Frequently Asked Questions
COMMERCIAL REAL ESTATE
investment BASICS
WHAT IS A CAP RATE?
The capitalization rate (Cap Rate) is a metric used to assess the return on investment in real estate. It is calculated by dividing the property's Net Operating Income (NOI) by its current market value or purchase price. A higher Cap Rate indicates a higher return on investment, but also generally higher risk.
WHAT ARE TRIPLE NETS (NNN’S)?
Triple Net (NNN) leases require the tenant to pay for three main expenses in addition to rent: property taxes, property insurance, and maintenance costs (repairs, upkeep, etc.). This lease type is popular in commercial real estate because it transfers most of the property’s operating expenses to the tenant.
WHAT IS CAM?
CAM stands for Common Area Maintenance. These are the costs for maintaining the shared spaces of a property, such as hallways, lobbies, parking lots, and landscaping. In many commercial leases, tenants pay a portion of these costs in addition to their rent.
WHAT IS NOI?
NOI, or Net Operating Income, is the income generated from a commercial property after operating expenses, but before debt service and taxes. It is a key metric in determining a property’s profitability and is often used to calculate the Cap Rate.
WHAT IS A 1031 EXCHANGE?
A 1031 Exchange is a tax-deferred real estate transaction that allows investors to sell one property and reinvest the proceeds into a similar property, deferring capital gains taxes on the sale. This strategy is often used to grow an investment portfolio without immediate tax liabilities.
WHAT IS A SALE LEASEBACK?
A Sale-Leaseback is a transaction where an owner sells a property to an investor but immediately leases it back. This allows the seller to free up capital while continuing to use the property. It’s commonly used by businesses looking to access liquidity while maintaining control of their space.
FOR commercialPROPERTY OWNERS
LEASING + TENANT CONSIDERATIONS
how much tenant improvement allowance can i get?
Tenant Improvement Allowance (TIA) varies depending on the property, location, and lease agreement. Typically, it ranges from $10 to $50 per square foot or more, but it can go higher for high-demand spaces or long-term leases. Your commercial real estate broker or landlord can provide specifics based on the type of lease you’re negotiating.
how much tenant improvement allowance do i need to give?
The amount of TIA you need to offer as a landlord depends on the condition of the space and the tenant's needs. If the space requires significant renovations to meet the tenant's business requirements, a higher TIA may be necessary to attract quality tenants. The allowance usually depends on the lease length and the tenant's investment in the space.
why would i do a sales leaseback?
A sale-leaseback is beneficial if you need to free up capital tied up in a property while retaining the use of the space. It allows businesses to improve cash flow and reinvest in growth initiatives, without losing access to their operational space. It can also be attractive for businesses that want to shift their balance sheet or reduce debt.
how do you determine the sales/lease of my property?
The value of a commercial property is determined by various factors such as location, condition, market trends, and income potential. For leases, the rental rate is typically determined by the property’s location, comparable rents in the area, and the lease type (e.g., NNN, Gross). A commercial real estate broker can provide a detailed market analysis to set competitive pricing.
how long before my commercial property can i have a positive cashflow?
The time it takes for a commercial property to generate positive cash flow depends on factors such as the purchase price, operating expenses, financing terms, and lease agreements. Typically, it may take a few months to a year to stabilize the property, especially if there are vacancies to fill or improvements to make. A well-managed property with stable tenants can start producing positive cash flow sooner.
Market + Investment Insights
Is commercial real estate a better investment than residential real estate?
Commercial real estate and residential real estate both offer unique investment opportunities. Commercial real estate tends to offer higher returns but comes with higher risk, longer lease terms, and potentially larger initial investments. Residential real estate generally has lower returns but can be more stable, with more consistent demand for housing. Your investment decision should align with your financial goals and risk tolerance.
What are the biggest challenges in commercial real estate?
Some of the biggest challenges in commercial real estate include:
Economic fluctuations affecting property values
Tenant turnover and vacancies
Securing financing, especially for large properties
Property maintenance and keeping operational costs under control
Navigating legal and zoning regulations
What are the biggest challenges to purchasing commercial real estate?
Challenges to purchasing commercial real estate include:
Difficulty obtaining financing or securing favorable loan terms
Finding suitable properties that meet your investment needs
Understanding and navigating local zoning laws and regulations
The need for significant due diligence, including environmental assessments and inspections
Managing property management if you don’t have a dedicated team
Columbus, OH Market Insights
What does the commercial real estate market look like in Columbus, OH?
Columbus has a growing commercial real estate market, driven by its expanding economy, low unemployment rate, and vibrant downtown area. The city is particularly appealing to tech companies, healthcare providers, and retail businesses. Industrial properties are also in demand due to the region’s strategic location in the Midwest, offering access to key transportation corridors.
What are the best markets in Columbus, OH?
Some of the best commercial real estate markets in Columbus include:
Dublin: Highest growing suburban market.
Downtown Columbus: High demand for office, retail, and mixed-use spaces.
The Short North: A trendy, urban area ideal for boutique retailers and restaurants.
Westerville and New Albany: Growing suburban markets with demand for office and industrial properties.
What are the best sectors in Columbus, OH?
The best sectors in Columbus for commercial real estate investment include:
Technology & Innovation: A growing hub for tech startups and established companies.
Healthcare: The city is home to major hospitals and healthcare institutions, driving demand for office and medical spaces.
Retail: With a population that enjoys both local shopping and big-box retailers, retail spaces continue to be in demand.
Industrial & Logistics: Columbus is well-positioned for e-commerce and logistics companies, given its central location and access to major highways and railroads.