment potential for different commercial property types. Please provide any feedback so I can improve my business writing skills.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com

Who Pays for HVAC in Commercial Leases? Repair, Maintenance & Replacement

Kaitlyn Page

Vice President of Property Management

North Star Commercial Real Estate Advisors

Who Pays for HVAC Repairs and Replacement in Commercial Leases?

Heating, ventilation, and air conditioning (HVAC) systems are critical for commercial real estate properties to maintain comfortable temperatures and air quality for tenants. However, these systems inevitably need repairs and replacement over time. In a commercial lease agreement, the responsibilities and costs for HVAC maintenance are typically spelled out. Here’s an overview of common HVAC provisions in commercial leases:

Repairs

For minor HVAC repairs like a clogged filter or faulty thermostat, the cost burden often falls on the tenant. However, for more intensive repairs of core HVAC components like compressors, coils, or ductwork, the landlord usually pays. The lease should specify thresholds for “minor” vs. “major” repairs if there is any ambiguity.

Preventative Maintenance

Landlords commonly take responsibility for scheduled preventative maintenance on HVAC systems, such as routine check-ups, filter changes, cleaning, etc. This helps prevent problems down the road. The lease will typically list required maintenance frequency such as quarterly or semi-annual.

Replacement

For complete HVAC replacement, the financial duty rests with the landlord in most standard commercial leases. HVAC systems have a typical lifespan of 10-15 years. Since replacing an entire unit is a major capital expenditure, it usually falls outside routine maintenance and is the landlord’s prerogative.

Exceptions

The above represents general industry practice. But some leases have unique stipulations, like making the tenant responsible for all HVAC costs related to their particular usage patterns. It depends on the negotiations between both parties. Upfront communication about HVAC responsibilities is essential to avoid confusion.

Having clear HVAC repair and replacement clauses in commercial leases ensures that costly breakdowns get addressed promptly. Both landlords and tenants should understand their duties to keep these pivotal systems humming. Proper HVAC maintenance provides comfort to tenants and protects the value of the property asset.

I hope this overview on HVAC responsibilities assists anyone reviewing or drafting a commercial lease. Please let me know if you would like me to elaborate on any area in more detail!

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com

The Critical Due Diligence Process for Commercial Real Estate Buyers

Commercial Real Estate Due Diligence Process

Scott Naasz

President Broker

North Star Commercial Real Estate Advisors

The Critical Due Diligence Process for Commercial Real Estate Buyers

Purchasing commercial real estate can be an exciting yet daunting process, especially for first-time buyers. While the prospect of owning an office building, retail center, or other income-generating property may seem appealing, there are many risks involved with commercial real estate investments. This is why conducting thorough due diligence prior to finalizing any acquisition is absolutely essential.

What is Due Diligence?

In commercial real estate, due diligence refers to the comprehensive investigation and analysis a potential buyer performs on a property they are considering purchasing. The goal of due diligence is to uncover any issues or concerns with the property that could adversely impact its value, performance, or the buyer’s intended use. Common items examined during due diligence include:

- Financial records – including income/expense statements, rent rolls, operating budgets, lease agreements, tax returns, etc.
- Physical condition – inspection of the structural, mechanical, and electrical systems as well as the exterior and interior finishes.
- Environmental assessment – evaluation of potential contaminants or hazardous materials on site.
- Local market analysis – research on area demographics, economy, development projects, zoning, etc.
- Regulatory and legal review – assessment of compliance with relevant laws and regulations.
- Title work – confirmation of clean title and identification of any easements, encroachments, or other title issues

Why is Due Diligence Important?

There are several key reasons why completing thorough due diligence is critically important for commercial real estate buyers

Reduces Risk

Perhaps the most important function of due diligence is uncovering any problems or hidden issues that could present financial, legal, or operational risks down the road. These risks may not be apparent at first glance, which is why rigorous due diligence is so essential. Ensuring you go into a purchase with full awareness of all the property’s positives and negatives enables you to accurately gauge the true investment potential and make an informed decision.

Confirms the Investment Thesis

Conducting due diligence allows you to validate (or invalidate) your original investment thesis for acquiring the property. You can determine whether the financials actually support a value-add play, if there is potential for higher rents, or if your planned re-positioning of the asset is feasible. Due diligence provides data and analysis to confirm you can execute on your business plan and realize your projected returns.

Supports Negotiations

The due diligence process frequently uncovers issues that may warrant re-negotiation of the purchase price or lead a buyer to cancel a deal altogether. Documenting any repairs needed, delays in development plans, or problems with leases strengthens your position to negotiate more favorable terms or walk away when necessary. Sellers are less likely to push back when you have the data to support your position.

