Humphreys Pacific Coast Real Estate: Orange County
Glenn Humphreys
(949) 463-6358(949) 463-6358

Commercial

Investing in commercial real estate often requires a considerable amount of startup capital and extensive knowledge of the legal, financial and regulatory aspects of owning this type of property.

To help you navigate the commercial property market, I have partnered with specialists in their field who will provide the same high level of expertise and responsiveness you would expect from your residential real estate broker.

Please contact me today for more information on commercial real estate investment and for a referral to my trusted partners.  Our reach includes California and the entire U.S.A.

 

COMMON TERMINOLOGY

Types of Commercial Investment Real Estate:

  • Office Buildings – Class A, B, C
  • Retail – Free Standing like Walgreens, Pad like McDonalds, Big Box like Home Depot, Little Box like Auto Zone, Special Use like gas stations and churches
  • Shopping Centers – Regional 400,000-800,000 sq ft, Super Center 800,000+ sq ft; Neighborhood Shopping Center or “Strip Centers”; Community Center 100,000-400,000 sq ft; Power Center 1,000,000+ sq ft; Life Style Center often found near affluent residential neighborhoods; Theme Center/Festival Center where entertainment is the main attraction; Outlet Centers selling brand-name goods at a discount
  • Industrial/Flex – Flex Space or industrial/office space; Warehouses for storage of goods; Manufacturing, Self Storage/Mini Warehouses
  • Hospitality – Hotels, motels, camping grounds, mobile home parks
  • Residential Income – Conversion/mixed single family with units, duplex, garden apartments, low/mid/high rise; Amenities including parking, pool, laundry
  • Developable Land 
  • Business Opportunities – May or may not include real estate, complex due diligence

 

Types of Commercial Leases:

  • Net, Net Leases (Double Net or NN) – tenant, not the landlord, is responsible for all operating expenses and real estate taxes
  • Net, Net, Net Lease (Triple Net or NNN) – tenant is responsible for all maintenance expenses (including roof and structure), real estate taxes, and insurance
  • Full Service Gross Lease – tenant pays only a lump sum rent.  The landlord pays for everything including taxes, insurance, utilities, maintenance
  • Modified Gross Lease – tenant pays their own utilities and janitorial expenses, but not taxes, insurance or common area expenses
  • Industrial Gross – tenant pays their own utilities, janitorial, common area and utility expenses.  Landlord pays taxes and insurance
  • Ground Lease/Land Lease

 

Terminology Used to Value and Compare Investment Properties:

  • Gross Scheduled Income (GSI) – the total income if everything was 100% occupied.  Usually expressed as an annual number
  • Effective Gross Income (EGI) – Gross Scheduled Income less projected or actual vacancy
  • Net Operating Income (NOI) – actual income (not projected) less actual expenses less reserves for long term expenses
  • Operating Expenses – fixed, variable, reserves
  • Cash Flow – amount of money a property generates
  • Net Cash Flow (sometimes called ‘cash-on-cash”) – cash flow after expenses, interest and principal repayments
  • Gross Rent Multiplier (GRM) – Sale Price divided by Gross Scheduled Income
  • Capitalization Rate (CAP Rate) – Net Operating Income divided by Sales Price.  This is the most reliable number to evaluate and compare an investment
  • Depreciation – does not include land value and is the period is usually for 39 years on commercial investments