How to Get Top Dollar When Selling Your Income-Producing Property

Many people understand a lot of the common sense steps to take prior to listing their home for sale – keeping the yard neatly landscaped, removing clutter, touching up paint, and so on. The vast majority of these same concepts that enhance the curb appeal also apply when selling an income-producing property, such as retail, office, or multi-family property.

However, savvy potential investors will want to have access to much more detailed information than what a residential seller is accustomed to providing. So there are some simple steps that should be taken by a seller before putting the property on the market in order to maximize the value of the asset.

Keep organized files of the income-producing propertyincome-producing property

You will want to have all of your records pertaining to the property neatly organized, preferably in both hard copies and stored on your computer, CD, jump drive, or dropbox that can be easily transferred to potential buyers. These records include copies of deeds, title policies, surveys, building plans, current leases, use restrictions, lists of vendors, etc.

Maintain accurate financial records

It may seem like a pain to do at the time, but maintaining accurate financial statements for your income-producing property will be essential. Prior to purchasing an investment property, most investors will want to see profit and loss statements (P&L’s) for at least three years prior. Not having these records (or even worse, having inaccurate financial records) will greatly reduce the pool of potential investors who would consider buying for your property.

Be upfront about potential impediments in the deal

One of the most critically important steps to ensuring a smooth sale process for your property seems counterintuitive to most people – disclose potential problems with the property up front to buyers. For instance, if you know the HVAC system is running on its last legs and will need to be replaced soon let potential buyers know that up front. If you don’t they will most likely end up discovering this during their due diligence. If and when the problem is discovered during due diligence, it can cause major issues and the deal to fall apart. Most sophisticated investors will then wonder what other issues you are trying to hide from them and walk away from the deal, leaving you at square one to find another potential buyer.

[bctt tweet=”Most steps that need to be taken prior to selling your investment property should begin well in advance of selling the property”]

As you can see, most of these steps that need to be taken prior to selling your investment property should begin well in advance of selling the property. Ideally, you want to prepare for the potential sale of your property the day you purchase it. Keeping the property professionally managed (either by yourself or through a third party management company) will help you to effectively maximize the value of your asset upon the sale.

To read more of my articles click the following posts:

Advisor Top BarChris Palmer Development and Investment CRE

About Chris Palmer - Chris has been working with commercial real estate in Pensacola, Florida since 2010. He primary specializes in working with commercial real estate clients on development and investment related properties. Click here to read his full bio, or if you would like to contact him, you can call him at 850-434-7500 or email him at CPalmer@SVN.com.

What’s Up with the Office Market?

Market intelligence is integral to making smart decisions for investment purchases, property sales or business expansion. This brief update on the local and national office market is geared toward assisting you with your commercial real estate decisions.

Market Indicators for the US as a Wholegrowth for the office market sector

In 2014, several important market indicators for the U.S. began to show signs of returning to pre-recession levels. Consumer confidence improvement was seen in GDP reaching its highest level in 11 years. Labor market growth excelled as the nation added more jobs than it had in 15 years.

As the country’s economy strengthened and the labor market expanded, many areas of the country saw an increase in demand for commercial office space. According to DTZ U.S. Office Trends Report for 4th Quarter 2014, last year had “the strongest year of demand since 2006.” That explains why, in Florida alone, Sperry Van Ness advisors had a 25 percent increase in transactions and volume from 2013 to 2014.

Market Update for the Florida Gulf Coast

The Florida Gulf Coast area also saw an increase in office lease space demand. According to transactions recorded with Gulf Coast CMLS or Pensacola Association of Realtors, Escambia County had 12 percent more office lease transactions in 2014 than in 2013. However, during the same time period, Escambia saw a five percent decrease in office sales while the nation saw an increase of 17.4 percent indicating that our local office investment market has not yet rebounded.

