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Here at CincyLand.com we promote and sell commercial property for sale in
Commercial Property Types...Which One Is
What commercial property types should you buy? You should consider the pros & cons of
each property type, as well as, have a good understanding of your investment objectives
and your experience. These factors will help lead you to your ideal commercial property.
Listed below are the most common commercial property types.
Apartments or multi-family buildings are usually the first choice for new commercial
investors. Apartment management and financing is very similar to residential, and so new
investors feel more comfortable with them. The main disadvantage with apartments, is that
they are management intensive.
In order for an apartment to be considered commercial property, it must have 5 or more
units. There are numerous sub-types of apartments:
Low-Rise Garden Apartments
When you are looking at properties to purchase, pay close attention to the location and
general market for that area. You will want to avoid properties that are located in
economically depressed or seasonal areas. Also, the property should have acceptable
aesthetic qualities to be competitive with market standards and have a minimum occupancy
of at least 85%.
What if the property you are evaluating has inferior physical characteristics or is in an
economically depressed area?
You may have a higher interest rate, higher reserves and tighter underwriting constraints.
Mobile Home Parks
Mobile homes can be a wonderful investment, especially if you own the land and sell off the
mobile home. You're just renting dirt at that point! If you're not familiar with mobile home
investing, you need to read "Deals On Wheels: How To Buy, Sell And Finance Used Mobile
Homes For Big Profit And Cash Flow" by Lonnie Scruggs. This book is a gem! Lonnie
explains how to buy and sell mobile homes on a note. His presentation is very basic and
Now back to mobile home parks. Mobile Home parks are rated as 1 Star, 2 Star, 3 Star, 4
Star, and 5 Star. The Star ranking is based on the conditions and amenities of the park.
A 3 Star park usually has a mix of single and double wide homes that are in good
condition. The park is attractive and offers some amenities.
A 4 Star mobile home park usually only has double wide homes that are skirted and
in good condition. The homes will have concrete patios or raised porches.
A 5 Star mobile home park can be characterized as having deluxe accommodations,
with a wide range of amenities and services. The homes are usually set back from
the curb with paved streets, sidewalks, street lights and signs. The park is located in
a desirable neighborhood and accessible to retail and community services. The
homes are late model doublewides and modular homes in excellent condition.
The mobile home park should have at least 85% occupancy and be located in desirable
areas. Also, be cautious if the park has too many homes for sale (more than 20% of total
pads) or more than 20% of total pads are rented homes owned by the park.
Retail properties are properties that are occupied by one or more tenants and the property
is utilized for retail purposes.
A free standing retail, strip center with an anchor tenant is a well known commercial retail
business such as a national chain store or regional department store strategically placed in
a shopping center so as to generate the most amount of customers for all of the stores
located in the shopping center.
An Unanchored retail center is a center which is occupied by multiple tenants of which none
are anchor tenants.
Single tenant investment grade retail properties are properties that are net leased to one
investment grade tenant (BBB- rating or higher).
The different categories of offices include:
Suburban Garden Office
Suburban High Rise Office
Central Business District (CBD) Office
Potential office buildings should have a minimum of 85% occupancy and is located on or
near a main thoroughfare and easily accessible. Properties that have more than 20% of
total revenue from owner occupied or owner affiliated tenants, will usually have a higher
interest rate on any loans.
These properties will be a combination of any of the above property types. A real estate
development of mixed use properties, should be complementary to each other.
These property types are nursing homes, congregate care and assisted living centers.
Properties should be close to retail and community services. Be cautious of properties in
economically depressed or seasonal areas. Also, be sure that the property complies with
Hotels are characterized as either Full Service or Limited Service.
Full Service Hotels can be further divided into Luxury, Upscale, Mid-scale, and Extended
Limited Service Hotels can be further divided into Mid-scale, Economy, Budget and Extended
Stay. When considering hotel properties, the property should have a stable operational
history. A property with a history of four or less years should be scrutinized. The minimum
acceptable occupancy is usually 60%. Lenders also prefer franchise affiliated hotels with
franchise agreements extending beyond the term of the proposed loan.
