Choosing a Commercial Property With Financial Advantage

When assessing commercial real estate, it is necessary to understand the financial factors that the property creates. This is before you price the property or consider it suitable for purchase. In doing this, it is not only the financial factors today that you need to look at, but also those that have formulated the history of the property over recent time.

In this case, the definition of ‘recent time’ is the last three or five years. It is surprising how property owners try to manipulate the building income and expenditure at the time of sale; they cannot however easily change the property history and this is where you can uncover many property secrets.

Once the history and current performance of the property is fully understood, you can then relate to the accuracy of the current operating costs budget. All investment property should operate to a budget which is administered monthly and monitored quarterly.

The quarterly monitoring process allows for adjustments to the budget when unusual items of income and expenditure are evident. There is no point continuing with the property budget which is increasingly out of balance to the actual property performance. Fund managers in complex properties would normally undertake budget adjustment on a quarterly basis. The same principle can and should apply to private investors.

So let’s now look at the main issues of financial analysis on which you can focus in your property evaluation:

A tenancy schedule should be sourced for the property and checked totally. What you are looking for here is an accurate summary of the current lease occupancy and rentals paid. It is interesting to note that tenancy schedules are notoriously incorrect and not up to date in many instances. This is a common industry problem stemming from the lack of diligence on the part of the property owner or the property manager to maintain the tenancy schedule records. For this very reason, the accuracy of the tenancy schedule at time of property sale needs to be carefully checked against the original documentation.
Property documentation reflecting on all types of occupancy should be sourced. This documentation is typically leases, occupancy licences, and side agreements with the tenants. You should expect that some of this documentation will not be registered on the property title. Solicitors are quite familiar with the chasing down all property documentation and will know the correct questions to ask of the previous property owner. When in doubt, do an extensive due diligence process with your solicitor prior to any settlement being completed.
The rental guarantees and bonds of all lease documentation should be sourced and documented. These matters protect the landlord at the time of default on the part of the tenant. They should pass through to the new property owner at the time of property settlement. How this is achieved will be subject to the type of rental guarantee or bond and it may even mean that the guarantee needs to be reissued at the time of sale and settlement to a new property owner. Solicitors for the new property owner(s) will normally check this and offer methods of solution at the time of sale. Importantly, rental guarantee and bonds must be legally collectable by the new property owner under the terms of any existing lease documentation.
Understanding the type of rental charged across the property is essential to property performance. In a single property with multiple tenants it is common for a variety of rentals to be charged across the different leases. This means that net and gross leases can be evident in the same property and have different impact on the outgoings position for the landlord. The only way to fully appreciate and analyse the complete rental situation is to read all leases in detail.
Looking for outstanding charges over the property should be the next part of your analysis. These charges would normally stem from the local council and their rating processes. It could be that special charges have been raised on the property as a Special Levy for the precinct.
Understanding the outgoings charges for the properties in the local area is critical to your own property analysis. What you should do here is compare the outgoings averages for similar properties locally to the subject property in which you are involved. There needs to be parity or similarity between the particular properties in the same category. If any property has significantly higher outgoings for any reason, then that reason has to be identified before any sale process or a property adjustment is considered. Property buyers do not want to purchase something that is a financial burden above the industry outgoings averages.
The depreciation schedule for the property should be maintained annually so that its advantage can be integrated into any property sales strategy when the time comes. The depreciation that is available for the property allows the income to be reduced and hence less tax paid by the landlord. It is normal for the accountant for the property owner to compile the depreciation schedule annually at tax time.
The rates and taxes paid on the property need to be identified and understood. They are closely geared to the property valuation undertaken by the local council. The timing of the council valuation is usually every two or three years and will have significant impact on the rates and taxes that are paid in that valuation year. Property owners should expect reasonable rating escalations in the years where a property valuation is to be undertaken. It pays to check when the next property valuation in the region is to be undertaken by the local council.
The survey assessment of the site and tenancy areas in the property should be checked or undertaken. It is common for discrepancies to be found in this process. You should also be looking for surplus space in the building common area which can be reverted to tenancy space in any new tenancy initiative. This surplus space becomes a strategic advantage when you refurbish or expand the property.
In analysing the historic cash flow, you should look for any impact that arises from rental reduction incentives, and vacancies. It is quite common for rental reduction to occur at the start of the tenancy lease as a rental incentive. When you find this, the documentation that supports the incentive should be sourced and reviewed for accuracy and ongoing impact to the cash flow. You do not want to purchase a property only to find your cash flow reduces annually due to an existing incentive agreement. If these incentive agreements exist, it is desirable to get the existing property owner to discharge or adjust the impact of the incentive at the time of property settlement. In other words, existing property owner should compensate the new property owner for the discomfort that the incentive creates in the future of the property.
The current rentals in the property should be compared to the market rentals in the area. It can be that the property rent is out of balance to the market rentals in the region. If this is the case it pays to understand what impact this will create in leasing any new vacant areas that arise, and also in negotiating new leases with existing tenants.
The threat of market rental falling at time of rent review can be a real problem in this slower market. If the property has upcoming market rent review provisions, then the leases need to be checked to identify if the rental can fall at that market review time. Sometimes the lease has special terms that can prevent the rent going down even if the surrounding rent has done that. We call these clauses ‘ratchet clauses’, inferring that the ‘ratchet’ process stops lower market rents happening. Be careful here though in that some retail and other property legislation can prevent the use or implementation of the ‘ratchet clause’. If in doubt see a good property solicitor.