Office Demand, Rental and Development Activity is an Indicator

Despite the increase in demand, excess office inventory has prevented overall vacancy from returning “back to pre-crisis levels.” Office demand is not the only indicator that the office sector of commercial real estate is rebounding, “both rental rates and development activity are heating up.” Nationwide, average asking rents in 4th quarter 2014 rose 2.3 percent from the same quarter 2013. Average leased rents recorded in the Gulf Coast CMLS for Escambia County increased 9 percent from 2013 to 2014.

We began this year in the strongest position for commercial real estate since before the economic downturn. It is expected that interest rates and inflation rates will continue to move in a favorable direction which will encourage foreign capital to continue flowing into the U.S., especially Florida. The 2014 Fourth Quarter Savills Studley Report predicts that office leasing activity for “the upcoming year could be just as strong as, if not better than, 2014 for U.S. office market fundamentals because the mindset of businesses has improved.”

If you were waiting for market recovery to make your move – it’s here. Contact a qualified and knowledgeable advisor if you would like a custom market analysis to assist with your specific real estate investments.

[bctt tweet=”If you were waiting for market recovery to make your move – it’s here.”]

To access all my commercial real estate blog posts, please click here.

Advisor Top Bar

About Stephanie Gilbert – Stephanie has been working in commercial real estate since 2003. Although she has done a variety of deals, her focus and passion, when it comes to commercial real estate, is leasing and selling office space, primarily in the Pensacola, Florida area. Click here to read her full bio, or if you would like to contact her, you can call her at 850-434-7500, or email her at SGilbert@SVN.com. You can follow her on Twitter at @StephanieGSVN.

Negotiating a Restaurant Lease like the Big Dogs – Part 3 of 3

Your dream of owning a restaurant is in sight. You have a concept with great food and a menu that will wow your future guests. Your business plan is solid and came from years of planning, taking photos of restaurants during your travels and constantly critiquing how you would do it differently. You even named the restaurant and already have visions of multiple locations like the big dogs.

Be Ready for the Municipality Fees

Negotiating a Restaurant Lease - Part 3Since restaurants are an intense business, many municipalities have impact fees. An impact fee is a fee that is imposed by a local government within the United States on a new or proposed development project to pay for all or a portion of the costs of providing public services to the new development. Many fees are minor but based on the municipality, can be so significant, it can blow your budget. Understand these fees in advance during your due diligence process.

Prevent Your Competitor from Moving in Next Door

You have created the perfect restaurant and designed the best menu. Now, imagine you are open and business is going well. In the retail center your restaurant is in, a space 2 doors down becomes available and your landlord is considering leasing it to a direct competitor. You would hope the landlord would not lease the space to a restaurant selling similar products, but hey, business is business. You can protect your investment by including an Exclusivity clause in your lease against other restaurant concepts:

  • Selling specific types of food
  • Offering a unique service method
  • Offering a type of entertainment

[bctt tweet=”Prevent your competitor from moving in next door”]

If your main business is selling deli sandwiches, you may ask that the landlord restrict any other business in the center that derives more than a certain percentage of their sales from the sale of deli style sandwiches. If you’re a sports bar, you may ask that the landlord restrict that no other restaurant have more than 3 TVS in their space. Landlords also have to protect their investment and not restrict themselves from future opportunities. So, when negotiating an exclusivity clause, landlords may incorporate limitations to exclusivity including

  • Size of space
  • Inside the retail center versus construction of an outparcel
  • Percentages of protected products.

Negotiating a Restaurant Lease - Part 3Staying with the deli example, if you operate a 1400 SF Jersey Mike’s sub shop, the landlord may permit the restrictions mentioned above but limit it the restriction up to 4000 SF. They may not want to limit a large space from being leased to a 4500 SF Newk’s Eatery or Jason’s Deli. Or the restriction may only apply to the retail center itself and exclude an outparcel where a freestanding building could house one of these competitive restaurants. Understanding these risks are critical to your long term success. While competition will always exist, it doesn’t have to be 2 doors down.

Will Your Landlord Require Annual Rate Increases?

