Commercial Real Estate

Remember when you would roll your eyes at grandpa’s tall tales or mom’s stories of childhood hardships?  They would usually sound something like, “When I was seventeen, I stormed the beaches of Normandy with only a shovel,” Or; “In my day, we would walk 10 miles to school, up hill, in a blizzard, with bread bags over our boots.”  Well guess what, Michigan- it was true, every single word.

So when did the paradigm shift? When did our society develop this “sense of entitlement”?  Why are we born today with our hand out, expecting someone or something to solve our problems?  Why do we blame everything but ourselves?  Why does the media thrive on “fear mongering”?  But more importantly Michigan- When did we give up?

OK, maybe I was harsh on you back there but with good measure.  Something clicked in me yesterday and I feel obligated to share it with you- let me frame our situation.  We awake every morning with our same routine; watch the news or listen on the radio to the latest numbing reports of soldiers lost in Iraq or the steady increase in the state’s unemployment rate (15.6% as of 8-27-09).  For those of us lucky enough to have a job, we drive to work and pass the missions & numerous homeless with signs that read “Hungry & Homeless- Anything Helps”. You finally reach work and can’t help but overhear the water-cooler talk on how bad the economy is or who screwed what up and how it affected them.   Does any of this sound familiar?  Are you ready to break the monotony?

Then I challenge you Michigan to change.  I challenge you Michigan to shed your reservations and fears.  I challenge you, Michigan, to be positive. Most of all Michigan, I challenge you to be the light for others to follow.

As mentioned above, something changed in me yesterday- an epiphany if you will.  How can we expect the economy to turn around with such a doom and gloom mindset?  The answer is simple- it won’t.  There isn’t a President or Governor out there that can change the tides without the support and willingness of their people.  So I have decided to change Michigan.  I have developed immunity towards negativity, my glass is now half full and I have decided to go out of my way, everyday, to do something for Michigan.

We can all assist in different ways; contractors- donate some time to Habitat For Humanity, accountants- get your friends finances in order & develop a budget, commercial real estate advisors- share your knowledge of business and how it is properly developed.

Yes, www.cregr.com is the commercial real estate blog for Grand Rapids- an excellent blog to say the least.  However, today I did not wish to elaborate on commercial real estate; finance, property taxes, economic status, forecasts, or any other relevant topic on today’s market.  No, today I wanted to speak to you Michigan- I challenge you to change.

Tomorrow’s Topic: Developing a Business; Start to Finish.

Sincerely,

Greg Mahalick

Posted with permission from BolhouseLaw.com, original article here: http://www.bolhouselaw.com

Author: Jodie L. Roossien

You’ve heard the expression, ‘good fences make good neighbors.’ Obtaining a survey, when buying or selling real estate, makes for even better neighbors. Whether you are buying or selling real estate, residential or commercial, you should always obtain a survey of the property which is the subject of the sale.

A property survey is a sketch or drawing, showing the legal description and the boundary lines of the perimeter of a property. The survey also includes the dimensions of the boundary lines of the perimeter of the property and any pools, fences, or buildings (including barns, sheds, gazebos) on the property.

A licensed surveying/engineering firm can provide you with a survey. Each surveyor or engineer must be certified by the State of Michigan. You do not need to provide anything to the surveyor. They will review the county records to obtain the legal description for your property. The city or county will also have plat map books, showing the location of your property. The typical cost for a survey of residential property, an acre or less in size, is around $300. A survey of a larger piece of residential or commercial property can cost much more. You should ask for an estimate of the cost when you call to schedule the survey.

The typical Buy/Sell Agreement states that it is the Seller’s responsibility to provide the Buyer with a survey; however, it is a negotiable cost meaning you can negotiate whether the Buyer or the Seller will obtain and pay for the survey. The Seller has a legal obligation to provide the Buyer with ‘clear and marketable title.’ This means that if any other parties have a right to use the Seller’s property (i.e. a shared driveway with a neighbor, oil or gas lease interests, a license to hunt on the property, or Consumers Energy’s right to access the property to repair utility lines), the Seller must disclose these rights to the Buyer before the closing. If a neighbor’s fence is located on the Seller’s property, it is the Seller’s obligation to move the fence before the Buyer is obligated to close.

