Commercial Real Estate

Benchmarking is used in businesses to understand the average cost for various items found on your income and expense report.  However, you can apply this principle to your apartment building you own.

For instance, what are the average costs that apartment complexes spend for real estate taxes?  By comparing the income generated (provided it is 90% to 100% occupied) with the actual cost of property taxes, you are able to arrive at a percentage for property taxes.  This may range from 10% to 17% on your gross income.  It is best to take 8 properties of like kind and get to understand their income and expenses ratios along with occupancy rate in order to accomplish this.

Once a spreadsheet has been filled out, you are able to average all of the percentages across the board from electric/gas, insurance, property taxes, water/sewer, repair & maintenance, snow plowing & landscape, management, and legal fees.  If your property shows signs of higher costs in a specific category, what can you do to reduce those expenses?

Perhaps your electric/gas expense is too high compared to other properties.  How can you adjust those expenses?  Some install energy saving bulbs throughout their complex.  Others will put more attic insulation in to save on heat.  A new approach is to install wind and solar energy modules that will save the owner thousands of dollars over the investment life.  New laws make this approach very cost effective with instant savings and government incentives.

A follow up article will include how to reduce your property taxes.  Our team is happy to help in this regards if you feel that you qualify for a tax reduction.

If you would like assistance in understanding general costs associated with your apartment complex, we are happy to help.  Please email questions to Chad Razmus or Chip LaFleur for further discussion.  crazmus@ccmichigan.com or clafleur@ccmichigan.com

“On the mountains of truth you can never climb in vain: either you will reach a point higher up today, or you will be training your powers so that you will be able to climb higher tomorrow.”

-Friedrich Nietzsche, 19^th century philosopher

When you think of employment benefits, what comes to mind?  I’m sure that those of you who feel weary and overworked look forward to vacation and holiday pay.  The sick or infirm will likely prize health insurance and sick pay.  Some of you in the twilight of your careers might focus on our 401k and pension plans. Yet, there is one benefit greater than all of these, but is likely forgotten or overlooked: training.

Some of you may be thinking, “Training??  I haven’t received training since I began my career.”  But, is this true?  There are two types of training: formal and informal.  At the very least, all of us have received informal training.

Informal training may be as basic as a conversation between colleagues or with a supervisor.   For example, two maintenance employees might discuss the best means of troubleshooting an air conditioning problem.  Their exchange of ideas and the development of key skills is the very essence of training, though we don’t often think of ourselves as trainers or trainees.   In addition, supervisors discipline employees for infractions; this is also training.  In fact, the root word for discipline is “disciple”, or “discipulus” in Latin, which means “student” or “pupil.”  We may not want to consider a disciplinary action as training, but, like all training, it is intended for our benefit and growth.

Training is the fuel of success and professional growth.  The more training you offer to your employees, the more valuable they become to you.  There is a direct correlation between the best trained employees and those who have the highest productivity.  Furthermore, those employees who thirst for training are often the most contented and happy in their careers.

Finally, training is an investment.  It is both recognition of your employee’s future worth to your organization and an acknowledgment of their past accomplishments.  I hope that you recognize the value of this benefit and seek to add a training program to your company- no matter how small.  For my part, I feel a great debt of gratitude toward those who have trained me and continue to do so. Their gifts of knowledge, skill, and time will not be soon forgotten.

Brian Kopp works for Echelon Property Management in the greater Grand Rapids, Michigan area.  He has 14 years of property management experience at the property and corporate levels.  He has a Master’s Degree in Education and was formerly an SPHR from the Society of Human Resource Management.

Echelon Property Management specializes in apartment real estate management.  Its mission is to acquire and manage real estate investments and deliver above average returns to property owners.  For more information about our services, please contact Brian at bkopp@echelonpm.com.

