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Welcome to The Fundamentals of
Commercial Real Estate Course
Welcome to The Fundamentals of
Commercial Real Estate Course
A Program Brought to you byA Program Brought to you byThe REALTORS® Commercial Alliance OfThe REALTORS® Commercial Alliance OfThe National Association of REALTORS®The National Association of REALTORS®(and Patrick Duffy (and Patrick Duffy ))
Real Strength.
Real Advantages.
2
About the RCAAbout the RCA
• The RCA collectively represents commercial constituencies within the National Association of REALTORS®.
• Commercial practitioner members of NAR are also members of the REALTORS® Commercial Alliance.
3
TopicsTopics
• The Players
• Differences From Residential
• Types of Commercial Real Estate
• Types of Commercial Transactions
• Commercial Contracts
• Marketing Commercial Real Estate
• Additional Resources
4
Why Am I Doing This?Why Am I Doing This?
Discussion Question 1-1
1. What is your attraction to transitioning into, or exploring commercial real estate as a career?
2. What challenges do you anticipate encountering as you
proceed into commercial real estate?
5
6
The PlayersThe Players
• Brokers• Lenders• Architects, Engineers,
Planners• Accountants• Attorneys• Appraisers• Others
7
The PlayersThe Players
• Brokers– Commercial agents are often referred to as
“brokers” even if they don’t have a broker’s license.
• Lenders– construction lenders– acquisition lenders– equity lenders– permanent lenders– combination
8
The PlayersThe Players
• Architects, Engineers, Planners– development, redevelopment or the leasing
of property
• Accountants• Attorneys
– Tax matters and law are outside of brokers’ responsibility and therefore should not give any tax or legal advice.
9
The PlayersThe Players
• Appraisers– Similar to residential. Appraisers should be
experienced in the type of commercial real estate being considered.
• Other– Rezoning/land – Historical designation– Traffic/Department of Transportation – Environmental – Business brokerage
10
11
Key DifferencesKey Differences
• Brokers’ Roles• Business VS Personal• Use of Experts• Transaction Timeline• Valuation Methods• Reliance on
Demographics/Market Characteristics
• Marketing
12
Key DifferencesKey Differences
• Larger markets – practitioners are specialized
– Property Type– Geography– Side of Transaction– Type of Transaction (Sale, Lease, Investment)
• Smaller markets – practitioners are typically more diverse
– Even in smaller markets, specialization pays off
13
Key DifferencesKey Differences
• Brokers’ Roles– Advisory Capacity
• Highest & Best Use• Market Characteristics• Evaluation of Alternatives• Negotiation Strategies• Financing Alternatives• Market Data Collection & Interpretation
– “Tell me, Don’t sell me”– Representation / Advocacy– Compensation agreements and practices (Typically
for a longer term vs residential)
14
Key DifferencesKey Differences
• Brokers’ Roles– Coordination of Experts– Due DiligenceZoning Financing
Environmental issues Pre – marketing
Traffic, roads, ingress and egress
Costs of development
Utilities Desirability of the project
Public facilities Physical improvements inspection
Easements Property boundaries (survey)
Building plans Some title issues
Soils Ownership structure (LLC, partnership, etc.)
15
Key DifferencesKey Differences
• Business VS Personal– Clients will be less emotional than residential
• Use of Experts• Transaction Timeline
– 30 – 45 days for residential, months – years for commercial
• Valuation Methods– 3 approaches: market, cost and income
16
1. Income Approach
• More for Income Properties
• IRR, Cap Rate, NPV
2. Comparable Sale / Competitive Product (CMA)
• Very Similar to Residential
• Usually Fewer Comps
3. Replacement Cost
• Interesting but not a big factor (normally)
Valuation Methods
17
Key DifferencesKey Differences
• Demographics / Market Characteristics– Availability of Customers, Employees– Qualities of Population – Age, Income, Etc.– Traffic Patterns, Traffic Counts– Access– Drive Times to Key Markets
Page 18April 18, 2023
FUTURE LAND USE THEMATIC MAPFUTURE LAND USE THEMATIC MAPWITH TOP TIER RETAILERSWITH TOP TIER RETAILERS
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S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .
Sylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan Shores
ApopkaApopkaApopkaApopkaApopkaApopkaApopkaApopkaApopka
LockhartLockhartLockhartLockhartLockhartLockhartLockhartLockhartLockhart MaitlandMaitlandMaitlandMaitlandMaitlandMaitlandMaitlandMaitlandMaitland
South ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth Apopka
Altamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte Springs
CasselberryCasselberryCasselberryCasselberryCasselberryCasselberryCasselberryCasselberryCasselberry
Fern ParkFern ParkFern ParkFern ParkFern ParkFern ParkFern ParkFern ParkFern Park
Forest CityForest CityForest CityForest CityForest CityForest CityForest CityForest CityForest City
LongwoodLongwoodLongwoodLongwoodLongwoodLongwoodLongwoodLongwoodLongwood
Wekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva Springs
E Keene RdE Keene RdE Keene RdE Keene RdE Keene RdE Keene RdE Keene RdE Keene RdE Keene Rd
E Semoran BlvdE Semoran BlvdE Semoran BlvdE Semoran BlvdE Semoran BlvdE Semoran BlvdE Semoran BlvdE Semoran BlvdE Semoran Blvd
E Votaw RdE Votaw RdE Votaw RdE Votaw RdE Votaw RdE Votaw RdE Votaw RdE Votaw RdE Votaw Rd
E Welch RdE Welch RdE Welch RdE Welch RdE Welch RdE Welch RdE Welch RdE Welch RdE Welch Rd
For C
ity Rd
Fo r C
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Fo r C
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Fo r C
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Fo r C
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Fo r C
it y Rd
Fo r C
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Fo r C
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Fo r C
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For
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For
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For
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For
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Lakeville R
dLake
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Lakeville R
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ville Rd
Lakeville R
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ville Rd
Lakeville R
dLake
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Lakeville R
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Semoran BlvdSemoran BlvdSemoran BlvdSemoran BlvdSemoran BlvdSemoran BlvdSemoran BlvdSemoran BlvdSemoran Blvd
Sh
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heele
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Sh
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heele
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Sh
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dS
heele
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Sh
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Sh
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State Hwy 414State Hwy 414State Hwy 414State Hwy 414State Hwy 414State Hwy 414State Hwy 414State Hwy 414State Hwy 414
Tho
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Rd
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Spr
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Rd
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Spr
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Rd
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Spr
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Rd
Charlotte StCharlotte StCharlotte StCharlotte StCharlotte StCharlotte StCharlotte StCharlotte StCharlotte St
Country C
lub Dr
Country C
lub Dr
Country C
lub Dr
Country C
lub Dr
Country C
lub Dr
Country C
lub Dr
Country C
lub Dr
Country C
lub Dr
Country C
