Category Archives: Knowledge Base

Contract to Close: Managing the Most Demanding Part of Your Commercial Real Estate Deal

Buyers: Do you know what happens once you’ve signed your contract?

Deals can happen fast in Commercial Real Estate. But speed isn’t guaranteed. It’s possible to spend months, even years, searching for the right property. Then, negotiating the deal can be intense. When it’s finally under contract, buyers feel relieved.

But this is the wrong time to sit back and relax!

The contingency and due diligence period (which is between 30 and 60 days, depending on the contract) has buyers and brokers running to get everything done:

  • Securing the loan.
  • Satisfying the lender’s requirements.
  • Managing structural, environmental, and other inspections.
  • Completing and reviewing the title search and land survey.
  • Gaining zoning approval.
  • Bringing in architects, building contractors, or other professionals to prepare the property for you.

Additionally, it’s easy to forget about the costs associated with buying property. During the contingency period, buyers need to hire a variety of inspectors, contractors, and often an attorney. They’ll need to put down earnest money and prepare their down payment.

Those who don’t understand this will have a difficult time crossing the finish line.

However, the job of a Commercial Real Estate Broker is to prepare buyers for the contingency period. We’ve been through it many times before and serve as guides, project managers, and consultants during this period.

You can rely on a qualified broker to tell you what you need to do, where you need to be, and whom you need to contact. That person will also orchestrate the processes and the people, keeping things running on time and on budget.

Here’s what we tell our clients.

First, a Word about Contractors

Qualified Commercial Real Estate brokers (like your friends at Hilliker) cultivate a broad network of contacts. They know those who have been successful at projects similar to yours in the past. They probably even know whom to avoid.

As you require it, your broker will provide a list of the pros you’ll need during the contingency period. However, we stop short of making recommendations. When it comes to the final choice of who does what, we let you, the client, decide.

Then, your broker will help ensure you’ve hired every contractor you need — and that you’re spending the correct amount of money to get the deal done in time. We help you manage those contractors so that you won’t miss a single contingency deadline.

Step 1: Get Your Lender On-Board

The first time you meet with your broker, you’ll discuss how much you intend to spend. Hopefully, you’ll confirm that number with your lender as well. Once you’ve signed the contract on the property, you’ll typically have 30-45 days to obtain a loan and satisfy all of your lender’s requirements.

Don’t wait to find out what those requirements are! Though it’s possible to get everything done without a previous conversation, we want to get ahead of the curve as much as possible.

Part of what lenders need to do is examine your creditworthiness and collateral. Have this information ready for them to review:

  • Your liquid capital.
  • Buildings you already own (including your home).
  • Other assets you own.
  • Tenants you have (or expect to have).
  • Businesses you own.
  • Financial statements from the last three to five years plus your projections over the same period.

Also, you’ll need to prepare your down payment. It’s usually 20% of the purchase price, though some loans require less. This is a massive amount for many investors. They’ve spent much of their life acquiring it. Don’t get caught off-guard when it comes due.

Step 2: Complete Physical and Environmental Inspections

The physical inspection of the property will ensure that it’s structurally sound. You’ll be able to rely on a single commercial building inspector for most everything. They’ll be able to catch problems like:

  • Leaky or damaged plumbing.
  • Dangerous or outdated electrical systems.
  • Foundational cracks, erosion, or leaking.
  • Issues with the land, including drainage, parking, or outdoor lighting.
  • Termite or other pest-related damage.
  • Places where the building falls short of safety, air quality, fire code, or ADA requirements.

We’ll also want to bring in separate inspectors who can determine the efficacy of the big-ticket items: usually an HVAC specialist and a roofer. They’ll catch details generalists might not, saving you time and money in the long run.

We’ll also need to complete a Phase I Environmental Survey to determine if the property has been contaminated by previous use. During the Phase I, a surveyor will provide an investigation into current and historical uses of the site to determine the likelihood that contamination is present. If we find any issues, a properly structured contract will allow you to back out.

Sometimes sellers don’t seem motivated to complete the required work with excellence. It only makes sense — they’re on their way out! They’re likely only to do the bare minimum.

In cases where it seems like environmental concerns will be a problem, we can negotiate for the buyer to choose the contractors and oversee the repairs — even though the seller is paying for it. It’s less work for the seller. And you, as the buyer, will get a better result.

Step 3: Engage a Title Insurance Company

During your contingency period, we’ll also choose a title company to make sure the person or entity selling the property has the right to do so.

You or the seller will pay for title insurance, which insures the buyer against someone else coming along and claiming ownership of the property.

The insurance is contingent on the title company’s research of the title and survey of the land. And it’s incredible the things that can stand in the way of a “clean” title: Business partnerships that have gone sideways, divorce decrees that weren’t followed, decades-old liens, or a history of unpaid taxes.

The title company will also perform an American Land and Title Association (ALTA) Survey. This will help them determine if the property’s boundaries are the same as claimed by the seller.

It will also help them discover “encroachments”: a legal term for building or installing something on another person’s land. Common encroachments include outbuildings, driveways, underground pipes, and retaining walls.

If so, we’ll want to know if that entity has obtained:

  • An easement (legal permission to encroach on the land). Easements can be granted to a variety of private individuals, corporations, or government entities. (Many properties have easements granted to utility companies.)
  • A license (an informal agreement with the current owners which is not legally binding).

If this comes up, your broker will help you determine what your options are and, if appropriate, help you negotiate with the third party.

Sound complicated? (It is!)

