GMAC Real EstateCommercial Property Investment types

Michael Fisher

Commercial Property Classes

Different from Commercial RE Types• Retail / Shopping Centers• Office• Industrial• Multi-Family• Hospitality

Building Classes• Applies mostly to office – sometimes multi-use,

multi-family, and shopping centers– Class A+ - Landmark property– Class A – Built since 1980 of steel & concrete,

usually 5 or more stories and quality construction– Class B – Usually renovated in good locations –

could be wood frame, smaller size, or older

– Class C – Older, unrenovated, average to fair condition.

Investment Types• Land to develop• Engineering Completed• Vacant Building

• Troubled – bad environment, low vacancy• Repurposed – was something else• Mis-Managed – great potential, underutilized,

high vacancy, low rents

• Investment Grade – high occupancy, market or higher rents

Land To Develop• Most challenging

– Happening in Hampshire– Rezoning– Subdividing– Government Approval

– Tests – soil, traffic, environmental impact– May have community challenges

• Benefit – Considerable appreciation over cost of land

Engineering Completed• Approvals mostly completed

– Ready to build – drawings and tests completed– Cost of construction – Requires permits, and inspections– Still need to find tenants

– Requires different funding – construction loans, bridge loans, etc

– Usually Class A or B when completed

• Benefits – great increase in value of property after construction completed

Vacant Building• Construction completed or older building with

no tenants– Interior build-out usually needed to accommodate tenants– Renovation Costs– Very old buildings can have high restrictions– Marketing costs to find good tenants– Can be hard to find funding– Class B or C depending on location after occupancy

• Benefits– Quicker turnaround on your money with tenants

– Increase in overall value of property– Benefits the community

Troubled Building• Bad environment, low occupancy

– Cost of attaining new quality tenants– Can fix occupancy issues, cannot fix environmental

issues– Best for someone who knows the neighborhood well– Class C usually

• Benefits– Usually cheap– Can get quick turnaround with raised occupancy– Benefits the community

Repurposed• Previously designed for another purpose

– Warehouse conversions– Military bases– Can be costly– Class C usually – Can be Class B

• Benefits– Acquisition costs can be low– Great appreciation– Benefits the community

Mismanaged• Low occupancy, low rents

– May need to renovate to justify market rents– Marketing costs to raise occupancy– More common than you think– Can be Class A, B, or C

• Benefits– Easy to accomplish– Low relative cost– Increased value to building and community

Investment Grade• Full or near full occupancy, market rents or

better, good construction, good areas– Higher acquisition cost– Lower returns on your money– Typically Class A

• Benefits– Least amount of risk– Easier to manage and maintain– Very popular with Institutional Investors

Closing• Commercial Real Estate project to fit your

investment goals and experience• Pros and Cons to every Real Estate Investment • Great referral for me

– Anyone who wants to explore Commercial RE investing

– Shopping center owners or buyers– Business owners who want to own and don’t know

the risks and rewards.