Original post found here: Mason-Jewett Airport Hangar

On Wednesday, July 22, 2009 at approximately 9:45 this morning we closed on the sale of this property.  This was an extremely unique transaction for all parties involved.  The building itself sits on a land lease, the leased land is owned by the Capital Region Airport Authority (CRAA).  The Buyers purchased the building and personal property for $449,000; of course the transaction was contingent on securing a new land lease with the CRAA, as well as normal due diligence.  Chicago Title helped us work through the some of the unique requirements for this property.  There were a variety of additional documents required to insure title because there was only a transfer of personal property as opposed to the real property.

All in all, the deal went smoothly; a few hiccups but we got through them, and everyone had the opportunity to work on a project that included elements that were very unique.  Our congratulations to the Buyers and Sellers of this unique building!

If you have interest in other details of this transaction, or would like some assistance with a complex transaction you might be faced with, please contact Chip LaFleur or Pamela Collins with Callander Commercial’s Grand Rapids office at (616) 459-8000.

If you feel that your taxes are too high for property taxes on your real estate investment, what can you do?  First, you need to understand the taxable value of your investment compared to the assessed value of your property.  The taxable value is a number representing 50% of the municipality’s value of your property that you are being taxed on.  This number will go up and lately down reflecting the general value of your property.  The assessed value is what the municipality is suggesting your property is worth upon sale.  For instance, you may live in the path of development.  Your property may be vacant land you purchased for $100,000.  Your taxable value is $50,000 and assessed value is $50,000.  As time goes by your taxable value may increase slightly 2-5% each year.  However, a large retail drugstore just purchased the corner lot and you are next to the new retailer.  Your assessed value jumped up to $350,000 suggesting that a market value is $700,000 for your land.  Once a new purchaser comes along and closes on your land, their new taxable value becomes $350,000 and assessed value is now $350,000.  The taxable value becomes “uncapped” to benefit the municipality.

The problem lies in where the assessed value does not keep up with the changing values of property, especially in this varying priced market.  Real estate values have dropped considerably in the last two years between 15% to 30% on some properties.  Foreclosures and short sales have skewed the values for appraisers and are making it difficult to finance deals today.  For the example above, let’s say the listing price was $695,000 and you purchased the property for $525,000.  The taxable value really should be $262,500 if you paid market price for the property.  Some municipalities will not reduce the price unless the owner paid “market” value based on a recent appraisal.

A restricted appraisal is simply an appraisal that can’t be used for bank financing.  It still has comparables and is a good evaluation of your real estate property.  The price typically is 50% of an actual appraisal and can range from $1500 to $2000 based on the type of property.  This document is a great way to understand your property and give “market” proof of your current value of your property.  You can do the research, print up comparables, but the municipality will not consider your information gathering as an accurate value of your property.  You will need someone with creditials as a licensed appraiser.

Around the first of the year, each property receives a notice of change of assessment from the municipality.  This small paper has a date at the bottom of the note if you would like to dispute this change.  If you are thinking about disputing this, immediately request an appraiser to perform a restricted appraisal on your property.  This appraisal, when completed, will be what you bring to your meeting with the township officials.  A paper is usually filled out that details the previous taxable and assessed value and what you would like it to be changed to.  If the meeting goes well, you will receive a decision in a few weeks of the adjustment to your property taxes.  If this is not enough or they have refused, you will want to contact an attorney and move it forward through the Michigan Tax Tribunal in Lansing.

For help in assisting commercial owners with their property tax reduction please email Chad Razmus at crazmus@ccmichigan.com.

In today’s market, there are factors that need to be considered regarding real estate when it comes to a final sales price that is agreed upon or upon a final lease negotiation.

Discounted cash flow is valuing a future income stream or cash flow taking into consideration the time value of money or a net present value percentage.  In other words, a dollar today is worth more than a dollar in the future.  Time will reduce the value of cash flows based on risk, perceived risk, and general inflation.

