Commercial real estate is a completely different ball game from residential property. It involves high stakes and means more business. However, like all businesses, realty is also affected by various factors, both internal and external. This could lead to unsold inventory, which is the biggest hurdle in CRE or commercial real estate. Astro strategist Hirav Shah gives nuggets of information required for his client. His solutions are highly customised and best-suited to bail out clients, big, medium and small.
Reality is all about money. Buying and selling of properties comprises the core goal of real estate businesses. While private lands constitute a good percentage of sales, it is commercial spaces that account for good revenues.
Commercial real estate or CRE is property that is used exclusively for business-related purposes. In that sense, it also provides workspaces and residential property that is let out to tenants. The whole purpose of CRE is to generate income.
In a world that is becoming money-centric, commercial real estate or CRE is a means for many to flush with money to invest in ventures that give good returns. In fact, the whole idea of investing in a commercial property is to get consistent, sustainable, passive income.
It is an important component of real estate, as almost all spaces, be it cities or tier 2 and tier 3 cities have pockets of commercial spaces. Commercial real estate development typically includes construction or development of commercial investment properties that are then let out to third parties. In short, CRE includes office buildings, retail centres, industrial facilities and other commercially viable properties.
Before we go further, let’s figure out the types of commercial real estate
1) Office: Office buildings are the most common CRE and can be divided into urban and suburban properties. Urban as the name suggests are office spaces in cities which can also include skyscrapers and high-rise buildings. At times, these office spaces occupy a few million sq feet in area.
Suburban office spaces are generally smaller and are grouped in office parks. Similarly, offices can be single-tenanted or multi-tenanted.
They can be further classified into Class A, Class B and Class C tiers.
Class A offices are usually the high-end office spaces that are located in prestigious buildings in the area and come at high cost. The buildings are of best quality and have hi-quality finishing and state-of-the-art facilities. Accessibility and their market presence make them stand apart from other CRE.
Class B buildings are available in the average range of a particular area. The buildings are fair to good in their construction and upkeep. The facilities available are adequate. However, they do not compete with Class A, when it comes to price.
Class C is the class of buildings that are functional spaces that have rents below the average of the area.
Medical office buildings also come as a sub-sector in this space.
2) Retail: Retail commercial spaces comprise properties that house retailers and restaurants. They can be multi-tenanted or single use buildings. Various retail spaces vary depending on the size, concept, types and number of tenants. They also vary depending on the trade area.
Single tenant buildings are stand-alone buildings which house one major tenant. You could have an outlet of a huge national chain or a restaurant or a bank.
3) Industrial: Industrial buildings are used by industries and could have a variety of tenants. Such property usually lies outside urban areas, usually on transportation routes. A cluster of such buildings can also be called an industrial park.
Industrial CRE can be classified into four categories:
Heavy manufacturing: Such buildings are totally customised to facilitate the kind of machinery required to operate and produce goods and services.
Light assembly: This type of property is used for product assembly and storage.
Bulk warehouse: Such properties are large and often used as distribution centres.
Flex industrial: This particular type of CSE is a mix of both industrial and office spaces.
R&D: Research and development facilities also come under category.
4) Multi-family: This particular category covers all types of residential real estate that is not owned by single family. It could include apartments, condos, co-ops and townhouses.
They can be classified into:
High-rise: A building with 10 floors or more and has an elevator.
Mid-rise: A multi-storey building with an elevator, usually found in urban areas.
Walk-up: A 3 to 5 storey building without an elevator.
Housing community: A community where the owner leases sites to owners of manufactured homes.
Special purpose housing: This housing includes student housing, seniors housing or other subsidized housing.
5) Hotel: A hotel provides meals and accommodation for a price, to tourists and travellers. The hotels could be individual or part of a large chain. This category can be subdivided into six sub-heads:
Limited service: This does not have room service, on-site restaurant or concierge.
Full service: Includes room service and has an on-site restaurant.
Boutique: It has fewer rooms, is located in an urban area or resort and has full-service amenities. The main draw of a boutique hotel is that it has limited rooms.