Too many entrepreneurs and investors enter this process without help. Or they enlist the advice of someone who isn’t an expert in Commercial Real Estate — a world with its own quirks, rules, and pitfalls.

We want you prepared for the journey of buying your commercial property. Though there may be challenges, there’s no reason for you to encounter them without a trusted guide. You can partner with someone who’s been there before. Someone who has access to the resources to help you complete a successful — and profitable — transaction.

Whether you’re beginning your search or already well into it, bring an experienced expert onto your team.

Contact a Hilliker broker today.

Jon WilsonholmeJon Wilsonholme helps investment, industrial, office, and retail clients close real estate deals throughout St. Louis. Leveraging his previous experience as a leasing agent, he’s also worked as a tenant representative throughout the US. You can learn more about Jon here.

Ready to Sell Your Commercial Real Estate? Here’s What’s Next.

Hal C. BallIf you own commercial real estate, there are plenty of smart reasons to hold onto your investment. Perhaps it houses your business, or you count on the income it provides. Perhaps it’s going up in value, and there’s no reason to think that will change anytime soon.

But, as my colleague, Scott Martin, shared last month, perceptive investors are always on the lookout for the best moment to sell. Getting out can be just as important as getting in. When that happens, you have the opportunity to trade up into a new investment. However, with so many options, how do you pick what’s best for you?

At Hilliker Corporation, we’re always meeting entrepreneurs and investors who are ready for the next adventure. When we do, we ask three questions: 

Question 1: What are your goals?

We’ll start by digging into the “why” of your next investment. We’ll start a discussion around questions like:

  • Are you looking for a building to house your business, or are you making a pure investment?
  • Do you want to be hands-on or hands-off?
  • Are you hoping for a specific income?
  • What are your plans over the next ten years and beyond?

Question 2: What can you afford? 

To answer this question, you’ll need a good idea of how much money you’ll have to play with after selling your current property. That’s where experienced commercial real estate brokers (like those at Hilliker Corporation) shine. They have the expertise to help you develop an accurate “comp,” or price based on “comparable” properties.

It sounds simple, but there are more subtleties involved than just checking to see what nearby properties have sold for. Commercial properties are rarely cookie-cutter and aren’t listed for sale as often.

Therefore, to create a trustworthy comp, brokers combine information from:

  • Industry-specific databases.
  • Their knowledge of the market.
  • Personal experience.
  • Information from their network of other real estate professionals.

You’ll also need to counsel with your accountant and lender. If you need a recommendation, ask your broker. We cultivate a wide range of contacts and can often pair you with someone who has the necessary background to help you reach your goals.

Question 3: What is your risk tolerance?

Several factors play into determining your risk tolerance. Discuss these factors with your advisors (real estate broker, accountant, banker, and lawyers):

  • How long do you plan to hold the investment (or time horizon)?
  • What is your net worth?
  • How quickly does the property need to start earning income?
  • How much risk capital have you set aside (money earmarked for more speculative investments)?

As we answer these questions and more, we’ll be able to present options that will make sense for your unique situation.

Opportunity # 1 (Business Owners): Leverage Your Equity to Grow

There may come a time, as a business owner, that a significant financial investment in your business will be worth more to you than your real estate. You may need capital to:

  • Open another location.
  • Scale-up your current operation.
  • Upgrade your equipment.
  • Another mission-critical improvement.

Instead of borrowing money, you might consider a sale/leaseback agreement: selling the building your business is housed in, then signing a long-term lease with the buyer. (See how we helped a company do just that in this case study.)

 For this to work, the buyer will need to be attracted to you as a tenant:

  • Your company will need to be financially healthy.
  • You need to be willing to commit to a lease agreement of 5, 10, or 15 years (the longer the term, the more the investor will be willing to pay).

 You should not consider a sale/leaseback agreement if:

  • Your company is not financially stable. (You need to appear credit worthy.)
  • You’re planning on selling the company. (Your company’s prospective buyers may not want to be saddled with a long-term lease.)
  • You’re uncomfortable in your building, and a long-term lease will stunt your company’s growth.

Opportunity # 2 (Business Owners): Move Before You Sell

Any property you’ve held for a business or investment purpose will be eligible for a 1031 Exchange when you sell it.

In brief, a 1031 Exchange allows you to hold the profit from the sale with a “qualified intermediary” for a short time. Then, you can use that profit to purchase a “like-kind” property — another investment or business property.

It’s a detailed process requiring expert counsel. However, it allows investors to defer taxes on their profits and use it all to purchase something better.

But if you don’t want to be without space, it often makes more sense to buy a new building before selling your current property. With a Reverse 1031 Exchange, you’ll be able to sell your current property after purchasing a new one.

Again, this is not something to attempt without expert counsel. Your commercial real estate broker will help you plan and direct you to the resources you’ll need.

Opportunity #3: Diversify through Multiple Tenant Commercial Buildings

adding tenant

There are many types of properties worth investing in, and each comes with its own set of opportunities and challenges.

Though there are many types of investments that may make sense for you—rehab and development, raw land, multi-tenant apartment buildings, etc.— we’ll discuss the two most common investment options here.

First, multi-tenant buildings are many investors’ first foray in commercial real estate. If you have more than one tenant in your building, you diversify your risk and can plan for the occasional vacancy.

If you have previous experience owning residential rental properties, you’ve likely been responsible for anything that breaks inside or outside the building. When the faucet leaks or the ceiling fan doesn’t turn on, you’re obligated to fix it.

However, multi-tenant commercial leases are usually structured so the tenant is responsible for what happens inside the building: like drywall repair, plumbing, or electrical issues. The landlord is primarily responsible for the outside of the building: parking lots, HVAC, roof, lawn care and snow removal, etc.