The Buyer should review the survey to ensure that they are buying the property that they think they are buying and to be aware of any interests of other parties. A Buyer should not accept an ‘old’ survey from the Seller. Often, a Seller will offer to provide a Buyer with a copy of a survey they received when they purchased the property, rather than paying for a new survey at the time of sale. Generally, a lender will not accept a survey that is more than six months old. Further, things may have happened since the Seller purchased the property, such as the Seller granting rights to use the property to other parties, fences being moved, etc.

Whether you are the Seller or the Buyer in a real estate transaction for the sale of residential or commercial property, you should obtain and review a new survey. You should be sure that you understand the boundaries of the property and the interests of any other parties. Whether you are the Buyer or Seller in a real estate transaction, it is important to know your boundaries before closing.

Bolhouse, Vander Hulst, Risko, Baar & Lefere is a team of dedicated attorneys, legal assistants and support staff committed to providing all our clients, from the young family in need of a will, to the large corporation in need of tax planning, with the highest quality legal representation in the most cost-effective manner possible.

The Right Place

The Right Place, Inc. was founded in 1985 with one goal, to create economic opportunity and spur business growth in West Michigan. As a non-profit economic development organization supported through investments from the private and public sector, the organization offers assistance with traditional economic development, innovation coaching, manufacturer training and education.

The Right Place continues to play a vital role in transforming the region’s economy, building a thriving global center for business and innovation. Their work is evidenced by thousands of business expansions, billions in capital investment, and thousands of new and retained jobs in West Michigan. No other single entity has done more to advance the West Michigan economy. The Right Place is committed to ensuring the region maintains this tradition of excellence.

The Right Place’s website is:  http://www.rightplace.org

The Michigan Good News website is:  http://www.themedc.org/goodnews

If you have a few minutes, find out a little bit more about The Right Place.  They are a great resource that has been working to help Grand Rapids for almost 25 years, and there is a good chance that they will be able to help you!

3229 Oak St. in Hudsonville

The property located at 3229 Oak St. in Hudsonville has just been put on the market for sale, for $674,900.  As soon as we have the details loaded onto CPIX.net we will link to them, but we wanted to get this out there right away.  For the time being, the link takes you to the lease listing.  The building is in perfect condition, new construction with one tenant leasing space toward the front of the building, making this an ideal ower occupied space.

Grand Rapids Oldest Bait and Tackle Shop

The oldest Bait and Tackle shop in Grand Rapids is also now available, the list price for the building is $275,000.  The property consists of a small retail space in front, with a home attached to the back of the building.  The owner is willing to include all the store’s inventory as well as the business equipment.  The property is zoned C-3, allowing a variety of uses and the visibility and traffic counts are hard to beat, over 29,000 vehicles passing the property per day.  The site is located within a quarter of a mile from I-196, making it easily accessible from the highway.

Division and 60th St. Retail / Vacant Land

Recently several properties have been put on the market along South Division Avenue in Kentwood and Wyoming.  One of those properties sits on the corner of Division and 60th, with great visibility from both streets and a steady stream of traffic.  Currently the property holds a computer repair shop and a “For Sale by Owner” use car sales lot.  Nearly the entire lot is asphalt, and could easily be used as a vehicle sales lot.  It is currently listed at $300,000, although the owner is wiling to consider all offers.

For more information on any of these properties or if you are in need of space anywhere in West Michigan, email me a clafleur@ccmichigan.com, or call at (616) 459-8000.

Click for More Information

Price has been slashed by $50,000 on this perfect owner occupied opportunity!  This free standing building features a newly renovated upstairs apartment (770 Sq Ft), lower level retail/office space (1,500 Sq Ft), equipment has been sold but existing build-out can easily facilitate a new restaurant or other specified use.  The apartment is a 2 bedroom with beautiful hard wood floors, all new appliances (dishwasher, washer/dryer, stove, refrigerator) & central air.  The building is situated with excellent visibility on busy Alpine Ave NW, located directly across from the new Avastar Park redevelopment. This is a must see – priced at $147,000!!!  Owner will also consider land contract.  Give Greg Mahalick or Chip LaFleur a call today to schedule a showing (616-459-8000) but hurry – we do not expect this opportunity to last long.

