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Mays Q&A

Common questions and answers about commercial real estate

Since 1951

Commercial Real Estate

The easiest way is to start is with questions and answers about what people do who are in the career of commercial real estate.


BY Austin Sharp, CCIM   |  

In the section below you will find answers to common questions our clients ask about commercial real estate. When trying to understand the commercial real estate market and what the professionals within the industry do, it helps to answer a few questions that are important about the industry. Start by selecting one of the links below. If you don’t see what you need, contact us.

Contact us today to request a consultation. We are happy to answer your questions.

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Mays Frequently Asked Questions


A commercial real estate broker is a licensed professional who provides asset management and occupancy services, such as those professional services required to mediate 1031 exchanges, acquisitions, dispositions, leasing and advisory services.

A commercial real estate loan is a type of mortgage loan that has been secured by a lien on commercial property. Properties of this type are sold to corporations, partnerships, developers, trusts, and other commercial entities like these. They are not sold to individuals.

Commercial real estate loans can last on between five and twenty years. The amortization period of a commercial real estate loan can also be longer than the term length of the loan itself, allowing commercial entities to make payments for shorter period of times at rates designed for longer terms. At the end of the term of the loan a final balloon payment is made to complete the loan’s repayment.

A commercial real estate brokerage is like investment banking for commercial properties. It is a team of CRE professionals that connects sellers and buyers. Brokers usually operate on commission or a percentage of the commercial real estate deal.

The reason property sellers use a commercial real estate broker is for the network of individuals and companies that broker can bring to the table. On the other hand, the reason investors use a commercial real estate broker is because the brokerage usually has a recommended list of property sellers that match the asset needs of the buyer.

Commercial real estate lending is where a buyer makes a property purchase by acquiring financing or mortgages. Without it, the buyer would need to have the funds available to purchase the property ahead of time. Commercial real estate lenders allow commercial entities and businesses to purchase their property by taking out a loan that the business will pay back to the lender over a period of time.

Commercial real estate lawyers can work for attorney’s or brokerages. Their job is to handle real estate transactions for commercial properties and in some cases, serve as general counsel or be involved directly during the transaction.

They may aid buyers and sells in the decision process based on the information given on the property; including legal information within the local government and more.

 

 

Finding a qualified agent and one that you feel comfortable working with is difficult if you do not know the right questions to ask. Here are a few to get you started.

  • Is the agent detail oriented, honest, and are they highly regarded?
  • Is the agent experienced with my companies commercial needs?
  • What is the size of the agent’s brokerage?
  • How easy is the agent accessed?
  • What are the agents strengths and weaknesses?
  • What are the fees and rates of commission for both the agent and brokerage?

You can use these questions to ask other people in your same industry who have previously worked with that agent or brokerage, or you could ask the agent or brokerage directly. Either one will give you an idea of what you could possibly be working with and how the agent or brokerage can help you.

The job of a commercial real estate underwriter is to help assess the risk of a commercial real estate loan. An underwriter analyzes the risk as well as the value of the commercial property and the borrower of the loan.

When commercial real estate loans are offered, they are scrutinized by the commercial real estate underwriter who compares the loan to the risk the lender is willing to take on. They take statistics like: the market value of the commercial property and the credit history of the entity that will be taking on the loan into consideration.

Commercial real estate cap rate, or capitalization rate, is the estimated return of an investment in commercial real estate, that is based on the amount of income the property is expected to yield. This rate is used to help investors establish potential return on the investment in the property.

The commercial real estate cap rate is found by taking the new operating income and dividing it by the current market value of the property. The net operating income is found by looking at the annual return on the property after taking out the operating costs for the property.

A letter of intent in a commercial real estate aspect is a document that describes the terms of the real estate transaction. It is used to allow the property seller and buyer to agree on all of the terms that are proposed on the deal.

Technically no, a broker is not required for a buyer to look at property, but they may not be able to receive the same level of access to the property without one. A broker benefits future buyers by giving them access to properties that other potential buyers who do not have a broker might not be able to access.

Viewing properties online does not require a broker, but some properties listed online do not have the same amount of detailed information that a broker would have. If you decided to talk to the seller directly, you could gain access to additional information and/or be given access to the property. Keep in mind that not all sellers will be available at the times you are or they might only allow buyers to view the properties by speaking to their broker.

Commercial real estate taxes differs. The government requires business and property owners to complete tax forms that provide information regarding income and the value of the property. Some possible taxes can could come from things like: revenue of the property, property of the expenses, along with the location of the property, with many others.

 

Try talking with industry professionals that will be able to provide you with accurate information based on your location and other business factors.

There is no specific number that all brokerages and agents go by. Each brokerage will provide different commission rates for their brokers, but not all brokerages provide their rates to the public.

Rates are not set in stone, they are negotiable just like many variables in a commercial real estate agreement. The market value of the property and the brokerages themselves will impact commission rates.

Rates range between 3% and 10%, but it all depends on how much the buyer is willing to pay, the brokerage, and the property itself.

The simplest way to find out commission rates is to call different brokerages and find out yourself.

Residential purchases have general inspections which usually are a one day thing. These purchases are cheaper and are more likely to be used as a home. Residential purchases can be closed within 30-45 days.

Commercial purchases involve property that is being used for business purposes which brings along liability to the property and the land connected to it. The inspection process is more extreme. This means that inspections can last a long time and deals take much longer to close.

Commercial lease rates are quoted per month or year by price per square feet.

CAM stands for Common Area Maintenance. CAM charges, are NNN, Triple Net, charges such as taxes and insurance. These charges are paid to the landlord by the tenants.

Letters of intent are not usually binding, but you should read everything you are asked to sign before you do.

Tenant improvements are anything that is additonally built that is required for the user with an intended use. The financing is distributed by the landlord and may require plans, the hiring of contractors, and consent.

Tenant improvements are negotiated between the tenant and the landlord. The tenant is usually the one who pays and the landlord can credit a set amount of that.

Mays is an expert in 1031 exchanges. 1031 exchange is an investment transaction involving an investor that sells a property and is able to transfer that amount over to purchase another property. Keep in mind that the time to identify the property the investor wants and to close on the deal, is limited.

Contact Mays commercial real estate today to enter into a listing agreement or to find out more information about what we can do for you.

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