Retail multi-tenant buildings often contain a mixture of national chains and mom-and-pop shops—great tenant diversity. However, retail locations need to be beautiful, so landlords need to keep their properties in tip-top shape.

Office and warehouse multi-tenant buildings are often lower maintenance. With less customer traffic, you’ll have more leeway when it comes to the property’s appearance.

In both cases, engaging a property management company like Hilliker Corporation will help ensure your buildings are leased-up with qualified tenants.

Opportunity # 4: Upgrade to a Hands-Off Investment

As discussed in our previous article, Triple-Net Properties are the “easy button” of real estate investment.

In a Triple-Net Lease agreement, the tenant assumes 100% responsibility of the care and maintenance of the building and lot. As the owner, you’d need to do next to nothing.

Additionally, the tenant is almost always an extremely credit-worthy national chain. Hilliker’s sister corporation, Westwood Net Lease Advisors, matches Triple-Net Leases with tenants like Dollar General, Advanced Auto, Applebees, Sherwin Williams, and Chase Bank.

For companies who sign Triple-Net Leases, there is little need for them to own their property: The business is their primary focus and money-maker. However, because these are often retail locations, the lessees are highly motivated to keep the building beautiful and functional.

Though tenants sometimes move out, triple-net properties continually attract high-level companies, making them a safe, simple, and lucrative investment.

Is Cashing Out Ever a Smart Option?

Of course. Even as “hands-off” as a Triple-Net property may be, an investor may decide they want out of the game altogether. That said, there are compelling reasons to keep rolling your investments forward, deferring taxes indefinitely.

Commercial real estate is a safe and profitable investment. And your heirs can benefit from the passive income generated by your careful, well-informed choices for years to come.

Your Real Estate Lifecycle

Are you just getting started as a real estate investor? You need a partner who can grow with you. Someone to help you make smart decisions as you balance the reality of your current situation with your hopes and dreams.

Are you in the middle of your journey, wondering what’s next? Do you need a pro who can help you weigh your various options, who understands the market, and can help you take the steps necessary to continue to prosper?

Or are you looking to turn your current investments into something that will see you through retirement, then to pass your legacy on to the next generation?

From startup, through growth and maturity, all the way to retirement and beyond, Hilliker is your guide throughout your Real Estate Lifecycle. Wherever you are in your journey, if you’re ready to take the next step, call a Hilliker broker today.

Divest for Success — Here’s When to Sell Your Commercial Real Estate Investment

Scott E. MartinOver my thirty-three years in the commercial real estate business, I’ve helped hundreds make smart property investments. The market is complicated, but with an average rate of return of 10.6%, real estate consistently outperforms the S&P 500 Index (roughly 8%).

That’s good news!

Additionally, investors who partner with savvy advisors tend to make more money. Here at Hilliker, we’ve collected thousands of stories from clients who’ve made their lives—and the lives of others—better through a well-timed real estate deal.

But no property investment makes sense forever. No one wants to hold on too long, missing an opportunity to turn a profit. How do you know if the moment is right to move on?

If you keep your eyes open for these crucial decision points, you’ll be better positioned to make the most out of your investment.

Opportunity # 1 (Owner/Occupiers): You’re Ready to Sell Your Business.

In most cases, we recommend business owners prepare their building for sale at the same time they’re preparing their business for sale. In a business-plus-property package deal, the business owner often loses money on the property. Without competition, they’re unable to negotiate a price at full market value.

Additionally, renting to the property the people who now own your old business is usually not a good idea. Here’s why:

  • Perhaps the new owners will feel unhappy with an aspect of the company you sold them. Because of their unhappiness with the business deal, they could find ways to make your life difficult as their landlord.
  • If the new business owners don’t operate the business you used to own wisely, you may give them too much leeway as their landlord. You may hope to see them turn things around when another landlord would simply terminate their lease.
  • If you structure the lease as part of the sale of the business, you likely won’t get the market rate. Just like the sale of the property, the two should be separate transactions.
  • Because they are unsure if they’ll grow, they rarely sign a longer-term lease. This makes your property less attractive to a potential buyer.

Stay out of this sticky territory! Here’s what we suggest instead.

  1. Make sure a lawyer structures your holdings by filing your business and real estate under separate corporate entities.
  2. Have a qualified real estate broker (like Hilliker) properly value your property and qualify the new owner’s credit-worthiness.
  3. Have your broker negotiate a market-rate long-term lease with the new owners of your business. They’ll be sure to maintain the sort of capitalization rate (cap rate) that will appeal to an outside investor.

Following these steps will put you in a more advantageous position — and keep you out of muddy waters.

Opportunity #2 (Owner/Occupiers) – Your Building No Longer Reflects Your Business

Though it may have been perfect when you first moved in, there are some indicators that you’re in the wrong space for your business.

  1. You’ve outgrown it, but instead of trading up, you’ve decided to lease one or more auxiliary spaces. Though it may make sense in the short-term, it could also add unnecessary complexity as your business continues to grow.
  2. You’ve scaled down operations or staff, and part of your building now sits vacant. Unless bringing in a tenant makes sense, consider selling and purchasing something that better meets your needs.
  3. Your business model doesn’t require heavy foot traffic or visibility, but your neighborhood suddenly turns into a hot retail district. You may be able to make a profit by selling and moving to an area more suited to your business.

 Opportunity #3 (Investors) – You’re at 100% Occupancy

Your broker should make it his or her job to pursue high-quality, credit-worthy tenants for your space. If that person is competent, your tenants will sign win-win leases that make you money and make them want to stay.

