There are essentially two categories all commercial real estate owners fall into: investors or users. Investors purchase the property and then lease it out to tenants to generate income, while owner/users utilize the building, or a space within the building, for their own business purposes. Since both groups have a different interest in the building, they often look at the building in a different light and evaluate the pros and cons of the building in varying ways. Let’s take a look at the differences:
Investors. Investors look primarily at the financial strengths of the property since that is where their interest in the property lies. Although investors may look at similar attributes of the property that users do, such as location, amenities, and condition of the property, the investor’s focus is more determined on the financial health of the subject. Investors will look at current market conditions, comparable lease rates for the type and location of the property, what capital expenditures are needed to lease out the space, and does the yield of the investment compare to alternative types of investments. If the property meets the yield and financial goals of the investor, then they are likely to move forward with the purchase.
Users. Users look at a building through a different lens due to the fact that they are going to use the property themselves. Users often look at the costs associated with owning a building and compare them to the finances of leasing. Users look at the building itself and see if it has the proper amenities to fit their current business needs, such as easy access to main traffic arteries, sufficient power, ample clear height, and proximity to clients and vendors. It’s often prudent to understand tax implications and lease vs. buy scenarios to understand the short term and long term goals of the user.
Before evaluating a property, from an investor perspective or an owner/user, make sure that you are clear about your needs and goals (short vs. long term) so that you can evaluate the building properly. Ask your real estate professional to provide you the necessary elements to evaluate a potential property, such as comparables, demographics, and lending costs.