lub Dr
Ee Williamson RdEe Williamson RdEe Williamson RdEe Williamson RdEe Williamson RdEe Williamson RdEe Williamson RdEe Williamson RdEe Williamson Rd
Lake
Em
ma
Rd
Lake
Em
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Rd
Lake
Em
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Rd
Lake
Em
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Rd
Lake
Em
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Rd
Lake
Em
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Rd
Lake
Em
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Rd
Lake
Em
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Rd
Lake
Em
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Rd
Markh
am W
oods Rd
Markh
am W
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Markh
am W
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Markh
am W
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Markh
am W
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Markh
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Markh
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Markh
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Markh
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Mon
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Rd
Mon
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N B
ear Lake Rd
N B
ear Lake Rd
N B
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N B
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N B
ear Lake Rd
N B
ear Lake Rd
N B
ear Lake Rd
N B
ear Lake Rd
N B
ear Lake Rd
N H
wy 4
34N
Hw
y 434
N H
wy 4
34N
Hw
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N H
wy 4
34N
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N H
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34N
Hw
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N H
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34
N M
aitland A
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Maitlan
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N M
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Maitlan
d Ave
N M
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Maitlan
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N M
aitland A
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Maitlan
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N M
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S H
unt C
lub Blvd
S H
unt C
lub Blvd
S H
unt C
lub Blvd
S H
unt C
lub Blvd
S H
unt C
lub Blvd
S H
unt C
lub Blvd
S H
unt C
lub Blvd
S H
unt C
lub Blvd
S H
unt C
lub Blvd
Sand Lake RdSand Lake RdSand Lake RdSand Lake RdSand Lake RdSand Lake RdSand Lake RdSand Lake RdSand Lake Rd
State Hwy 436State Hwy 436State Hwy 436State Hwy 436State Hwy 436State Hwy 436State Hwy 436State Hwy 436State Hwy 436 W State Road 436W State Road 436W State Road 436W State Road 436W State Road 436W State Road 436W State Road 436W State Road 436W State Road 436
Hia
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ALTAMONTE MALL, 1281076 sfALTAMONTE MALL, 1281076 sfALTAMONTE MALL, 1281076 sfALTAMONTE MALL, 1281076 sfALTAMONTE MALL, 1281076 sfALTAMONTE MALL, 1281076 sfALTAMONTE MALL, 1281076 sfALTAMONTE MALL, 1281076 sfALTAMONTE MALL, 1281076 sf
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LandUse
COMMERCIALCONSERVATIONHI DENS RESHI INTENSE PDINDUSTRIALLO DENSE RESMED DENSE RESNO DESIGNATIONOFFICEPLANNED DEVPUBLICPUBLIC CEMPUB SCHOOLPUB UTILRECREATIONROW
Page 19April 18, 2023
STORE LOCATION HUFF GRAVITY MODELSTORE LOCATION HUFF GRAVITY MODELWITH 5 MILE RINGSWITH 5 MILE RINGS