Once your building is leased-up, you could sit back and enjoy the moment. But it’s also the moment your property is most attractive to investors and a great time to make money and roll it into an even more lucrative—or “value-add”—investment.

Opportunity #4 – Your Neighborhood’s Economy Is Changing

Economic upturns and downturns signal opportunities to sell, but investors want to find the perfect moment to maximize their profit. Though there is no real-estate crystal ball, there are a few indicators to help you decide.

  • How are traffic patterns? If the road system has changed or there are fewer cars in your neighborhood, your property value may be changing as well. 
  • Is the center of town moving? If there is a new development a few blocks away, threatening to pull traffic from your location, you may want to sell. Property owners with retail tenants should take notice. 
  • Is a significant portion of your building vacant? Though not ideal, this could work in your favor. Businesses in a position to buy may want to move into the empty space and have the added benefit of income from tenants. 
  • Are there substantial investments near you? If you see new developments or rehab projects in your neighborhood, it’s a good sign. If you don’t want to put money into “keeping up,” now may be a good time to sell.

Opportunity #5 (Manager/Owners) – You’re Ready for Retirement

Those who actively manage the buildings they own — apartment buildings and retail strip centers in particular — have more than a full-time job. Between dealing with contractors, collecting rent, making repairs, and keeping space leased, you may be ready for something more manageable.

In that case, you can pass the management to a third-party, or it might be a great time to sell to another investor. Your next investment can be higher-yield and lower maintenance (keep reading for more!).

 Opportunity #6 – Roll Your Profits into a Triple-Net Investment!

When you sell your building, we can help you reinvest in a low-stress triple-net (NNN) investment property. Through our partners at Westwood Net Lease Advisors, you’ll be able to set up a 1031 Exchange, a tax shelter that allows you to defer paying capital gains taxes on your sale.

Then, we can help you find NNN property. NNNs are the easy-button of real estate investments for a couple of reasons.

First, you own the property, but the tenants are 100% responsible for its upkeep.

Second, NNN tenants are often locations of extremely credit-worthy companies. Our clients own NNN properties that house Dollar General, Walgreens, and Buffalo Wild Wings, to name a few.

Is it time to sell your commercial real estate investment?

Though there is no “perfect time,” we at Hilliker Corporation want to be part of your success story. We’re advisors who can help you weigh your options, giving you the tools and information to make quality decisions for you and your future.

We’re poised to help investors and entrepreneurs like you. Give us a call today.

Better Deals, Less Stress: How to Choose the Right Commercial Real Estate Broker for You

I was in my early-30s when I got started in Commercial Real Estate. That was over thirty years ago! Then, as now, newer Brokers teamed up with more experienced Brokers to learn the ropes. That’s when I met Wallace McNeill.

Wallace was the first person to show me how to do the work of a Commercial Real Estate Broker, and he was the right guy to do it. He maintained a golden reputation, consistently showing himself trustworthy through every transaction.

He was also a hard-worker. I’ll never forget his advice to me: “Jake, be pleasantly aggressive.” Then he showed me what he meant by his actions. He worked hard, doing all he could to get the best deal for his client without being pushy. He wanted to leave a legacy of kindness and fairness.

Now, as someone who has had the privilege of closing over 500 retail, land investment, office, and industrial transactions, I’ve tested Wallace’s advice thoroughly and passed it on to others.

I’ve also gotten to work with a team of tremendous Brokers who have a similar code of ethics. Over and over again, I’ve watched them work to create win-win deals on behalf of their clients.

I’ve discovered what separates great Real Estate Brokers from the rest. If you’re an entrepreneur getting ready to look for Commercial Real Estate, here’s how to choose a Broker who will guide you successfully through the process.

Quality Real Estate Brokers are experts at property valuation.

No one wants to pay too much for a property, and no one wants to let a property go for too little. The decision on how to value your property will make or break the deal from the beginning, so getting it right takes experience and know-how.

There are many ways to come up with a price, but savvy Brokers leverage several of them at once.

1. Comp Searches

“Comp” is short for “comparable,” and we look at similar buildings that have sold in the same area as the building in question to figure out it’s worth. This includes mining our internal records of transactions that date back decades, as well as combing the comprehensive industry databases to which we subscribe.

However, this is not an exact science. Commercial Real Estate properties are rarely cookie-cutter, and it can be hard to find a recently sold similar property. Thankfully, this is not the only tool a Commercial Broker has to work with.

2. Collaborative Opinion of Value

Even when comp searches bring up useful results, smart Brokers will turn to their colleagues, knowing they will collectively be aware of current trends, upcoming deals, and other intelligence that will augment their ability to estimate their price.

3. Collaborative Opinion of Value, Part 2

Commercial Brokers aren’t the only people working in the industry who might have a good idea about what a property is worth.

 A good Broker will often leverage his network of contractors, appraisers, and other Real Estate professionals to weigh in on the value of a property. This isn’t a one-way street, either. Experienced Brokers receive calls from appraisers as well, and together they form a pool of knowledge that, in the long run, helps clients price their property fairly.

4. An Ear to the Ground

Real Estate trends up and down, just like the stock market. The best Commercial Brokers I know are aware of what’s happening in the community they’re working in.

 That’s where a local brokerage like Hilliker has a competitive edge over larger national brokerages. The people in our office are out in the community, reading the local papers, interacting with government officials, and generally aware of what’s trending in our region.

Quality Real Estate Brokers are often (though not always) part of a larger firm.