Casino: These draw those with a gambling streak and have games such as poker or slot machines.
Extended stay: These are limited service properties with fully-equipped kitchen and large rooms meant for long stays.
Resort: Full-service in large tracts of land, usually built in tourist destinations. They often have golf courses, water parks and amusement facilities.
6) Special purpose: These are properties that do not fall into any of the above categories. Let’s take an example of amusement parks, religious establishments, self-storage areas, bowling alleys, etc.
But all real estate properties have their unique set of problems. The going is good when the economy thrives, but a whole lot of things can go wrong when the socio-economic and political conditions change.
Here are some of the challenges of commercial real estate
■ Not being able to attract the right kind of tenants: This is a huge problem for any commercial property. If the tenant is not flush with cash, it can lead to long-term hassles. So advertising and marketing become vital and this can lead to a dent in revenues.
■ Tedious documentation process: Even when one finds a potential customer or tenant, the process of leasing can be a cumbersome and tedious process. Apart from the owner and tenant, there are a whole lot of people involved such as lawyers, guarantors, agents, financial institutions, etc, to verify and safeguard each transaction.
■ Security risks: In commercial transactions, it is vital to have appropriate security checks in place. And having such systems in place means money.
■ Environment and space unfriendly: Use of extensive paperwork is against a clean and green environment. Similarly, such activities involve space, which could have been let out otherwise. For example, tiny spaces can be leased to tiny pop-up stores which could mean more revenue.
■ High intermediary costs: Letting a commercial property is not just about the owner and the tenant. It involves lawyers, guarantors, financial institutions and others. All these external agencies need to be paid, leading to a good cut in revenues.
■ Short-term leases: These are a real scare to realty owners. Short-term leases require all the paperwork, manual records and intermediary costs, jacking up costs.
■ Tenant background: It is important to check tenant background as this means that there is less risk of tenant defaulting on payments. This is another revenue risk.
■ Socio-economic and political factors: Since commercial property means big bucks, the chances of revenue fluctuations are high due to socio-economic and political conditions of a place. This could result in unsold properties or un-leased properties.
■ Vaastu or feng shui problems: A place marked as unsuitable due to vastu or feng shui problems become a burden on commercial realty owners. This kind of remark can lead to unsold inventory.
How does astro strategist Hirav Shah help you deal with unsold inventory
Unsold inventory in commercial real estate is very much a reality, despite high demand. There are a variety of reasons that lead to a property being discarded for a better one. Of course, one advantage of commercial real estate is long-term lease. Unlike domestic real estate, commercial realty usually operates on the basis of long term contracts.
Cash flow is vital for any successful commercial transaction. No money means no business and this could result in commercial spaces being left unsold. During periods of recession, one can see buildings lying vacant for want of clients.
But investing in commercial spaces is a gamble in itself. It requires great business acumen, an insight into various processes that are required to fulfil a transaction and understanding of future of markets.
Unlike domestic markets, commercial markets require a good deal of networking and word of mouth publicity for the right customers to flock over a place.
It is pertinent for commercial properties to have all the requisite facilities, barring which it can lie vacant for longer periods of time. So, commercial venture owners must be well-prepared to deal with all kinds of eventualities and foresee problems before they arise.
Astro strategist Hirav Shah is an ace in solving problems, big and small. He has all the knowledge of a real estate veteran and has insights into corporate skills. The business could be a fledgling company or a well-established realty house, astro strategist Hirav Shah takes enough time to resolve their issues.
His solutions are customised and he does not believe in doling out generic information that may or may not help his customer.
He dwells deeply into the subject, checks out the pros and cons and then suggests a holistic solution to any given problem. His expertise in astrology also helps the client in understanding problems better and seeking the right solutions.
Astro strategist Hirav Shah strives to give a perfect timeline for his clients with unsold inventory, so they can relax and go about their job by following his guidelines. He is not any other astrologer, but an astro strategist who gives timely advice to his prospective clients.