Every commercial property will have income streams. The question is, are they all optimized and utilized. In this market the income streams for commercial property are so important to the landlord and the financiers for the property. A property with multiple and well protected income streams will more easily ride out the economic challenges of this market.

In markets like this the real estate agent with the highest service value to landlords, is the one that helps strengthen and optimize the income streams across the property where ever possible. If you like it is a mindset that the real estate agent brings to the market.

In case you haven’t noted yet, many real estate markets are starting to sort out the economic challenges and the ‘cashed-up’ investors are on the ‘prowl’. So who said the market was ‘dead’? The reality is that the commercial real estate market is starting a new cycle. In 12 or 18 months the momentum will be well underway.

So let’s get back to the main point of this discussion and look at income optimization. By definition it is the identification and activation of all income streams that can be realistically charged to the tenants as part of their building useage. In other words the simple lease rent is not the only thing that you can get for the landlord.

Look ‘outside the square’ and know that utilization of the asset by the tenant in all ways has to be paid for. Also give due regard to any laws and legislation that may be special to the property or your location and could limit or direct the way you raise rental charges. We say this here because ‘Retail Shop Leasing’ in many locations stipulates how you raise and declare rent charges to tenants. Just be careful with this and when in doubt see a good property solicitor to give you guidance.

The Income steam focus is twofold:

Quality – The strength, term, and type of leases, rents, and tenants. Quantity – The amount of gross and net income achieved, and its relativity to other market rents, and its potential to increase.

The income stream covers all the types of income on a given property, some income being less secure than others. Income can typically be from:

Leases for occupied areas Rent review structures that provide growth in the lease rents Auto tellers operating on the property Public telephones in common areas Outgoings management and savings Internet kiosks for the visitors to the property to use Advertising on and in the property Fitout rental for any existing fitout that is owned by the landlord and the tenant is now using Rental for monthly or casual leased space Rent types such as gross rents, net rents, that are strategically selected for new leases given the existing levels of outgoings Licences for special areas of occupancy such as storage, signage, antennas on the roof, extra area use such as outside dining beyond the demised leased premises Car park fees for permanent and casual parking Expenses that are recovered from the tenants such as cleaning of tenants space, and electricity usage within the tenancy space Casual leasing of special areas and common areas Communication sites and antennas on the roof of the building Riser charges where any cable is laid for tenants Establishment of kiosks and smaller tenancies in common areas After hours air conditioning on an hourly basis

This list should not be viewed as the only income streams that you can tap for the landlord. It may be that your property will have other opportunities that can be optimized. Importantly you look for them and implement them wherever possible.

By: John Highman

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If you are planning to purchase a commercial property, make it a point to contact a real estate agent who specializes in commercial property transactions.

A commercial property is a worthwhile investment that will give you returns in years to come. If you want to make the most of your money today, investing in a commercial real estate is one of the things you should consider.

Below are helpful tips when buying a commercial property:

1. Upon finding a suitable commercial real estate for your needs, make sure that you have a valuation prepared for it and get a Land Information Memorandum from the local council. These will provide you with more information in assessing the value of the property and its potentials.

2. Getting a pre-approval is a good way of saving time by knowing that commercial property you can afford. It would be a waste of your time looking at $2 million buildings if you can only afford up to $300,000.

3. Take into consideration a low down payment and long-term loans to preserve your capital for better use and keeps your cash flow high. Furthermore, it also allows you to redeploy the capital savings to other profit-earning business activities.

4. Be aware of the market you will be buying into. Hire a knowledgeable commercial agent to find a new property for you. A competent and reliable real estate agent save you time, update you on comparable sales, area demographics, plans for growth or a new development in the area.

5. Make sure that you purchase real estate for the right reasons. Determine if you will benefit and profit more from buying a commercial property than in merely renting it.

6. Buy more square footage than what you need now because you can always expand it. Furthermore, it will give you more rental income.

7. Decide on what kind of entity you use to purchase the property, with options including buying as an individual, buying through a trust fund or buying through a company. Your attorney and accountant can help you decide on the best ownership vehicle to use.

8. Consider to collaborate with another business owner in your EPC if it would be hard to come up with the down payment. Keep in mind that your new partners’ operating business will have to be examined too in order to commit to your loan. Do not forget that you should always use good judgment when looking for a business partner. Make sure to stipulate clearly the buy-out provisions in your agreement and other documents ahead.

The foundation of a successful purchase of a commercial real estate is the return you will get from it. Therefore, the value of the lease is principal. Make certain that you check the existing lease’s term and the financial strength of the tenant.

If the tenant is a company, make sure to check whether a representative of the company has provided any personal guarantee. Know more about buying commercial properties from your real estate agent or from a professional who can guide you in choosing the right commercial real estate to purchase.

By: Sonia C Llesol

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