Though I’ve worked successfully with several quality brokers who are on their own or part of a smaller firm, there are few reasons larger firms have the edge over smaller firms or solo acts.

1. Formal and Informal Mentoring Relationships

As I mentioned before, newer Brokers usually pair up with veterans to learn the ropes. My colleagues have all had a “Wallace,” and I’ve served in that role for others.

More experienced brokers benefit from having newer brokers to work with as well, benefitting from their energy, their curiosity, and their partnership. 

2. Established Relationships with Bankers

Banks tend to trust the opinions and work of established Brokers, or at least those who have the backing of an established firm. When choosing a Broker, you want someone whom bankers trust as an industry expert. 

3. A History (As Well as a Future)

Most entrepreneurs want to establish partnerships that will last over the course of their career.

I’ve helped new business owners lease their first building, then buy a building, then take on tenants, then retire and rent out their old building to new businesses.

Working with a Broker at an established firm will allow you to build on your mutual successes over time. And if that broker retires, you’ll be able to continue your relationship with people who know you and your history.

4. Better Connections

As a member of a large firm, I keep my colleagues aware of what I’m working on. They do the same for me. That way, we help each other match clients with properties all of the time.

 Often, one of us has a client who matches up with a property in a colleague’s portfolio (or vice-versa). Or we’ll be able to pool information we’ve gathered from our connections to help each other out. 

5. A Higher Bar for New Brokers

Firms like Hilliker Corporation place high demands on their Brokers. We want to work with the best, and that means we’ve screened potential Brokers on your behalf.

 Not only that, larger firms don’t often work with part-timers or people who are splitting their time between other Real Estate disciplines. We do Commercial Real Estate deals all day every day. Brokers from more substantial firms are immersed in doing what you need them to do, not in trying to juggle several other types of transactions.

Quality Real Estate Brokers will present sellers and landlords with a comprehensive marketing plan.

When you meet with a CRE Broker for the first time (and it’s good to meet with more than one), you should ask them what their marketing plan will be. Every situation will be a little different, but here are some elements to look for.

1. Print

This seems like a no-brainer, but at Hilliker, signage is a big deal. If you’ve ever seen our “big red H” outside of a building, you instantly know the property has space for lease or purchase.

The visibility of the sign, as well as its branding, is an integral part of a Broker’s marketing process. He or she may also send out mailers to local businesses or go door-to-door with brochures.

2. Product Platforms

If you have a space for sale or lease, your Broker should list it on a variety of both local and national platforms. Additionally, if you’re looking to lease or buy real estate, your Broker should be culling options for you from a variety of sources. (We have our own platform here.)

3. Walk-throughs

Every Commercial Broker worth his or her salt will make sure as many prospects walk through your space as possible. Besides making sure interested parties get to see what’s available, that person may schedule open-houses for other brokers and business owners who will help them get the word out.

4. Connections

Commercial Brokers who have cultivated a network of business partners, colleagues, and contacts over the years will leverage that network on your behalf. Ask if they have any ideas whom they’ll talk with about your property. They should have an answer shortly into the process.

5. Creative Pricing and Value

If a property struggles on the market, savvy Commercial Real Estate Brokers will modify the price over time or look for other incentives to get buyers or lessees interested.

Are you looking for a Commercial Real Estate Broker? Here’s where to start.

If you’ve been in business for any length of time, you probably already have some partners who would be able to help you find a great broker. People who know quality Commercial Real Estate Brokers include: 

  • Lawyers
  • Bankers
  • CPAs
  • Other trusted business advisors

When you talk to your trusted team of advisors, ask for a few options. You’ll want to speak with more than one person before you make your final decision.

And don’t forget to call us at Hilliker Corporation.

With a built-in network of Commercial Real Estate Brokers, you’ll be able to leverage our entire team, no matter which member you choose.

Schedule an appointment today.

John H. ShepleyJohn H. “Jake” Shepley has worked as a Commercial Real Estate Broker for over thirty-five years. After graduating from the University of Colorado, Boulder, Mr. Shepley earned his MBA in Finance from the University of Missouri-Columbia. Married to his wife Carol since 1986, they have three daughters. Jake is excited about life, waking up daily to seize whatever challenges lay ahead.

The Business Owner’s Guide to Preparing to Buy Commercial Property

If your current commercial lease is coming up for renewal, you’re likely asking yourself questions about your next steps, wondering what it’s like to start building equity in real estate instead of paying rent to other people.

You may also like the idea of increasing your income by of taking on a few tenants while building long-term value for your business. If that’s the case, you’re probably in the same situation as most business owners and wondering exactly how to buy commercial property.

Owning your own property offers many rewards, including:

  • Budget Predictability: Eliminate the fluctuating costs of certain lease types with a fixed-rate loan.
  • Tax Incentives: Take deductions on mortgage interest, property taxes, depreciation, and more.
  • Diversify Your Portfolio: Build equity with a real estate investment.
  • Grow Your Spending Power: Your property and building is a capital asset, increasing the value of your business, and improving your credit-worthiness to banks and other lending institutions.
  • Create Future Value: If and when you sell your business, you can keep the property as an investment, sell it, or pass it on to the next generation.

If you’re wondering if it’s time to buy, here are the questions you can ask yourself and the steps you can take to find the right property for your needs.

  1. Choose an Experienced Commercial Real Estate Broker

choose a broker

Your commercial real estate broker will be your right-hand advocate through the entire process of selecting and closing on a property. Good brokers know how to listen to you and your needs and have a comprehensive knowledge of the area.