So these are some of the critical financial elements to look at when assessing a commercial Investment Property. Take time to analyse both the income and expenditure in the property before you making any final choices regards property price or acquisition.

John Highman is a prominent investment real estate speaker and coach that helps real estate agents and real estate brokers globally to improve their commercial real estate market share and performance. He himself is a successful real estate agent that has specialised in commercial, industrial, and retail real estate of all types for over 30+ years.

All About Business to Business Property Management

Business to business property management requires some aspects that point out the professionalism and competitiveness of the employees. Which are these aspects? The main requirements of business to business property management are screening and appraisal of the market pyramid.

Business to business property management specialists provide professional business administration, establishment of profitable goals and their realizing, as well as making decisions for the benefit of the customer. Consultancy and assistance is offered in case of need for business to business property management, be it the case of market research, maintenance, land use and development or issues regarding marketing and leasing.

Business to business property management has five major functions: leading, planning, coordinating, organizing and controlling. Being given the fact that all these functions require various tasks, competences and abilities, business to business property management aspects are accomplished by different professionals, trained for these special roles. All of them have special skills and abilities, respecting an ethical code of behavior in business to business property management and offering outstanding services. Leading the major project of business to business property management is a matter of a huge responsibility, as the leader should know the direction and main tasks of the property management process. The one responsible with planning should be aware of the tasks that have to be accomplished and the methods and manner of dealing with this process. Coordinating various activities, organizing events, market research, studies and statistics is another important part of the business to business property management process. Being in control with the entire situation or several aspects is another aspect that can’t be neglected and requires specific skills and abilities.

The performance of business to business property management companies should meet the high standards of the economic and technological development. Professionals involved in various functions of business to business property management companies offer their abilities and guarantee the performance and wealth of customer’s properties. Highly trained employees involved in the business to business property management meet the customer’s needs and special requirements, providing extensive reports, market searches and studies concerning the effective and successful property management.

People involved in business to business property management have specific roles and accomplish specific tasks, contributing to the great results of the company they work for. Business to business property management process involves the market study, the negotiation on the behalf of the customer, maintenance, repair and other tasks. Business to business property management involves many other tasks and responsibilities, requiring much attention, capacity of establishing new tasks and of accomplishing them successfully.

Business to business property management supposes the involvement of not so pleasant details, such as effective income management and other activities related with construction, repair and maintenance. In order to face all requirements and needs one should have many skills, knowledge and patience. That is why business to business property management companies are so successful, providing assistance and advice for those who can’t cope with so many roles and responsibilities. The rewards for professional services offered by business to business property management companies are worth the time and efforts spent in hard trying to achieve something that a professional can solve almost immediately.