As you negotiate through the lease terms, landlords try to achieve their desired ROI (Return on Investment) by incorporating increases to the base rent. Tenant’s desire rent to stay the same year after year while Landlord prefer annual increases. Are landlords being greedy? The strength of the dollar decreases most years based on the CPI (Consumer Price Index) and therefore the ROI is reduced. Leases are negotiations where both landlord and tenant can achieve their desired outcome understanding there are many ways to accomplish their desired goals.

  • Annual Rate Increase: If a lease is negotiated with annual increases, that increase can be a set percentage every year such as 2% or 3% over the previous year or the increase can be tied to a benchmark such as CPI. Since CPI can fluctuate dramatically, try to incorporate a ceiling (a maximum percentage increase that rent would not go over in a single year) and a floor (a minimum percent increase). It may read “rent will increase annually based on the CPI with a floor of 2% and a ceiling of 4%…”
  • Flat Rent: In the event you negotiate a rate that remains constant over a longer period of time, the landlord will usually incorporate a larger one time increase at each renewal period. So if the lease was 5 years with a 5 year renewal, the lease may read “rent will increase 10% at each renewal term over the previous terms base rent.”

[bctt tweet=”Are landlords greedy? Be ready to negotiate your lease.”]

Negotiating a Restaurant Lease - Part 3How Security Deposits Work

Security Deposits are sums of money provided to landlords to help protect them in the event a tenant leaves the property in a condition that requires repairs caused outside of normal wear and tear. Deposits can vary greatly or even be eliminated altogether based on a variety of circumstances.

  • Corporate Backed Lease: If a tenant is a strong national brand that is investing a significant amount of money into the landlords property, this would be a reason to reduce or eliminate the deposit.
  • Startup Restaurant: However, if the tenant is not financially strong and taking over a turnkey restaurant space with a lot of equipment, the security deposit may be significant.

There are times when it may be appropriate to get significant deposit and then include a burnoff when certain benchmarks are met. If a deposit was three times the rent due to a tenant’s weak personal financial statement, the landlord could integrate a return of one third the deposit in years 2 and 3 if the tenant has paid the rent on time and has never been in default. After year 3, the tenant now has a common deposit amount equal to one month’s rent.

Final Thoughts Regarding Your Restaurant Lease

If a Commercial Real Estate Broker does an effective job, both the Landlord and Tenant should walk away feeling good about the transaction and Win Win scenario was accomplished. Listening to the client’s needs and incorporating those into the negotiation and lease will help ensure a long and prosperous relationship between these new business partners.

[bctt tweet=”Landlords and tenants should both walk away feeling good about their transaction.”]

Click here to read all three parts of this series: Negotiating a Restaurant Lease like the Big Dogs

Advisor Top BarRestaurant real estate broker in Pensacola, Florida

About Michael Carro – Based in Pensacola, Florida, Michael has extensive commercial real estate experience and has earned many awards for his accomplishments. His passion is with restaurant real estate, and he is the host of The Restaurant Realty Show on News Radio 1620AM. Click here to read his full bio, or if you would like to contact him, you can call him at 850-434-7500, or email him at MCarro@SVN.com. You can also follow him on Twitter at @MichaelCarro.

7 Great Quotes – Best Investment Advice Ever

Every Market has Room for Growth

With a decade worth of commercial real estate brokerage experience, I’ve enjoyed the opportunity to work with and learn from some great clients and associates in the field of commercial real estate investment. I love the real estate investment arena and have a front seat view, with active participation, to numerous deals and investment strategies. Based on my observations, I can say without a doubt, we are in the midst of a recovering real estate market after surviving The Great Recession. The past few years have provided many great buying opportunities, transfers of wealth, and reinforced principles that real estate is cyclical in nature and grounded in market fundamentals. However, opportunities for continued growth still exist in every market. Below are a few tips, nuggets of wisdom and my thoughts on real estate investment advice that I believe to be true.