Informs Hold Period and Exit Plan

A complete understanding of the property’s merits and weaknesses gained through due diligence allows you to better evaluate your planned hold period and exit strategy. You may decide to extend your hold to maximize value if due diligence shows significant upside. Or you may opt for a shorter hold period and earlier sale based on factors revealed during diligence. This informs your entire ownership and disposition strategy.

Key Due Diligence Takeaways

While the due diligence process requires time and resources upfront, the insights and risk reduction it provides are invaluable for commercial real estate acquisitions. Key takeaways to keep in mind include:

Engage qualified professionals – lawyers, engineers, environmental consultants, etc. – to conduct diligence.
Thoroughly underwrite the leases and financially model different lease-up scenarios for vacancies.
Ask tough questions and scrutinize everything when evaluating the physical and operational conditions.
Confirm any planned capital improvements are permitted and assess the costs, timing, and ROI.
Carefully comb through title work and legal/regulatory issues and address any concerns.
Leverage due diligence to negotiate more favorable deal terms and create contingency plans.

By taking the required time and care with due diligence, buyers can maximize their chances of investment success and avoid costly surprises down the road. The due diligence process remains a crucial step that should never be rushed or minimized in commercial real estate deals.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com

The Importance of Tenant Representation

Two business people shaking hands, with one's hand holding a document titled 'Lease Agreement'

Scott Naasz

President Broker

North Star Commercial Real Estate Advisors

The Importance of Tenant Representation in Commercial Real Estate

When looking for commercial space to lease, it’s crucial to have an experienced commercial real estate broker representing you as the tenant rather than just relying on the landlord’s broker. Here’s why tenant representation is so important in commercial leasing:

Tenant brokers have a fiduciary duty to look out for your best interests. A landlord’s broker is legally obligated to represent the best interests of the property owner. Your interests as the tenant may conflict with what the landlord wants. A tenant broker serves only you.

Tenant brokers bring specialized expertise. They understand commercial leases inside and out—what’s negotiable and what’s not, common pitfalls, and how to get the most favorable terms. Landlord brokers know these leases too, but they use that knowledge to benefit the landlord.

Tenant brokers provide market insights you can’t get elsewhere. A good tenant broker will monitor the local rental market constantly, tracking lease rates, vacancies, new listings, and tenant demand. This market intelligence helps them negotiate the optimal deal on your behalf.

Tenant brokers expand your options. An experienced broker representing tenants knows all the spaces that meet your criteria—even those not actively marketed yet. Going direct to landlords limits you only to what they promote. A tenant broker can uncover “quiet” options you’d otherwise miss.

Tenant brokers negotiate better financial terms. With their market knowledge and deeply honed negotiation skills, tenant brokers can often negotiate substantially lower rental rates, more generous tenant improvement allowances, and other concessions that benefit you financially. Landlords expect tenants to bring brokers and build that cost into deals.

Tenant brokers customize lease terms. Beyond financial terms, an expert tenant broker knows where landlords may be flexible on lease length, renewal options, exclusive use rights, subletting, assignment rights, and other legal terms. They can craft a lease agreement tailored to your business’s needs.

Tenant brokers manage the process smoothly. Navigating letters of intent, lease proposals, negotiating points, concessions, and execution involves many steps. An experienced tenant broker will efficiently guide you through the process.

Tenant brokers save you time. Leasing commercial space is complex, time consuming, and distracting from your core business. A competent tenant broker does the heavy lifting for you, streamlining the process.

Tenant brokers provide local market insights. Beyond lease rates and terms, a broker knows the nuances of different buildings and areas—nearby amenities, parking, access, future development plans, and more. They can advise you on where your business will thrive.

Tenant brokers know reputable vendors. Once you select space, you’ll likely need architects, contractors, vendors for security systems, IT infrastructure, etc. A seasoned tenant broker can recommend vendors they’ve worked with successfully for other clients.

Conclusion

In short, tenant representation allows you to level the playing field in commercial leasing. Landlords have teams of real estate professionals looking out for their best interest. With an expert tenant broker by your side, you can be confident you’re getting the optimal location on the most favorable leasing terms for your business. The broker’s fees are well worth it, as they will negotiated savings and concessions that more than offset their commission. Don’t lease commercial space without tenant representation.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com

The Benefits of Landlord Representation

representing a landlord and tenant broker relationship

Scott Naasz

President Broker

North Star Commercial Real Estate Advisors

The Benefits of Landlord Representation When Leasing Commercial Space

When looking to lease commercial real estate, owners have an important decision to make – whether to represent themselves or hire an experienced commercial real estate broker to represent them as their landlord rep. Landlord representation can provide significant advantages when leasing out retail, office, industrial or other commercial space. In this blog post, we’ll look at some of the key benefits of having a commercial real estate professional represent you as the landlord.