O R A N G E C O .O R A N G E C O .O R A N G E C O .O R A N G E C O .O R A N G E C O .O R A N G E C O .O R A N G E C O .O R A N G E C O .O R A N G E C O .
O S C E O L A C O .O S C E O L A C O .O S C E O L A C O .O S C E O L A C O .O S C E O L A C O .O S C E O L A C O .O S C E O L A C O .O S C E O L A C O .O S C E O L A C O .P O L K C O .P O L K C O .P O L K C O .P O L K C O .P O L K C O .P O L K C O .P O L K C O .P O L K C O .P O L K C O .
S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .S E M I N O L E C O .
Sylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan ShoresSylvan Shores
AstatulaAstatulaAstatulaAstatulaAstatulaAstatulaAstatulaAstatulaAstatula
Bassville ParkBassville ParkBassville ParkBassville ParkBassville ParkBassville ParkBassville ParkBassville ParkBassville Park
ClermontClermontClermontClermontClermontClermontClermontClermontClermont
EustisEustisEustisEustisEustisEustisEustisEustisEustis
Howey-in-the-HillsHowey-in-the-HillsHowey-in-the-HillsHowey-in-the-HillsHowey-in-the-HillsHowey-in-the-HillsHowey-in-the-HillsHowey-in-the-HillsHowey-in-the-Hills
Mid Florida LakesMid Florida LakesMid Florida LakesMid Florida LakesMid Florida LakesMid Florida LakesMid Florida LakesMid Florida LakesMid Florida Lakes
MinneolaMinneolaMinneolaMinneolaMinneolaMinneolaMinneolaMinneolaMinneola
MontverdeMontverdeMontverdeMontverdeMontverdeMontverdeMontverdeMontverdeMontverde
Mount DoraMount DoraMount DoraMount DoraMount DoraMount DoraMount DoraMount DoraMount DoraMount PlymouthMount PlymouthMount PlymouthMount PlymouthMount PlymouthMount PlymouthMount PlymouthMount PlymouthMount PlymouthOakland ParkOakland ParkOakland ParkOakland ParkOakland ParkOakland ParkOakland ParkOakland ParkOakland Park
Silver LakeSilver LakeSilver LakeSilver LakeSilver LakeSilver LakeSilver LakeSilver LakeSilver Lake
TavaresTavaresTavaresTavaresTavaresTavaresTavaresTavaresTavares
YalahaYalahaYalahaYalahaYalahaYalahaYalahaYalahaYalaha
ApopkaApopkaApopkaApopkaApopkaApopkaApopkaApopkaApopka
Azalea ParkAzalea ParkAzalea ParkAzalea ParkAzalea ParkAzalea ParkAzalea ParkAzalea ParkAzalea Park
Bay HillBay HillBay HillBay HillBay HillBay HillBay HillBay HillBay Hill
Bay LakeBay LakeBay LakeBay LakeBay LakeBay LakeBay LakeBay LakeBay Lake
Belle IsleBelle IsleBelle IsleBelle IsleBelle IsleBelle IsleBelle IsleBelle IsleBelle Isle
BithloBithloBithloBithloBithloBithloBithloBithloBithlo
ConwayConwayConwayConwayConwayConwayConwayConwayConway
Doctor PhillipsDoctor PhillipsDoctor PhillipsDoctor PhillipsDoctor PhillipsDoctor PhillipsDoctor PhillipsDoctor PhillipsDoctor Phillips
EatonvilleEatonvilleEatonvilleEatonvilleEatonvilleEatonvilleEatonvilleEatonvilleEatonville
EdgewoodEdgewoodEdgewoodEdgewoodEdgewoodEdgewoodEdgewoodEdgewoodEdgewood
Fairview ShoresFairview ShoresFairview ShoresFairview ShoresFairview ShoresFairview ShoresFairview ShoresFairview ShoresFairview Shores
Holden HeightsHolden HeightsHolden HeightsHolden HeightsHolden HeightsHolden HeightsHolden HeightsHolden HeightsHolden Heights
Lake Buena VistaLake Buena VistaLake Buena VistaLake Buena VistaLake Buena VistaLake Buena VistaLake Buena VistaLake Buena VistaLake Buena Vista
LockhartLockhartLockhartLockhartLockhartLockhartLockhartLockhartLockhart MaitlandMaitlandMaitlandMaitlandMaitlandMaitlandMaitlandMaitlandMaitland
Meadow WoodMeadow WoodMeadow WoodMeadow WoodMeadow WoodMeadow WoodMeadow WoodMeadow WoodMeadow Wood
Oak RidgeOak RidgeOak RidgeOak RidgeOak RidgeOak RidgeOak RidgeOak RidgeOak Ridge
OaklandOaklandOaklandOaklandOaklandOaklandOaklandOaklandOakland
OcoeeOcoeeOcoeeOcoeeOcoeeOcoeeOcoeeOcoeeOcoee
OrlandoOrlandoOrlandoOrlandoOrlandoOrlandoOrlandoOrlandoOrlando