investment adviceWords of Investment Advice

  1. “Real estate investment is a marathon, not a sprint”- Rome wasn’t built in a day and neither is a great real estate portfolio. Singles and doubles can produce scores just like a home-run.
  2. “Invest in incoming producing properties”- Will Rodgers said, “Buy land, they ain’t making any more of it”, and I am sure that has worked well for many. I’d prefer to see the land have improvements with market demand.
  3. “I’m more concerned with the return of my money than the return on my money” – Invest in quality assets where you can create additional value. Appreciation is nice, but it is not guaranteed.
  4. “Always have an exit strategy”- If anything the past few years have taught us the markets can and will change. Be ready to change with it, and don’t over leverage.
  5. “Trust, But Verify” – A great quote from President Ronald Reagan, related to Russia and the Cold War, but it is just as important with real estate investments. P & L statements sometimes might as well be called “liar statements.” Just this week I saw a pro-forma that stated “0” for Management. You’ve got to be kidding me! Who does this? I’ve never met a serious real estate investor that didn’t value their time or know the cost of hiring a capable property management. Which brings me to my next point…
  6. “Know Your Numbers”- Commercial real estate always has, and always will be a numbers game. I don’t subscribe to the “bigger fool theory” as an investment strategy. Know your numbers and work with a commercial real estate broker that is an expert in their market. They will bring value and creditable experience to the table.
  7. “One good deal probably won’t make a career, one bad deal can certainly ruin a career” -Demand accountability, responsibility and transparency from all team members. A great CRE broker will put their client’s interest over their own and in doing so be more concerned about their on-going relationship with their client instead of a single transaction. The Sperry Van Ness Core Covenants requires this.

[bctt tweet=”I don’t believe in a magic bullet, other than hard-work and disciplined investment decisions over the long run.”] There are many commercial real estate investment classes and strategies. I don’t believe in a magic bullet, other than hard-work and disciplined investment decisions over the long run. What are your great pieces of commercial real estate investment advice and lessons learned? Please leave your nuggets of wisdom in the comments section below, or send an email to me, letting me know.

Advisor Top Bar

About Kevin Wattenbarger – As a founding advisor of the SVN office in Panama City, Kevin has extensive knowledge and experience in the regional market. He specializes in the sales and leasing of retail, office, industrial properties and commercial land. Click here to view his full profile and listings, or to contact him, you can call him at 850-532-5454, or email him at kwattenbarger@svn.com. You can follow him on Twitter at @NWFLCommercial.

8 Reasons for Valuing a Business

Multiple Methods to Value a Business

Many attempts have been made by appraisers, brokers, accountants, lawyers, and business writers to standardize the methods of valuing a business, but a significant diversity in approach still prevails. Many specialists, and various learned authorities, will try to sell you workbooks, computer software, and lately, interactive CD-ROMs to help in the valuing process. Almost every one of these products are different, except in its approach to valuing your business in terms of either net assets or some form of return on investment.

Reasons for Valuing a Businessvaluing a business plan

The process of valuing a business will always remain more of an art than a science. That is why there are different reasons to value a business other than to estimate what the selling price will be on the open market. These reasons include:

  • Selling or acquiring a partial interest in a business
  • Forming a joint venture arrangement with another company
  • Selling or acquiring a product or service line
  • Putting together a buy/sell agreement for a partner or minority shareholder
  • Dissolving a partnership or corporation
  • Reorganizing a company under the bankruptcy rules
  • Establishing an estate plan and determining value for estate and gift taxes
  • Divorce settlements

In all of these cases, it’s difficult to choose a valuation method since the force of a free and open market are generally not in effect when arriving at a fair market price. Although the valuation process occurs in the sale of a business to a stranger, no actual free-market sale takes place in the above situations. Only estimates, perceptions, and someone’s arbitrary valuation will ultimately prevail. So for these cases, the method used for valuation will be different than the method used for valuing a business for sale as an arms-length transaction.