You’ll rely on your broker to:

  • Match your needs to available property. That’s why capable brokers get to know you to the best of their ability while always keeping abreast of the current market.
  • Lend you their experience and counsel as you weigh the risks and rewards of a purchasing a particular property.
  • Help you determine if you’re paying the right price for the property in question. We’ll go over all the “comps,” or comparable sales, in the area and help make sure you’re not overpaying.
  • Help you negotiate and prepare the contract, structuring a win-win deal. We want to make sure you’re getting the best possible price and protect your reputation in the long run.
  • Manage your due-diligence period. Letting a due-diligence item slip through the cracks can be detrimental if you find an issue. We’ll help keep you and your contractors on track.
  • Assist you with the zoning process. A competent broker should know how to guide you through the governmental agencies you’re working with, and in many cases will already know many of the officials in a municipality along with the ordinances you’ll need to follow. 
  1. Determine Your Location and the Amount of Space You’ll Need

choose a location

Finding the right place for your business is similar for buying or leasing. You’ll need to ask yourself:

  • “Where are we located now?” It’s probably a clue to where you should start searching. 
  • “How far will my employees, customers, and I have to travel?” Often, when you’ve outgrown your space and are ready to buy, you may have to search outside your current ideal area. As you do so, try to narrow your search to areas you and your employees can reach easily.

 If you have fleet vehicles, look for areas with access to major arteries. And if your best customers need to get to your new location, find out where they are and how far they might be willing to travel.

  • “How much space do we need?” If you’re having trouble predicting your rate of growth over the next several years, it may not be time to buy property. But if you can estimate what you’ll need, it may be the right time.

Warehousing operations have the benefit of being able to look for fewer square feet if they can find more height. In that case, you may be able to cut down on your footprint, which could be a benefit both to your workers and to your bottom line.

  1. Set Up Financing with a Trusted Bank

financing with bank

First, you’ll need to decide if you’re in a financial position to buy. Remember, without a lease, you’re responsible for 100% of your operating expenses, but as mentioned earlier, that also means a substantial tax write-off for your business.

A great commercial loan officer serves as a valuable member of your team as you start to determine how much you have to spend, including what sort of down payment you’ll need.

If you don’t already have a banker you know and trust, ask mentors who have made similar purchases. Your commercial real estate broker is a great resource as well, and at Hilliker, we have strong relationships with several of the area’s best banks and can help you choose.

Next, you’ll need to determine what type of loan is right for you.

SBA Loans only require 10% down. However, you’ll have to do a lot of up-front work, complete documentation, and fulfill other requirements, including:

  • You must use at least 51% of the property for your company within a year of buying it.
  • Your company’s net income (after taxes) cannot surpass $5 million in the two preceding years.
  • All parties involved in purchasing the property must prove their personal finances fall within specific parameters.

Conventional business loans have many fewer restrictions and (in some cases) offer lower interest rates than SBA Loans. In either case, you’ll need to speak with a great commercial loan officer to help you make the right choice.

  1. Build the Rest of Your Team

build team

Though this is not a complete list, your broker can help match you up with other vital members of your team as needed:

  • A top-notch real estate attorney to help you protect your assets.

Though much of a commercial property purchase will be straightforward and handled by your broker, a real estate attorney can help with any rare or unique circumstances having to do with complicated ownership structures, tenant claims, current leases, or environmental difficulties.

  • Architects and contractors to help you calculate the need for and the cost of various improvements and renovations. They’ll help you determine if you’re making a wise choice, help you plan for the future, and suggest opportunities for maximizing your new space.
  • A reliable Title Insurance Company, which will complete title research for you and make sure there are no issues. They’ll hold your money in escrow and return it to you if the seller doesn’t uphold the terms of the contract or if a red flag comes up. Great title insurance companies will employ legal counsel to help settle disputes as well.
  1. Count the Cost of Adding Tenants

adding tenant

As stated earlier, an SBA loan will require you to use 51% of your building for your own business, but tenants will help you diversify the risks and rewards of purchasing a building. If you see yourself growing in the future, you’ll be able to grow into your building instead of needing to move again.

However, you’ll need to make sure you’ve evaluated the situation before you dive in. Your broker will help determine the credit-worthiness of the current tenants by checking their references. We’ll make sure to ask for a personal guarantee from both the business owner and spouse, if applicable.

You’ll also need to determine if the existing lease agreements are compatible with the value of the building—as well as your monthly mortgage. You’ll need to find out if the tenants will require you to make any future improvements and factor that cost into your budget.

  1. Be Prepared to Complete Your Due-Diligence

due diligenceWhen you’ve signed a contract, you’ll have several tasks to complete on schedule to fulfill the terms of your agreement or back out if you have to. Your broker will help you manage the process, but be prepared to be part of getting several necessary steps accomplished, including:

  • Obtaining a loan.
  • Reviewing and signing documentation.
  • Attending to matters concerning the title, zoning, and survey process.
  • Reviewing tenant leases.
  • Participating in the property inspection.
  • Obtaining insurance.
  • Other miscellaneous activities.

Are you ready to start looking?

As brokers, our team has had the chance to help many business owners through the highs and lows of purchasing a property.

Our expertise includes helping you find the right property, negotiate the contract, manage tenants, and guide you through the entire process, beginning to end.

If you’re getting ready to buy commercial property in the St. Louis area, we’d like to be your first call. Get in touch today.

Do You Know What You’re Signing? Here’s How to Understand Your Commercial Real Estate Lease Agreement

Here’s a familiar story.

An entrepreneur is outgrowing her current space or is ready to lease new space for the first time. She goes for a drive, sees a sign on a building that looks like it might fit her company’s needs, and calls the number listed.