Expertise in the Local Market

A knowledgeable landlord rep will have an in-depth understanding of the local commercial real estate market in which your property is located. They will know the current average rental rates in the area for different property types. They will be familiar with comps (comparables) – rental rates for similar sized spaces nearby. This expertise is key in pricing your space competitively to attract tenants quickly. It also helps ensure you are getting top rental rates in the current market.

Better Lease Terms

Beyond rental rate, an experienced landlord broker will negotiate lease terms and conditions that provide you with more protection as the property owner. For example, making sure the security deposit is sufficient and that clauses about maintenance,utilities and other expenses favor you as the landlord. They can act as your representative in lease negotiations to get you the best overall lease.

Faster Tenant Placement

A landlord agent markets available spaces through multiple platforms like listing services, digital ads and office/building signage. They have connections in the local business community to help find ideal tenants faster. Their expertise screening tenant applications also helps find tenants that are financially qualified to pay the rent consistently and less likely to default.

Fewer Leasing Mistakes

An experienced commercial broker serving as your leasing rep will help you avoid costly mistakes that may occur if negotiating directly with tenants. Mistakes like ambiguous lease clauses, incorrect base rent terms or improperly addressing maintenance obligations can all negatively impact you. A landlord broker helps craft a mutually beneficial lease optimized for the landlord.

Ongoing Property Management

Many landlord reps offer additional services that provide ongoing property management support after the lease is signed. This can include addressing maintenance requests, rent collection and more. Having the same commercial broker handle leasing and management provides helpful continuity.

Professional Tenant Relations

A landlord rep serves as a buffer between you and tenants, maintaining a professional relationship. If issues ever arise like late rent payments, your rep addresses these directly with the tenant. This is especially helpful for landlords that live remotely from the property.

Conclusion

Hiring an experienced commercial real estate broker to represent you as landlord can pay dividends through higher rental rates, ideal tenants, faster leasing, fewer mistakes, and ongoing support. For commercial property owners, partnering with a qualified landlord rep is recommended to maximize benefits when leasing space.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com

Get Multiple Vendor Bids to Save on Commercial Property

Getting competitive bids from vendors like cleaning services can lead to significant cost savings in commercial property management.

Kaitlyn Page

Vice President of Property Management

North Star Commercial Real Estate Advisors

Getting Multiple Bids for Vendors: A Key to Saving Money in Commercial Property Management

When managing a commercial property like an office building, retail center, or apartment complex, one big expense is using outside vendors for services like landscaping, cleaning, maintenance, and repairs. It’s important for property managers to get multiple bids from different vendors for any major service contract or one-time job. Here’s why:

Cost Savings

Getting multiple bids allows you to compare pricing and potentially save a lot of money. One vendor might quote you $5,000 for a parking lot repaving job, while another quotes $4,500 for the same scope of work. Going with the lower bid means saving money for the property owner.

Market Information

Comparing multiple bids gives you a good idea of the going rate for a particular service in your local market. This helps ensure you don’t overpay if you only get one bid that seems high. It also tells you which vendors are pricing competitively.

Leverage in Negotiations

With multiple bids in hand, you have more leverage to negotiate with vendors to potentially lower their pricing. You can tell them you have competitive bids and see if they will come down in price to secure the contract.

Find the Best Value

Getting several bids allows you to look at factors beyond just price, like level of service, quality, experience, etc. This helps you find the best overall value, not just the cheapest option. Find the Best Value – Getting several bids allows you to look at factors beyond just price, like level of service, quality, experience, etc. This helps you find the best overall value, not just the cheapest option.

Cast a Wide Net

Soliciting bids from several vendors means you can cast a wide net and identify providers you may not have considered before. This leads to more options and potentially better pricing.

By taking the time to get multiple bids for any major vendor service, commercial property managers can save significant money for their clients while still obtaining quality services. It pays to put in the work on the front-end to get multiple competitive bids. Doing so can really maximize value and keep vendor costs as low as possible.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com

Commercial Gems: CAM Know-How

Image of a well-maintained commercial property with landscaping, captioned "CAM charges ensure shared spaces stay pristine."

Kaitlyn Page

Vice President of Property Management

North Star Commercial Real Estate Advisors

Demystifying Commercial Property Management: Understanding CAM Charges

Managing commercial properties involves navigating through various terms and responsibilities, and one crucial aspect is Common Area Maintenance (CAM). In this blog post, we’ll break down the basics of commercial property management and shed light on the often misunderstood CAM charges.

What is Commercial Property Management?

Commercial property management is the process of overseeing and maintaining income-generating properties such as retail spaces, office buildings, and industrial complexes. Property managers play a key role in ensuring these spaces are well-maintained, tenants are satisfied, and the property’s overall value is preserved.

Understanding CAM Charges:

CAM charges, or Common Area Maintenance charges, are fees passed on to tenants to cover the costs of maintaining shared spaces within a commercial property. These shared areas, also known as common areas, include lobbies, hallways, parking lots, and landscaping. CAM charges are meant to distribute the financial burden of maintaining these spaces among all tenants benefiting from them.