[bctt tweet=”8 Reasons for Valuing a Business”]

To read more about the business valuation process, I recommend reading my previous post Business Valuation … How it works.

Advisor Top BarLisa Sharp Business for Sale Broker

About Lisa Sharp – Based out of Pensacola, Florida, Lisa has worked in commercial real estate since 2000 and specializes in business brokerage and commercial sales and leasing. Her experience as an owner and operator, of multiple businesses, makes her especially qualified to help clients purchase and sell businesses. Click here to read her full bio, or if you would like to contact her, you can call her at 850-434-7500, or email her at LSharp@SVN.com. You can follow her on Twitter at @lsharpsvn.

How Market Drivers Can Impact a Hotel Investment

Hotel Investments Are More than “Just the Numbers”

As hotel investors become more comfortable with the idea of expanding their hotel portfolio in this flourishing environment, there are many things an investor takes into consideration before purchasing one. Most hotel investors simply want to know one thing: what are the numbers? While average daily rates (ADR’s), occupancy and revenue per available room (REVPAR) are important metrics, it is also important to understand how the hotel is achieving these goals. To understand how the hotel investment is achieving goals, an investor should look at the market place and understand the economic drivers of the area. [bctt tweet=”An investor should look at the market place and understand the economic drivers of the area.”]

Market Drivers for Buying a Hotel

Hotel investment sceneWhen putting a potential hotel acquisition under the microscope after analyzing the STR reports, gross revenue, P&L’s and NOI, Mr. Buyer must understand what the economic drivers of this hotel are. In a perfect world this hotel might be a part of a retail development near a hospital with a destination theme park down the road, and for good measure lets add a mix of local food fair and a good night life. Unfortunately, this perfect world only exists for select few hotels in the world. Many hoteliers will settle for combination of one or two of these drivers and still have a very successful hotel. The key here is to understand exactly what kind of market your hotel is a part of and what the volatility there is.

Understanding Variables in the Market Place

It is important for hotel investors to dig beneath the surface of the deal to really understand how the market place operates. For example, if you are looking at hotel in an area where the main economic driver is the oil and gas industry and you have just learned the price of oil has just dropped from nearly $100 per barrel to under $50 in the last 6 months, this may be a red flag. An investor may want to make sure this industry stabilizes before going through with the hotel investment. [bctt tweet=”An investor may want to make sure this industry stabilizes before going through with the hotel investment. “]Another example, is when a hotel property is located near a destination beach where seasons come into play. An investor must understand the varying market place. A hotel may be at 95% occupancy with average daily rates over $250 per night during the summer months but, during the off season may only be able to produce a 30% occupancy at a third of the nightly rate. Investors can reap significant reward while the market is great, but must be in tune with the hotel economic drivers to sustain a successful hotel investment.

Identifying the Next Hot Economic Hotel Driver

Knowing what new economic drivers are in a market can give investors a competitive edge in purchasing land for an undervalued price. For developers, it will allow them to move into a good market place and identify/secure a quality brand, increasing the likelihood of achieving the desired return on investment. Right here in Pensacola, Florida, Navy Federal Credit Union has a 602,000 SF facility with another 342,000 SF under construction. Navy Federal made a commitment to growing from 3,100 employees to 10,000 employees by 2028. This campus is near an under-served interstate junction that only consists of a single service station. With developers in the wings this could be a good opportunity for a hotel investor to jump in the market place with great upside potential. For great local knowledge with good national reach, contact your hotel expert. Click here to read my other hospitality related blog posts.

Advisor Top BarHotel broker in pensacola, florida

About Bryan Morelock – Based in Pensacola, Bryan has gained significant knowledge of the retail and restaurant sectors for over five years. More recently, he has focused on honing his skills and working with clients in the hospitality sector, which he is particularly interested in. Click here to read his full bio, or if you would like to contact him, you can call him at 850-434-7500, or email him at BMorelock@SVN.com.