OrlovistaOrlovistaOrlovistaOrlovistaOrlovistaOrlovistaOrlovistaOrlovistaOrlovista
Pine CastlePine CastlePine CastlePine CastlePine CastlePine CastlePine CastlePine CastlePine Castle
Pine HillsPine HillsPine HillsPine HillsPine HillsPine HillsPine HillsPine HillsPine Hills
Sky LakeSky LakeSky LakeSky LakeSky LakeSky LakeSky LakeSky LakeSky Lake
South ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth ApopkaSouth Apopka
Tangelo ParkTangelo ParkTangelo ParkTangelo ParkTangelo ParkTangelo ParkTangelo ParkTangelo ParkTangelo Park
Union ParkUnion ParkUnion ParkUnion ParkUnion ParkUnion ParkUnion ParkUnion ParkUnion Park
WilliamsburgWilliamsburgWilliamsburgWilliamsburgWilliamsburgWilliamsburgWilliamsburgWilliamsburgWilliamsburg
WindermereWindermereWindermereWindermereWindermereWindermereWindermereWindermereWindermere
Winter GardenWinter GardenWinter GardenWinter GardenWinter GardenWinter GardenWinter GardenWinter GardenWinter Garden
Winter ParkWinter ParkWinter ParkWinter ParkWinter ParkWinter ParkWinter ParkWinter ParkWinter Park
Buena Ventura LakesBuena Ventura LakesBuena Ventura LakesBuena Ventura LakesBuena Ventura LakesBuena Ventura LakesBuena Ventura LakesBuena Ventura LakesBuena Ventura Lakes
KissimmeeKissimmeeKissimmeeKissimmeeKissimmeeKissimmeeKissimmeeKissimmeeKissimmee
Altamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte SpringsAltamonte Springs CasselberryCasselberryCasselberryCasselberryCasselberryCasselberryCasselberryCasselberryCasselberry
ChuluotaChuluotaChuluotaChuluotaChuluotaChuluotaChuluotaChuluotaChuluota
Fern ParkFern ParkFern ParkFern ParkFern ParkFern ParkFern ParkFern ParkFern Park
Forest CityForest CityForest CityForest CityForest CityForest CityForest CityForest CityForest City
GoldenrodGoldenrodGoldenrodGoldenrodGoldenrodGoldenrodGoldenrodGoldenrodGoldenrod
Lake MaryLake MaryLake MaryLake MaryLake MaryLake MaryLake MaryLake MaryLake Mary
LongwoodLongwoodLongwoodLongwoodLongwoodLongwoodLongwoodLongwoodLongwood
OviedoOviedoOviedoOviedoOviedoOviedoOviedoOviedoOviedo
SanfordSanfordSanfordSanfordSanfordSanfordSanfordSanfordSanford
Wekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva SpringsWekiva Springs
Winter SpringsWinter SpringsWinter SpringsWinter SpringsWinter SpringsWinter SpringsWinter SpringsWinter SpringsWinter Springs429 & 441429 & 441429 & 441429 & 441429 & 441429 & 441429 & 441429 & 441429 & 441
429 & 438429 & 438429 & 438429 & 438429 & 438429 & 438429 & 438429 & 438429 & 438
429 & FL Turnpike429 & FL Turnpike429 & FL Turnpike429 & FL Turnpike429 & FL Turnpike429 & FL Turnpike429 & FL Turnpike429 & FL Turnpike429 & FL Turnpike429 & 50429 & 50429 & 50429 & 50429 & 50429 & 50429 & 50429 & 50429 & 50
429 & West Rd.429 & West Rd.429 & West Rd.429 & West Rd.429 & West Rd.429 & West Rd.429 & West Rd.429 & West Rd.429 & West Rd.
429 & Seidel Rd.429 & Seidel Rd.429 & Seidel Rd.429 & Seidel Rd.429 & Seidel Rd.429 & Seidel Rd.429 & Seidel Rd.429 & Seidel Rd.429 & Seidel Rd.
429 & 535429 & 535429 & 535429 & 535429 & 535429 & 535429 & 535429 & 535429 & 535
429 & 545429 & 545429 & 545429 & 545429 & 545429 & 545429 & 545429 & 545429 & 545
429 & 192429 & 192429 & 192429 & 192429 & 192429 & 192429 & 192429 & 192429 & 192
429 & Hartzog Rd.429 & Hartzog Rd.429 & Hartzog Rd.429 & Hartzog Rd.429 & Hartzog Rd.429 & Hartzog Rd.429 & Hartzog Rd.429 & Hartzog Rd.429 & Hartzog Rd.
FL Turnpike & Hancock Rd.FL Turnpike & Hancock Rd.FL Turnpike & Hancock Rd.FL Turnpike & Hancock Rd.FL Turnpike & Hancock Rd.FL Turnpike & Hancock Rd.FL Turnpike & Hancock Rd.FL Turnpike & Hancock Rd.FL Turnpike & Hancock Rd.