Key Components of CAM Charges:

Landscaping: Costs associated with maintaining the property’s exterior, including lawns, trees, and flower beds.
Utilities: Expenses related to common area utilities such as lighting, heating, and cooling.
Repairs and Maintenance: Funds allocated for fixing wear and tear on shared spaces and facilities.
Security: Costs associated with common area security measures, such as surveillance systems or security personnel.
Property Management Fees: Compensation for the property management company overseeing day-to-day operations.

Why CAM Charges Matter:

Equitable Distribution: CAM charges ensure that all tenants contribute their fair share to maintain shared spaces, promoting fairness and equity.
Property Value Preservation: Properly maintained common areas contribute to the overall curb appeal and value of the commercial property.
Transparent Budgeting: Tenants can anticipate and budget for CAM charges, as they typically vary based on property size and usage.

In the realm of commercial property management, understanding CAM charges is crucial for both property managers and tenants. By demystifying this aspect of property expenses, we pave the way for more transparent and harmonious landlord-tenant relationships. Remember, a well-maintained property benefits everyone involved, creating a win-win situation for both property owners and tenants.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com

Top 10 Commercial Real Estate Investment Mistakes to Avoid

Top ten list showing the biggest mistakes when investing in commercial real estate

By THE NORTH STAR COMMERCIAL REAL ESTATE ADVISORS TEAM

The Top 10 Mistakes to Avoid When Investing in Commercial Real Estate

Commercial real estate can provide excellent returns if invested in strategically, but there are also many costly pitfalls to steer clear of. As a business owner or investor evaluating commercial properties, be sure to avoid these top 10 mistakes:

Not conducting thorough due diligence – Never skip the due diligence process which helps uncover issues before you commit. Look deeply into zoning regulations, area demographics, crime rates, schools, local market conditions, comparable rents, tenant mix, operating expenses, leasing terms, environmental factors, flood zones, and overall financials and valuation. For example, neglecting due diligence could mean missing costly zoning changes that limit your remodeling plans.

Not having a long-term investment strategy – Know exactly why you are acquiring the asset and what your long-term plan looks like. Don’t just chase high yields in the moment, but make choices based on real estate cycles, market changes, and your investor goals for the next decade. Going in without defined objectives will likely lead to poor decisions.

Buying the wrong location – Location is absolutely key in commercial real estate’s risk and return. Make sure the property has convenient access to transportation, area amenities, a strong surrounding tenant pool and is in an economically stable neighborhood. For instance, properties next to new development could become less appealing over time.

Overpaying for a property – Don’t overpay based on emotions or “curb appeal.” Know the property’s true value by looking at cap rates for comparable sales within the specific local market and submarket. Overpaying by even a few percentage points can mean massive losses down the road.

Not thoroughly inspecting the physical property – Look beyond just the superficial cosmetics and dig into the major operating systems like HVAC, electrical, plumbing and the roof as well as the overall structure. Identify any deferred maintenance that may be costly later on. For example, an outdated HVAC system could require a $50,000 replacement soon

Not evaluating leases correctly – Review lease terms to understand income stability. Look for near-term expirations, tenant improvement allowances, opt-out clauses, and rent bumps.

Not considering tenant risks – Assess the financial strength of current and potential tenants by looking at sales figures, industry outlook, and credit history. Also evaluate their business operations, foot traffic, and growth plans. Be wary of having too much tenant concentration in one industry or company. For example, having one tenant take up over 30% of the space can be risky.

Skipping environmental assessments – Always get Phase 1 environmental assessments done to uncover any existing or potential environmental issues that could be dealbreakers. You don’t want to inherit problems like asbestos, contaminated soil or groundwater issues. Catching environmental hazards early allows you to negotiate with the seller or walk away.

Being underinsured – Make sure you have adequate insurance coverage for the property type and location, while also reviewing amounts for different policy types. Look out for exclusions too. Not having proper liability or flood insurance could lead to massive unexpected costs. Discuss details with an experienced commercial insurance advisor.

Not building the right team – Surround yourself with an experienced team of commercial real estate professionals like brokers, appraisers, lawyers and accountants. They offer insight and expertise you likely lack, helping avoid missteps. For example, a savvy real estate tax professional can explain the nuances of escrows and 1031 exchanges.

Avoiding these key mistakes will put you on a stronger path to investing in commercial real estate successfully. Be sure to conduct thorough due diligence, create a strategic plan, evaluate all details comprehensively, build the right team, and avoid emotional decisions. This leads to solid returns and meeting your real estate investment goals.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.

Contact Us Today

Scott Naasz: (612) 819-8285

Email: scottnaasz@kwcommercial.com

Kaitlyn Page: (701) 220-5123

Email: kaitlynpage@kw.com