She asks the broker or the building owner, “How much is the rent?”

The person on the other end of the line may give her a quote based on square footage or a ballpark monthly estimate. But that number is rarely the full story.

Leases are complicated, and there are many items to consider and negotiate that have an impact on a business owner’s budget. For example:

  • Who will pay the property insurance?
  • Who will pay property taxes?
  • What modifications will the renter need to make to the building, and how much will the landlord pay for any of her needed improvements?

My colleagues and I shine when we get to help business owners figure out how to make a lease agreement work for them. We get into the weeds of the contract, ask hard questions, and go to bat on our clients’ behalf.

We know what needs to be done and how to negotiate the particulars of a real estate deal. In this article, part of our series on how to find commercial property in St. Louis, we’ll talk about the different lease structures and how to negotiate a deal that makes the most sense to the renter and the property owner, setting both parties up for a long and fruitful relationship.

St. Louis Commercial Real Estate Lease Structures 101

St. Louis Skyline

Every lease has a base rental rate, which is the first number a broker or property manager might quote when asked. But each lease is structured based on how you and the owner will divide the expenses of occupying the building.

Every detail of the agreement will have to be defined in such a way that the tenant and landlord each know what they’re responsible for. We’ll begin negotiations by asking several questions, including:

  1. How long will the lease last?
  2. How much does the security deposit need to be?
  3. Who is paying for utilities?
  4. Who will pay the insurance?
  5. Who will pay the taxes?
  6. Who will pay for maintenance?
  7. Who will pay for capital improvements?
  8. Who will pay for buildout (and will there be a tenant allowance)?
  9. Is the rent based on the usable or rentable area?
  10. What parking is available, and how much will it cost?

While every agreement is potentially different and demands careful review, here are the primary ways leases are structured.

  1. Full-Service Lease

Full Service Lease

 

 

 

 

 

 

 

 

 

 

 

This is the Cadillac of leases where the property owner covers most everything. They usually take care of common spaces, bathrooms, elevators, taxes, insurance, janitorial cleaning, and utilities. They will usually even come and change lightbulbs when one burns out.

You typically pay one monthly amount—though you may negotiate additional services—and you can leave the details to the landlord.

Usually found in high rises and cared for by management companies, there are fewer hidden costs or fees in this sort of lease. Though you are in essence paying for everything, you won’t suddenly find yourself paying for higher insurance costs or taxes (unless it’s stipulated in your lease).

  1. Gross or Modified Gross Lease

A gross lease refers to the tenant paying a set amount of rent per month with no additional rental expense for taxes, property insurance, or maintenance.

 Often the tenant will pay for their utilities, janitorial services, or interior maintenance.

If it is a modified gross lease, the tenant may incur additional expenses not present in the typical gross lease. This may reflect additional expenses to the tenant.

Often, the rent on a property might cover the expenses for the first year of the lease, but then the tenant will be responsible for increases in subsequent years. Among other things, this could include increases in:

  • Property taxes.
  • Insurance
  • Operating expenses.
  1. Single-, Double- and Triple-Net (NNN) Leases

Net Lease

 

These very common lease types deal with how the landlord and tenant cover taxes, property insurance, and maintenance.

In a triple-net lease, the lessee will need to cover all three categories of expenses. In a double-net, two out of the three, and so forth.

Most landlords in the St. Louis area prefer to structure their commercial real estate leases this way. And though it seems simple on the surface, remember that every lease has the potential to be different, and the agreement needs to be reviewed by a professional, item by item.

  1. Sublease

When a lessee is ready to move out of their rented space but is still under contract, they may sublet to another tenant. This is an excellent opportunity for certain businesses who don’t want to sign a long-term lease.

A sublease might be right for you if:

  • Your business is growing quickly, but you’re not sure how to project your growth. In other words, you don’t want to bite off more than you can chew. It will allow you extra time to shop for space while you figure out what you want to do next.
  • You’re phasing down your business but not quite ready to close up shop. If you still have customers to care for, but you’re getting ready to retire or close for some other reason, you may consider this option instead of a traditional lease.
  1. Lease with an Option to Expand

Lease with option to expand

 

 

 

 

 

 

 

 

 

 

If you want to rent a space that’s currently the right size, but you expect to grow out of it soon, you might consider adding an “option to expand.”

If other spaces open up adjacent to yours—or elsewhere in the building or center—this part of your contract will act as a “first right of refusal.” Before the landlord opens up to other tenants, you get to decide if you want to take on that space in addition to your current lease agreement.

As of the publication of this article, the retail market has slowed. Things change quickly, but right now many St. Louis-area landlords are willing to add this detail (or consider other concessions) to your commercial real estate lease agreement in a space traditionally used for retail.

Don’t Forget to Consider Other Costs

What modifications will you have to make to the building? Are there contractors or architects you’ll need to hire? What zoning requirements and special permits will you need to take care of?

At Hilliker, we’re happy to help you make sure you’ve considered all these costs as you head out looking for commercial real estate for your business.

St. Louisans: Need Help Negotiating a Commercial Lease Agreement?

We at Hilliker are here to help. We’re professionals with many years of collective experience, poised to guide you through every stage in the process.

Give us a call and tell us how we can help you.

Frank L. YocumFrank L. Yocum, VP of Sales for Hilliker Corporation, began his career in commercial real estate brokerage in 1977. In 1993, Mr. Yocum joined Hilliker Corporation where he is a Vice President and is involved in all facets of commercial, industrial, institutional and investment real estate.