Goldenrod & Bee LineGoldenrod & Bee LineGoldenrod & Bee LineGoldenrod & Bee LineGoldenrod & Bee LineGoldenrod & Bee LineGoldenrod & Bee LineGoldenrod & Bee LineGoldenrod & Bee Line
Goldenrod Connector & 417Goldenrod Connector & 417Goldenrod Connector & 417Goldenrod Connector & 417Goldenrod Connector & 417Goldenrod Connector & 417Goldenrod Connector & 417Goldenrod Connector & 417Goldenrod Connector & 417
417 & 46A417 & 46A417 & 46A417 & 46A417 & 46A417 & 46A417 & 46A417 & 46A417 & 46A
417 & Rinehart Rd.417 & Rinehart Rd.417 & Rinehart Rd.417 & Rinehart Rd.417 & Rinehart Rd.417 & Rinehart Rd.417 & Rinehart Rd.417 & Rinehart Rd.417 & Rinehart Rd.417 & I-4417 & I-4417 & I-4417 & I-4417 & I-4417 & I-4417 & I-4417 & I-4417 & I-4
UnnamedUnnamedUnnamedUnnamedUnnamedUnnamedUnnamedUnnamedUnnamed
Old CR 50Old CR 50Old CR 50Old CR 50Old CR 50Old CR 50Old CR 50Old CR 50Old CR 50
Lee Vista Rd. Ext.Lee Vista Rd. Ext.Lee Vista Rd. Ext.Lee Vista Rd. Ext.Lee Vista Rd. Ext.Lee Vista Rd. Ext.Lee Vista Rd. Ext.Lee Vista Rd. Ext.Lee Vista Rd. Ext.
UnnamedUnnamedUnnamedUnnamedUnnamedUnnamedUnnamedUnnamedUnnamed
McCulloch Rd. Ext.McCulloch Rd. Ext.McCulloch Rd. Ext.McCulloch Rd. Ext.McCulloch Rd. Ext.McCulloch Rd. Ext.McCulloch Rd. Ext.McCulloch Rd. Ext.McCulloch Rd. Ext.Hia
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19
19
19A
27
27
44441
441
455
4646
46
50
15A
17
17
17
192
408
408408
414
416
417
417
417
420
423
423
423
424A426
434
435
436
436
436
438
438439
441
441
441
482
50 50
5050
520
527
527A
528
528
528528A
536
551
55292
92
192
19292
27
13
17
17
415
417
417
419
426
426
434
434
436
46
46
520
92
415
46
19
19
19A
27
27
44441
441
455
4646
46
50
15A
17
17
17
192
408
408408
414
416
417
417
417
420
423
423
423
424A426
434
435
436
436
436
438
438439
441
441
441
482
50 50
5050
520
527
527A
528
528
528528A
536
551
55292
92
192
19292
27
13
17
17
415
417
417
419
426
426
434
434
436
46
46
520
92
415
46
4
4
4
This map shows the results of a Huff Gravity Model run for these store locations. Areas with high store patronage probability are shown in red, while those areas with low store patronage probability are shown in blue. The model uses a combination of store attractiveness and distance decay to calculate the patronage probability. In this case, attractiveness was weighted equally among all locations.
This map should be used in conjunction with density/growth maps and demographic maps to determine market voids.
20
Key DifferencesKey Differences
• Marketing– More targeted– Specialized Brokers Get Priority– MLS (not as common), CIE - Commercial Information Exchange– Internet Search Engines (Loopnet)– Flyers / Property Summaries – Hard Copy & Electronic– Packages (Offering Memorandum) – Detailed, no surprises– Confidentiality Agreements– Limited Display Advertising
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22
Converted Homes or Cottage StyleConverted Homes or Cottage Style
• typically in transitional areas and suitable for small businesses.