SALES TRANSACTION

For instance, in a sales transaction, where you have taxes, deferred maintenance, payments being made to the bank, utilities, insurance costs, and any other costs associated with a building (without a tenant income stream), you have a negative cash flow situation that must be included in a cash flow table.  If you have a real estate property that you feel you can get $332,500 as sales proceeds by waiting for 4 years for the market to give you the number you really need for your transaction and compare that to a purchase agreement today that will net you $225,000, you can effectively compare the true value of each scenario if using a discounted rate (net present value) of 7%.

Scenario #1

Expenses

Year 1                         $-15,000

Year 2                         $-16,500

Year 3                         $-17,000

Sales Proceeds          $332,500

Scenario #2

Expenses

Year 1                         $0

Sales Proceeds           $225,000

The net present value (7%) of the first scenario is $211,355.  The net present value (7%) of the second scenario is $210,280.  This example well illustrates the 18^th century saying that “a bird in the hand is worth more than two in the bush”.  Many fail to realize the negative cash flows by waiting and allowing time to “eat up” the proceeds that might be realized in the future.

LEASE TRANSACTION

Today, Landlords are quick at giving out free rent or rent reductions in order to attract a quality tenant in the market.  How can you understand two different lease options and choose the best scenario?  What type of cash flows would you need to equal one scenario compared to another scenario?

In the first situation, you have a Landlord that has agreed to pay $10,000 in tenant improvements with cash flows as show in Scenario #1.  In Scenario #2, the Landlord is giving no tenant improvements, but is accepting a flat lease cash flow.  Which one is the greatest advantage to the Landlord, with all things being equal?

Scenario #1

Year 0 (TI)                 $-10,000

Year 1                         $12,000

Year 2                         $12,500

Year 3                         $13,000

Year 4                         $13,500

Year 5                         $14,000

Scenario #2

Year 0                         $0

Year 1                         $12,000

Year 2                         $12,000

Year 3                         $12,000

Year 4                         $12,000

Year 5                         $12,000

If we use an 8% discounted cash flow net present value in these two scenarios, the first scenario will generate $41,599 in a present value for today.  The second scenario will generate $47,912 in a present value for today.  The question is this:  How much can the Landlord give in tenant improvements (discounted rent or cash for TI improvements) to the tenant to make these scenarios equal?  The answer is $3,700 in order to give the same net present value.

Working with Landlords and Tenants, Buyers and Sellers in this market can be very challenging.  But as a Tenant, Landlord, real estate broker, or attorney, you can give alternative scenarios that might be able to help all parties reach the same goal and make a deal happen that would have been nonnegotiable otherwise.

For more information contact Chad Razmus at (616) 459-8000.

This very unique property is in the center of Lowell, Michigan; a growing community with quick, direct access into downtown Grand Rapids, Michigan.  Lowell has a variety of festivals, and a very active Chamber of Commerce and preservation society.  Most importantly, they have an growing downtown area with a wide variety of thriving businesses and great walking traffic.

104 W. Main St., in Lowell is located right on the peninsula / island that is in the center of the dam in the middle of town.  There are only five spaces on the peninsula, although this space at 104 W. Main would be very easily converted into two separate suites.  Of the five spaces, however, only 104 W. Main has a completely unobstructed view of the Flat River to the north and to the south, creating an amazing work environment.  Additionally, there are several on-street parking spaces directly in front of the couple of storefronts that sit on the dam, making these locations particularly desirable.

More information is available on CPIX.net, including more pictures, maps, and links to all videos.

Watch the video below for the street view panorama:

And the view from the back deck of the retail space:

The space includes an upstairs apartment that has been used for storage, but could easily be converted into a one or two bedroom apartment for additional revenue or for an owner’s occupancy.

If you would like to learn more about this space, please feel free to contact us at clafleur@ccmichigan.com or gmahalick@ccmichigan.com, or give either of us a call in the office at (616) 459-8000, and ask for Greg or Chip.