Five Ways to Increase the Value of Your Commercial Real Estate PropertyBy Lauren Vo Zelakiewicz
If you are thinking about purchasing commercial real estate, it’s important to know that there are things that you can do to enhance and increase the value of your investment. As such, when you search for a commercial property, look at the property’s potential in addition to its historical data. Because the value of commercial real estate is primarily driven by the cash flow that the property generates, any strategy you employ has the potential to increase your cash flow, decrease your expenses, and increase your overall equity and the value of the property. Below are five strategies you should consider when determining how you can make the most out of your commercial real estate investment.
1) Make Improvements to the Property
Improvements can take the form of cosmetic improvements or substantial rehabilitation. Cosmetic improvements include such things as new paint or wallpaper, new decor to the common elements, new landscaping, new carpeting/flooring, etc. Substantial rehabilitation involves making structural improvements to the property – for example a substantial rehab may involve redoing all the units of a multifamily property, or changing the structural façade of a shopping center, or making major renovations to the lobby of a large office building. In any case, you increase the value of the property for not only your tenants, but for your own portfolio as well.
2) Increase Rent
The value of your commercial real estate property can also be increased by increasing the rent. In reviewing the historical data on a property, take notice of whether the tenants are paying market rent or whether there is potential for a reasonable mark up in rents. Determine how the improvements you make to the property can justify your rent increase. Pay close attention to both the upper and lower level of rents that are being charged for similarly situated types of real estate so you don’t price yourself out of the market.
3) Decrease Expenses
Evaluate the historical operating statements of the property to determine if there are areas where you can decrease the expenses. For example, perhaps improving the property with more energy efficient light bulbs in the common areas will drastically reduce your monthly electrical bills. Or perhaps you find that the gas company can individually meter the units so that instead of paying for the gas, you can fairly pass that expense onto the tenants. In the vast majority of instances, a commercial property owner can cut expenses without significantly impacting the operations of the real estate itself.
4) Alter or Change the Property's Intended Usage
Often times, changing the use of a commercial real estate property can drastically change the value of the property. For example, suppose you find an old industrial warehouse in the middle of a bustling epicenter. Instead of keeping it as an industrial warehouse, you can seek a zoning variance to convert that warehouse to a hotel, or a condo building, or an office building, or any commercial use that makes sense for that location.
"The way Anthony sat down with us from day one and patiently walked us through such a critical decision was fantastic."
"I'm writing to commend Anthony Roselli for his support to us in our first commercial real estate adventure. Anthony's support throughout the entire buying process was invaluable. As first-time investors, we were really intimidated by the enormity of the decision and the seemingly endless possibilities. The way Anthony sat down with us from day one and patiently walked us through such a critical decision was fantastic.
We are very "relationship based" people, and his personal approach was what we needed. I can clearly remember sitting down at our dining table for that first discussion, embarking on what seemed a daunting journey. With a clear set of helpful question Anthony helped us define our priorities and focus our search on the right ballpark of potential properties. We wouldn't have even realized that our priorities were so strong—we were simply focused on financial factors and were forgetting how important it is to us to work with someone that is family-friendly.
With three little ones and one on the way at that time, we didn't have the energy or capacity to do a lot of leg work looking at property. The time Anthony spent physically visiting different commercial properties was a huge benefit to us. His insights into the strengths and weaknesses of each possible property (and their respective locations) were invaluable.
I would venture that one of the things that sets Anthony apart from other knowledgeable agents is his sensitivity to the personal needs and style of his clients. Good information is of course a starting point, but if that information isn't delivered in a manner that suits the buyer, it won't be an effective relationship.
We have, and continue to, appreciate our working relationship with Anthony. Along with the values increasing in this area as they are, it may not be long before we call the Anthony to help us find our next investment property!"
Jim and Marsha Anderson
5) Add Amenities
Finally, you can also consider adding amenities to the property to make it more appealing and valuable. Value enhancing amenities can include something simple like creating a playground in a multifamily property or adding free wireless Internet for your retail tenants. Or you can add more extravagant amenities like a daycare center in your office building or an outdoor courtyard in a hotel property.
In sum, when scouting for commercial properties, look beyond the historical data and see what strategies YOU can employ to make the property more valuable. Know your property’s potential before you close the deal. The best deals are made when you buy a property, not when you sell a property!
Contributed by: Lauren Vo Zelakiewicz, President & CEO, VEC Financial Group
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© 2007 VEC Financial Group
The VEC Financial Group (VEC) is a privately-owned company dedicated to providing commercial mortgage and business financing to property owners and entrepreneurs across the country. VEC Financial provides these services by connecting the right broker with the right borrower, who ultimately finances with the right lender. This personalized system of matchmaking helps provide the best possible commercial financing experience. For more information on how to join VEC Financial Group as a client, Associate Broker, vendor, or lender please visit our website. http://www.vecfinancial.com