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Low Rise Suburban OfficeLow Rise Suburban Office
• one to three stories high, found in suburban and some urban areas
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Single Story Suburban Office ParkSingle Story Suburban Office Park
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How would you rate this jewel?
REALTOR® Building in CharlotteREALTOR® Building in Charlotte
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Mid & High Rise Office in CBDMid & High Rise Office in CBD
• Mid rise: three to ten stories high, found in suburban and urban areas. In some markets, this might be considered a high rise.
• High rise: Over 10 stories and typically found in central business districts (CBDs) and employment centers.
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Specialty Office - Build to SuitSpecialty Office - Build to Suit
• includes live/work units, space in historical buildings, government buildings, institutional facilities.
28
Key Factors for Office UsersKey Factors for Office Users
• Location of labor pool• Location of owner/CEO• Transportation (bus, rail)• Location of
customers/clients• Visibility• Parking• Amenities nearby
(restaurants, retail, daycare)
• Image• Price• Space configuration• Incentives – local, state,
national• Convenience to other
businesses• Allowed uses on the
property (zoning and covenants)
• Buy versus lease
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Industrial
• Industrial real estate implies an industrial use, such as manufacturing or warehousing.
30
Business Center/Flex/Office ShowroomBusiness Center/Flex/Office Showroom
• a combination of office and industrial
31
Warehouse
• this could be bonded facilities, climate controlled, single user or multiple users
32
Manufacturing
• Type of manufacturing
• Location– Some areas are designated “Foreign Trade Zones”
where goods may be imported and the tariff paid once they are assembled.
– Some cities and counties differentiate between light manufacturing and heavy manufacturing.
33
Key Factors for Industrial UsersKey Factors for Industrial Users
• Location of labor pool for manufacturing facilities
• Transportation – access to major highways, rail, ports and airports
• Location – proximity to end users/customers
• Price
• Space configuration
• Ceiling heights – clear
• Utilities
• Floor loads
• Sprinkler systems
• Docking areas
• Incentives – local, state, national
• Allowed uses on the property (zoning and covenants)
• Buy versus lease
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Freestanding Retail
• used by destination – oriented retailers.
– Credit tenants: Lender looks at the tenant's credit strength as security for the loan.
– Big boxes: Large tenants (25k sf). Concern is the facility will not be flexible for other tenants in the event the tenant vacates.
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Problem Retail
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Small, unanchored strip shopping center
• “Mom & Pop shops
• Typically cannot be credit tenants due to the size.
37
Neighborhood Shopping Center
• Grocery, Cleaners, Drug store on out-parcel
• The trade area is typically 1 – 3 miles
38
Community Shopping Center
• 200k – 400k sf
• Trade area is typically 10 miles
39
Power Center
40Department Stores, Regional & National Chains, Food Court
Super Regional Mall
41
Specialty Retail
42
Land Issues
• Is it zoned for the intended use?
• Are utilities availability?• Is there accessibility?• Are the soils suitable?• Is the land “developable”
because of soils, environmental issues, local issues, archaeological issues?
• Are needed amenities nearby?
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44
• Sale Transactions
• Lease Transactions
• Sale/Lease-Back Transactions
• Land-Lease Transactions
Types of TransactionsTypes of Transactions
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• Note: Any examples of commission structure or other compensation are for the purpose of explanation of concepts. These are not to be used as suggestions for compensation. Practitioners should refer to their office policy when structuring any commission or compensation structure.
• Students are strongly encouraged to avoid any discussions that may be perceived as suggesting a commission rate as this is in violation of Anti-Trust.
