Feb 4, 2016

Commercial Real Estate Frequently Asked Questions

If you’re looking to invest in commercial real estate, it’s important to ask questions and understand the answers to the basics of commercial real estate. That way you’ll be knowledgeable and confident you’re working with a quality and secure investment. Below are six popular questions to help you understand commercial real estate better.

What exactly is commercial real estate?
Generally any property in a business context is defined as commercial real estate. This can include retail properties, office spaces and industrial buildings. Essentially any properties used for business or income-producing purposes is commercial real estate.

How does the commercial real estate industry work?
Most commercial property owners hire commercial real estate agents to lease their property on behalf of the owner. A commercial real estate agent’s responsibility then is to represent the owner and not the tenant of the commercial property.

What’s the difference between a commercial real estate property and a residential real estate property?
A lot of the concepts are the same between the two, but with commercial real estate it is generally more common for properties to be leased rather than sold. Commercial properties are also commonly owned by larger commercial real estate holding companies. On the other hand, residential properties are usually outright sales and owned by individuals instead of companies.

Do I have to hire a commercial real estate broker?
It’s not mandatory, but there are many benefits to working with a qualified broker you know and trust. A commercial broker will have experience in the commercial real estate industry and expertise particularly in the area you need (retail shopping centers, office space, industrial buildings, etc.). A good commercial real estate broker will also have a valuable network of contacts. When you buy, sell, rent or lease a commercial real estate property you’ll need to work with a variety of professionals (lawyers, contractors, property inspectors and more) to complete a transaction, so having a broker who knows other professionals is a plus.

How are commercial real estate brokers paid for their services?
Commercial real estate commissions are different from residential real estate commissions. Commercial fees can vary and are negotiable, and they’re usually paid by the owner in a transaction.

What are the pitfalls to commercial real estate?
There’s always risk involved with any real estate transaction, but some potential problems with commercial real estate include:

Zoning/Land Restrictions – If a property isn’t properly zoned for what it will be used for, it can create conflicts for nearby properties. Even if it is zoned correctly, issues can still arise if government agencies or neighborhoods try to change the zoning on your property.

Title Defects – If a deed (a public record of property interests) isn’t properly recorded or has defects regarding the scope of the land it covers, an owner may end up selling or transferring only part of the interests on the property.

Market Fluctuations – Changes in property value can affect your commercial property. Tenancy rates and rent can go up or down based on how good or bad the real estate market is doing.

Asking the right questions is a start to finding the appropriate commercial real estate property for you.  Contact us to learn more about buying, selling and leasing commercial real estate properties in Chicago.