Commercial Real Estate
The term commercial property (also called commercial real estate, investment or income property) refers to buildings or land intended to generate a profit, either from capital gain or rental income.[1]
Commercial property includes office buildings, industrial property, medical centers, hotels, malls, retail stores, farm land, multifamily housing buildings, warehouses, and garages. In many states, residential property containing more than a certain number of units qualifies as commercial property for borrowing and tax purposes.
Commercial real estate is commonly divided into six categories:
1. Office Buildings – This category includes single‐tenant properties, small professional office buildings, downtown skyscrapers, and everything in between.
2. Industrial – This category ranges from smaller properties, often called “Flex” or “R&D” properties, to larger office service or office warehouse properties to the very large “big box” industrial properties. An important, defining characteristic of industrial space is Clear Height. Clear height is the actual height, to the bottom of the steel girders in the interior of the building. This might be 14‐16 feet for smaller properties, and 40+ feet for larger properties. We also consider the type and number of docks that the property has. These can be Grade Level, where the parking lot and the warehouse floor are on the same level, to semi‐dock height at 24 inches, which is the height of a pickup truck or delivery truck, or a full‐dock at 48 inches which is semi‐truck height. Some buildings may even have a Rail Spur for train cars to load and unload.
3. Retail/Restaurant – This category includes pad sites on highway frontages, single tenant retail buildings, small neighborhood shopping centers, larger centers with grocery store anchor tenants, “power centers” with large anchor stores such as Best Buy, PetSmart, OfficeMax, and so on even regional and outlet malls.
4. Multifamily – This category includes apartment complexes or high‐rise apartment buildings. Generally, a fourplex or more is considered commercial real estate.
5. Land – This category includes investment properties on undeveloped, raw, rural land in the path of future development. Or, infill land with an urban area, pad sites, and more.
6. Miscellaneous – This catch all category would include any other nonresidential properties such as hotel, hospitality, medical, and self‐storage developments, as well as many more. [4]
| Category | Examples |
|---|---|
| Leisure | hotels, public houses, restaurants, cafes, sports facilities |
| Retail | retail stores, shopping malls, shops |
| Office | office buildings, serviced offices |
| Industrial | industrial property, office/warehouses, garages, distribution centers |
| Healthcare | medical centres, hospitals, nursing homes |
| Multifamily (apartments) | multifamily housing buildings |
Of these, only the first five are classified as being commercial buildings. Residential income property may also signify multifamily apartments.
Additional commercial property information[edit]
–Elements of an Investment in Commercial Property
The basic elements of an investment are cash inflows, outflows, timing of cash flows, and risk. Your ability to analyze these elements is key in providing services to investors in commercial real estate.
Cash inflows and outflows are the money that is put into, or received from, the property including the original purchase cost and sale revenue over the entire life of the investment. An example of this sort of investment is a Real estate fund.
Cash inflows include the following:
- Rent
- Operating expense recoveries
- Fees: Parking, vending, services, etc.
- Proceeds from sale
- Tax Benefits
- Depreciation
- Tax credits (e.g., historical)
Cash outflows include:
- Initial investment (down payment)
- All operating expenses and taxes
- Debt service (mortgage payment)
- Capital expenses and tenant leasing costs
- Costs upon Sale
The timing of cash inflows and outflows is important to know in order to project periods of positive and negative cash flows. Risk is dependent on market conditions, current tenants, and the likelihood that they will renew their leases year‐over‐year. You need to be able to predict the probability that the cash inflows and outflows will be in the amounts predicted, what is the probability that the timing of them will be as predicted, and what the probability is that there may be unexpected cash flows, and in what amounts they might occur.[2]
The total value of commercial property in the United States was approximately $11 trillion in 2009, as measured by the CoStar Group and published in the Journal of Real Estate Management.[3]
According to Real Capital Analytics, a New York real estate research firm, more than $160 billion of commercial properties in the United States are now in default, foreclosure, or bankruptcy. In Europe, approximately half of the €960 billion of debt backed by European commercial real estate is expected to require refinancing in the next three years, according to PropertyMall, a UK‑based commercial property news provider PropertyMall. Additionally, the economic conditions surrounding future interest rate hikes; which could put renewed pressure on valuations, complicate loan refinancing, and impede debt servicing could cause major dislocation in commercial real estate markets.
However, the contribution plowed into Europe’s economy in 2012 can be estimated at around €285 billion according to EPRA and INREV, not to mention social benefits of an efficient real estate sector.[4] It is estimated that commercial property is responsible for securing around 4 million jobs across Europe.
Yuma
Yuma (Cocopah: Yuum) is a city in and the county seat[4] of Yuma County, Arizona, United States. It is located in the southwestern corner of the state, and the population of the city was 93,064 at the 2010 census, up from the 2000 census population of 77,515.[2]
Yuma is the principal city of the Yuma, Arizona Metropolitan Statistical Area, which consists of Yuma County. According to the United States Census Bureau, the 2014 estimated population of the Yuma MSA is 203,247.[5] More than 85,000 retirees make Yuma their winter residence.[6]
The area’s first settlers for thousands of years were Native American cultures and historic tribes. Their descendants now occupy the Cocopah and Quechan reservations.
In 1540, Spanish colonial expeditions under Hernando de Alarcon and Melchior Diaz visited the area and immediately recognized the natural crossing of the Colorado River as an ideal spot for a city. The Colorado River narrows to slightly under 1,000 feet wide in one area. Military expeditions that crossed the Colorado River at the Yuma Crossing include Juan Bautista de Anza (1774), the Mormon Battalion (1848) and the California Column (1862).
During and after the California Gold Rush to the late 1870s, the Yuma Crossing was known for its ferry crossings for the Southern Emigrant Trail. This was considered the gateway to California, as it was one of the few natural spots where travelers could cross the otherwise very wide Colorado River.