Types of TransactionsTypes of Transactions
46
CompensationCompensation
• Leasing fees may be negotiated in a variety of ways:
– An amount per square foot – Value of the lease – Value of the lease capped– Combination of the above
• Sales fees may be negotiated in a variety of ways also:
– % of Sale Price– Fixed Fee– Variable Fee– Combination of the above
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48
Commercial Contracts – Purchase AgreementCommercial Contracts – Purchase Agreement
• Key Issues– Due Diligence– Financing– Timing– Assignment– Environmental– Use
• Oftentimes the most important and overlooked
– Assignment of Leases
49
Commercial Contracts - Lease AgreementsCommercial Contracts - Lease Agreements
• Term & Renewal Terms
• Rent Commencement
• Use
• Upfitting, Tenant Improvements
• Default
• Notices
• Acquisitions & Mergers
• Common Areas
• Operating Expenses
50
Commercial Contracts - Lease AgreementsCommercial Contracts - Lease Agreements
• Rent Calculations– Net VS Gross Lease
• Land leases
• Deed Restrictions
• Assignment, Subletting
• Insurance
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MarketingMarketing
1. Market Analysis– Tracking the competition, identifying new projects,
comparing the locations and analyzing the site issues
2. Create the Marketing Plan– Targets
– Strategies
– Showing Routes/Timing
– Property Enhancement / Point of Sale Materials
– Timing
– Budget
3. Create the Marketing Package– Information necessary
53
MarketingMarketing
4. Implement the Marketing Plan– Do what you promised
– Track activities and results
5. Feedback Results to Owner– Written Reports
– Phone and Face to Face Conversations
– Educate Your Client as Your Learn
6. Adjust Marketing– If the market tells you that you are wrong – CHANGE
SOMETHING!
7. Contract/Due Diligence– Work with a “deal maker” attorney
– Manage the DD process – it ain’t done til it’s closed
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Calculating CAP Rates
1. What is a CAP Rate?
Ratio of Net Operating Income to Price
NOI Purchase Price = CAP RATE
NOI CAP RATE = Purchase Price
2. What Factors Impact CAP Rates?
3. Is a CAP Rate the Same as “Return”, “Yield”, “Cash on Cash Rate”?
Got Any Brain Cells Left?– Got Any Brain Cells Left?–
55
NOI Sales Price = Cap Rate
1. Sales price = $1,500,000 NOI = $150,000
2. Sales price = $1,500,000 NOI = $100,000
3. Sales price = $1,500,000 NOI = $200,000
Deriving Cap Rates – Deriving Cap Rates –
56
NOI Sales Price = Cap Rate
1. $150,000 $1,500,000 = 10%
2. $100,000 $1,500,000 = 6.7%
3. $200,000 $1,500,000 = 13.3%
Deriving Cap Rates – Deriving Cap Rates –
57
Estimating a Listing PriceEstimating a Listing Price
Gross Possible Income (35,000 x $25)
$875,000
Less Vacancy($875,000 x 15%)
$131,250
Total Income $743,750
Total Operating Expenses (35,000 x $7.25)
$253,750
Tenants’ Share (35,000 x $.25)
$8,750
Net Operating Income ($743,750 - 253,750 + 8750)
$498,750
Value = $498,750 12% = $4,156,250
58
Differences Similarities Pricing Agency Duties
Commission Documentation
Referrals Land Use Issues
Knowledge Can make big $
Business VS Personal Can lose big $
Financing
Contract
Players
Summary: Comparing Residential to Summary: Comparing Residential to CommercialCommercial
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ResourcesResources
• RCA– www.realtor.org/rca
• CCIM– www.ccim.com
• CRE– www.cre.org
• IREM– www.irem.org
• RLI– www.rliland.com
• SIOR– www.sior.com
• Non-REALTOR Resources– ICSC, BOMA, ULI, CORENET
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Class ExerciseClass Exercise
These companies are looking for office space. What would be most important to them? Name 10 things.
1. An insurance office with 5 employees
2. An international headquarters
3. A doctor’s office
4. A call center
5. A manufacturing plant
Thank you for participating in The Fundamentals of Commercial Real Estate
Course
Thank you for participating in The Fundamentals of Commercial Real Estate
Course
A Program Brought to you byA Program Brought to you byThe REALTORS® Commercial Alliance OfThe REALTORS® Commercial Alliance OfThe National Association of REALTORS®The National Association of REALTORS®
Real Strength.
Real Advantages.