Last week Wednesday (July 29) Eric Swanson, of EasyRotor Helicopters and Easy Aviation Systems was kind enough to take me up in his R44 Raven Helicopter.  We took photos of a fifteen properties in a little under an hour and a half.  It was a beautiful day and most of our pictures turned out great (I’m not a stellar photographer).  Here are some of the shots.

If your understanding of investments are limited to a CAP rate in selecting an investment property in today’s market, you will want to understand what a Cash on Cash return is.

In the past, many investors would benchmark a property investment based on a CAP rate.  The CAP rate represents the net operating income compared to the sales price.  In other words, if the gross income is $150,000 and the expenses total $50,000, your net operating income (NOI) is $100,000.  If you purchase the investment for $1,000,000, the CAP rate would be 10%, known as a “10 CAP”.

However, CAP rates takes into consideration only NOI and sales price.  In times where financing has assumed more restrictions on equity (down payment) and higher interest rates, you will want to learn about alternative methods of analyzing investments.  For instance, if your down payment or equity became 30% or 40% in order to actually finance this $1,000,000 building, the increased out of pocket cash is not taken into consideration in analyzing your investment.  You still have a 10% CAP investment whether you have 20% down ($200,000) or 40% down ($400,000).  In view of this, you must take into consideration how much money you are putting down in analyzing your investment especially when financing is more difficult to predict.

Cash on Cash analyzation is comparing the cash flow in the first year with the actual amount of equity you put down.  Cash flow is the amount left over when you pay your loan obligations to the bank.  There is cash flow before tax and cash flow after tax.  Since the tax obligation is different for everyone, we are going to only talk about cash flow before tax.  If you take all of your monthly payments that you owe to the bank for a whole year, this amount is your annual debt service.  In order to come up with the cash flow amount, we need to take the net operating income (gross income minus expenses) and subtract the annual debt service to arrive at our cash flow for the first year.

For example, the building of $1,000,000 has a down payment of 20%, 6.5% interest, 20-year amortization, with payments of $5,964.59 per month.  The annual debt service is $71,575.  With the net operating income of $100,000 and the debt service of $71,575, your cash flow is $28,425.  By comparing the first year cash flow with the amount of equity you paid out to get the loan going (down payment of $200,000), you have $28,425/$200,000 or 14.21% cash on cash return for the first year.  You can think of this as a CD account or savings at a bank.  If you put $200,000 in a savings account and get back $28,425 at the end of the year, your interest rate would be 14.21%.  Keep in mind you still have a 10% CAP rate for this investment.

Now, let’s get realistic.  The chance of getting this loan at 6.5% is not happening.  Forget about a 20% down payment.  The bank tells you that in order to get this loan, they will need 35% down and 7.5% interest.  With 35% down ($350,000), your monthly payments are now reduced to $5,236.36 with annual debt service at $62,836.27.  Cash flow will equal NOI ($100,000) minus debt service ($62,836) to arrive at $37,164.  Cash on Cash percentage is $37,164/$350,000 or 10.62%.  Keep in mind you still have a 10% CAP rate for this investment.

CAP Rate

NOI
——
Sales Price

Cash on Cash

Cash flow first year
—————————
Equity Down Payment

Cash on Cash is the only analyzation method that takes into account financing comparing cash flow with down payment.  Cash flow is the amount remaining after debt service, which may include a higher interest rate.  These variables are vital in considering an investment and financing alternatives in today’s market.  Despite both investments having a 10% CAP rate, one had a 14.21% cash on cash return, while the other had a 10.62% cash on cash return.

Make sure your real estate investment professional understands these alternative analyzing methods.

Chad Razmus has been helping clients over 7 years with their real estate investments and has over 160 hours of training from the Certified Commercial Investment Member program for commercial real estate analysis.  If you have an investment property that you are thinking of understanding better, please email me at crazmus@ccmichigan.com.