Commercial property, from an investment perspective, can appear as a bewildering array of opportunities and option. An expanding variety of specialty fields face the new practitioner, each with its own distinctive characteristics. The marketplace has exploded over the past several decades both in depth and breadth. Brokerage activities now take on international proportions as commercial clients transact capital investment throughout the world. Institutional investors and multi-national organizations routinely screen and select properties based on the most advanced capital budgeting procedures. At the same times, commercial brokerage is a local business: the aspiring entrepreneur leasing retail space, the contractor seeking industrial land for a growing business, the professional couple carefully scrutinizing an apartments building as part of their retirement strategy or the local developer reviewing a potential neighborhood mall site. What all these individuals have in common is the starting point for this commercial journey. Buyers and sellers pursue investment objectives. The marketplace is a seething mixture of user and investors. For them, real estate has distinct advantages such as stability of ownership, security of tenure, an opportunity to earn income, a chance to develop a business strategy or simply a great place to build a financial future. Real estate breathes life into their endeavors. Registrants play a vital role in the process. They help bring investment goals and strategies to fruition. Commercial salespeople must understand unique advantages accruing to those who invest in commercial, industrial and investment properties. After all, real estate routinely competes with other investment options. Salespeople must fully understand the basis for investment decisions to be in a position to properly counsel their clients and provide services to customers. INVESTING IN COMMERCIAL PROPERTY Investment property can include industrial, retail, office, land or other specialized commercial operations. No clear cut classification system exists. The focus is on the investor as opposed to the user with primary considerations directed to key factors that ensure investment success. Why should buyers invest in commercial real estate? Any well-balanced presentation to either buyer or seller will highlight both advantages and disadvantages. After all, the commercial salesperson is competing for investment dollars within the broader local, national and international marketplace. A well-informed buyer must know the rewards and pitfalls of real estate to make an informed decision. Commercial Advantages • High degree of personal control. • Opportunity for capital growth during inflationary periods. • Additional cash through reduction of mortgage debt. • Higher than average rate of return in economically stable periods. • Tax sheltering possibilities. • Limited equity investment while gaining leverage through financing. • Physical presence (e.g. land and buildings) as opposed to commercial paper with less risk of becoming valueless. • Flexibility through division of real estate interests (estates). Commercial Disadvantages • Lack of liquidity and time required for disposition. • Disposition costs can be high given such items as commissions and legal fees. • Administration costs can be high dude to constant care, attention and management. • Higher risk as owner is last in priority to be paid. • Large capital investment restricts potential pool of investors. Making Investment Decisions Registrants historically view the commercial buying and selling public as two distinct groups; users and investors. In fairness, the lines are often blurred; e.g. users may have personal objectives relating to the utility of a property, as well as an investment strategy. USER • Shares certain characteristics common to residential real estate; i.e. buyer’s interests regarding property use are uppermost. • Primary interests include visibility, access and location (return can be a secondary consideration). • Practicality of improvements is a consideration when accommodating staff and equipment. • Decorative features for the building can attract tenants and improve future resale of the property. • Overall efficiencies including building layout and structure can positively impact operating costs and maintenance. INVESTOR • Return on invested capital is a primary motivating factor. • Purchases cash flow (operations cash flow and sales proceeds cash flow). • Present value of the future cash flow is a major decision-making factor.