The Impact of Technology in the Classroom

How has the use of technology impacted teaching and learning in the PK-16 classroom?When is comes to behaviorism technology has made it even easier. It used to be just like Pavlov’s dog, when the student does something right they get praised verbally or with a good grade versus a treat or a scratch behind the ear. Shaping behavior is important and we need to ensure there is a baseline. Technology almost guarantees that specific learning will take place as the objectives are determined by the teacher. Teachers can set specific goals and the students will know what they need to do to get there. Benjamin Bloom first came up with the idea that the student will succeed in learning the task if they are given a specific time to do it. Technology allows for you to more easily chunk lessons into specific times. Students will perform better, especially when they succeed and get the praise of the teacher. Although the stimulus is provided by the teacher, it will do no good if the students do not receive it equally. (Snowman & Biehler, 2003)
Other ways computers assist is that they offer the ability for repetition and feedback to the student. Teachers can also incorporate the appropriate enforcer’s to the lesson whether it is text, video or audio. The student does the task right they can get a smiley face , text telling them they are “Correct” or audio saying “Good Job!”. (Parkay & Stanford 2004)Social Learning is learning occurs when students learn from each other whether it be through modeling, imitation or observing within the social context. How can you do that with technology? Normally the students work on their own computer, but you can have them do a group project. When students do a project together they will observe how other groups are proceeding and imitate them if it is working well. The teacher usually also models what they are requiring the students to accomplish. Even when working individually the students will assist each other as one knows more than another.There are cognitive factors in social learning as well as behaviorism. There is a clear line between learning by observation and student imitation. The cognitive process maintains that the attention of the student is the critical factor in the learning process. The expectations and consequences that are reinforced will bring about similar future behavior. (Ornstien & Lasley 2000)
Cognitive learning is learning that occurs when a learner process information. This is similar to behaviorism but the student has more input to accomplish how they reach the planned outcome. The teacher can model a project but the student may have other information that will aid them in accomplishing the outcome. An example would be how I instructed my students how to set up an Excel spreadsheet. I had them set up a basic spreadsheet showing how much their parents spent on them in a month. This was relevant to the students and caught their interest. They went beyond the initial project and had boarders, colors, etc. on their spreadsheets. The students who did this were praised aloud and the other students wanted to know what they did and how. This tied in the social learning as well as the behaviorism theory (Didn’t even realize it at the time).When is comes to designing and developing lessons to incorporate technology the constructionist have the nod. Seymour Papert of the MIT Media Lab stated,”Constructionism holds that children learn best when they are in the active role of the designer and constructor.” When the student is actively involved they have the buy-in to the success of the project or assignment. The students will be more apt to complete and learn more from it when they have some ownership. The students in turn will share their new found information when doing the assignment with the other students allowing for the constructionist learning. This form of teaching eliminates the grade and goes more with a go, no go process. Teachers assess the students by the completion of the assignment or lack of completion. This is better because of students being able to play a greater role in the process and assessing their own progress.We teach ourselves how to learn. This is the constructivism theory on how we learn. With technology this couldn’t be truer. Most students have a basic understanding of the computer. They can download songs, play games and set up Myspace web page. What they can not do is build a spreadsheet or power point presentation. The teacher will give them a basic understanding but the students will learn from trial and error and construct their own learning.History of the computer use in the classroom started off slow. Saloman and Globerson (1987) suggested that underachievement in schools is because of the lower expectations on the part of the teachers, parents, and society. That was because the teachers themselves really hadn’t been exposed to the marvels of what a computer and the associated software could do for them. The Commodore 64, Apple II along with the Macintosh began their strong emergence in the early 80′s. Software programmers had a vision about the computer and how it could be used in the classroom. They developed software that teachers could use along with their instruction. Apple began teaching the teachers and Macintosh soon followed suit. This was the beginning of incorporating the use of computers in the classroom. (Jonassen 2000)Using computers in the classroom allows for all the learning theories to come to fruition. A computer allows for the cognitive process to bloom and brings about the social learning as well. When a student is given an assignment or project on the computer they will strive to complete it. The different things they learn they will share with other students especially if they think it is the bomb, cool or whack. On the flip side it can inhibit learning if the student is completely computer illiterate as frustration sets in as they cannot proceed as well as others. The computer also allows the teacher to develop lessons for all the multiple intelligences.With the advances computers and programs are taking on a daily basis, it is allowing for more interaction in the classroom(s). It is even allowing students from different schools to interact. Technology also allows for time to be better utilized, the outcomes of the objectives to be more easily determined and goals easy to implement and automate.