Through his experience honed, real estate expertise, his diligent efforts and creativity, satisfying his clients’ real estate needs, Mr. Yocum has established a large, loyal clientele. Many of Mr. Yocum’s clients have relied on him for decades.

You can learn more about Frank and his clients here.

How to find Commercial Property in St. Louis

Looking to Rent or Buy Commercial Property in St. Louis? Here’s How to Start your Search

Over the next several months, members of our team of Commercial Real Estate Pros will be sharing their expertise with people like you — business leaders poised to move to a new office, warehouse, retail, or industrial space.

 In this article, our broker will outline the topics we’ll be discussing and get you oriented as you start your search.

Going from Overwhelmed to “I Can Do This!”

commercial real estate searchWhen you’re ready to move your business, the sheer number of opportunities—along with the pitfalls—can be intimidating.

Most business owners only sign a handful of commercial property leases in their lifetime. And those who feel ready to purchase a building are making a substantial investment that could tie up their capital for many years.

There are new terms to learn (or re-learn). Tons of decisions to make. And intricacies to be aware of.

But finding a great new space does not have to be overwhelming. Qualified Commercial Real Estate Brokers can steer you through the process, helping you get what you need while making your life easier.

Commercial Property in St. Louis

Every market has its challenges and opportunities. As of the publication of this article, St. Louis is seeing a growing number of business owners looking for space, but new construction isn’t keeping up.

However, when it comes to commercial real estate, change is constant, and qualified brokers are people who know the history of their area but stay on top of what’s happening now. Residential agents, though they may be able to help you choose a great home, don’t have the same kind of background.

It’s also important to find a broker who works with an organization that has deep resources and broad experience. A company like Hilliker Corporation shines in these respects.

As you get ready to find a new space, here are some topics your agent will want to discuss with you. In the end, the goal of every great agent is to help you make the ideal choice for your business, your employees, and your customers.

What Are Your Business Goals?

Business GoalsQualified brokers want to help you make a choice based on your businesses’ current and projected needs. To do that, we’ll need a good idea of what your goals are and what your plan is to get there.

We’ll also need to know your budget. Some people are uncomfortable communicating their budget, fearing being taken advantage of. But good Commercial Real Estate Brokers take your budget seriously and look for ways to get you the best possible solution in the current market.

Feel like you’re ready to make a purchase? A commercial property purchase can be a solid investment, and good for businesses that can project their growth with relative certainty.

 However, many moves are part of a quick expansion or projections that involve greater speculation.

In those cases, you’ll want to be familiar with the different lease types, how they get quoted, and what each includes. That way, you’ll be able to make an “apples-to-apples” comparison.

What Type of Lease Is Best for You?

There are several different types of leases. Each one outlines what aspects of the building and its maintenance you’ll be responsible for, as well as how you and the landlord will handle the reimbursement of taxes and expenses.

Leases also state what the building owners are responsible for, along with what contribution they’ll make to whatever improvements or changes you’re planning.

In the coming weeks, we’ll delve into the intricacies of leases, but here’s an outline of the primary lease structures:

  • Triple Net – the lessee (or the tenant) is responsible for all the costs of the space they’re leasing, including all repairs, insurance, and property tax.
  • Double Net – the lessee is responsible for insurance and property tax.
  • Gross – the lessee pays a flat rate encompassing the taxes and insurance costs associated with the property.
  • Modified Gross – the lease begins with a base year lease rate. Should taxes or insurance increase beyond the base rate, the lessee (that’s you!) will pay the difference based on how many square feet your business occupies.

Depending on your projections for the future, a sub-lease (taking over an existing lease from a company who no longer needs the space) or a lease with an option to expand may serve you best.

Matching your needs to the right lease is where good Commercial Real Estate Agents shine, knowing how to negotiate on your behalf with your best interests at heart.

Where Would You Like Your Commercial Property Located?

St. Louis Metropolitan AreaThere are a few things to consider.

First, where are you currently located? If it’s already working for you, then we’ll want to start looking for a property close to your current space.

If it’s not working or you’re starting from scratch, you’ll want to find a place that’s easy for your employees and customers to get to. If the commute to your new site is difficult for everyone involved—or even just for you!—then you’ll regret the move as long as your lease lasts.

You can also ask: Where is the center of my life? Where is the center of my employees’ and clients’ lives? Maybe we can find a place near where you already shop, eat, and live.

We’ll also want to determine how visible your business needs to be. We don’t want to bury you in an office park if customers need to see you from the road. At the same time, many businesses are served best by office parks and industrial areas. Which are you?

What Size and Features Do You Need?

warehouse features

To determine office space, you’ll need to start with the number of staff members you have and how many square feet each person on that staff will need. If you plan on expanding, bring that into consideration as well.

Then, add what you think you’ll need for ancillary spaces like a copy room, a break room, and storage or warehouse spaces.

We’ll also want to discuss what the property needs to look like. You may need to impress clients with high-class finishes and an appealing neighborhood. You may need to keep things simple to serve the nature of your business and clientele.

Anything else you can tell us about how your business operates will help us narrow your search, save you valuable time, and get you where you need to be as quickly as possible.

Ready to Get Started?

When you’re ready to make a move, you need a pro you can rely on to get you the best possible space given the parameters you set and the realities of the market.

A great Commercial Real Estate Agent knows the ins and outs of leases, lease negotiations, and purchases. They want to help you get the most out of a deal while keeping your reputation intact.

If you’re looking for a Commercial Real Estate Agent, Hilliker Corporation would love to help. Give us a call, and we’ll do all we can to get you to the very best space for your needs!