These property types will have usage for industrial purposes only. Such as
Research & Development
Also is called Mini-Storage, it is used for personal storage for lease by consumers.
These property types are unique and the financing them can be difficult. They include gas
stations, oil change facilities, etc.
Definitions of INDUSTRIAL PROPERTY on the Web:
A plot of land used for a factory or other industrial use.
Inventions, trademarks, industrial designs, and appellations of origin. Industrial property is
afforded protection according to numerous international treaties and federal statutes.
A property used for light or heavy manufacturing or warehouse space. Property type also includes
Encompasses most forms of intellectual property with the exception of copyrights --eg, patents,
trademarks, and trade secrets (Sec. II). See intellectual property rights.
This building classification includes facilities used for light manufacturing businesses, and auto-
related businesses. Funeral homes and rooming houses can sometimes be included by lendors’
shall generally include but not be limited to, all Parcels of Developed Property with a building or
structure that is used for assembling, disassembling, fabricating, finishing, manufacturing,
packaging, repair or processing operations, as classified by the City's Planning Division.
Property used for industrial purposes, such as factories.
real estate that includes incomeproducing property, such as office buildings, restaurants, shopping centers, hotels,
industrial parks, warehouses, and factories. Commercial property usually must be zoned for business purposes. It is
possible to invest in commercial property directly, or through Real Estate Investment Trust or real estate limited
partnership . Investors receive income from rents and capital appreciation if the property is sold at a profit. Investing
in commercial property also entails large risks, such as nonpayment of rent by tenants or a decline in property values
because of overbuilding or low demand.
Dictionary of Business Terms
property intended for use by retail, wholesale, office, hotel, or service users, or for manufacturing or other industrial
purposes. Examples are shopping centers, office buildings, hotels and motels, and resorts or restaurants. For many
years, commercial property has been treated less favorably under the tax laws than residential rental property.
See also industrial property
Dictionary of Real Estate Terms
property designed for use by retail, wholesale, office, hotel, or service users.
Example: An investor is interested in purchasing commercial property for investment. A broker might show the
investor shopping centers, office buildings, hotels and motels, resorts or restaurants.
property used for industrial purposes. Types of industrial property include factory-office multiuse property; factory-
warehouse multiuse property; heavy manufacturing buildings; industrial parks; light manufacturing buildings; and
research and development parks.
http://www.naiop.org/, - What Is NAIOP?
The National Association of Industrial and Office Properties (NAIOP) is the nation's leading
trade association for developers, owners, investors, asset managers and other professionals in
industrial, office and mixed-use commercial real estate.
Founded in 1967, NAIOP comprises 16,000+ members in 55 North American chapters. It
provides networking opportunities, educational programs, research on trends and innovations and
strong legislative representation.
NAIOP's sister organization, the NAIOP Research Foundation, is one of the industry's leading
think tanks dedicated to conducting research assessing the trends, economic viability and needs
of the built environment.
Black's Guide – Provides comprehensive office and industrial space information on more than
88,000 properties and 4,000 service companies in 20 markets nationwide. Information includes
maps, market and sub market overviews, regional and national statistics and industry related
articles. Data appears in an easy to use, standardized format. Access is free.
CityFeet.com – A portal for property listings for sale or lease, as well as a venue for posting
available sites. Sign up for e-mail notification of space that meets your needs. (Note: there is a
fee for listing properties, although searching for available space is free.)
CoStar Group – Offers building specific information on 800,000 properties, enhanced by
photographs, floorplans and 3-D images. Includes details such as comparable sales, buildings for
sale, cap rates, income and expense data, lease expirations and loan terms. According to their
web site, covers "virtually every building in every major city" and six million tenants, owners
and brokers, using a 700-person research team.
LoopNet – Offers a selection of online products and services designed to streamline commercial
real estate transactions. With over 1.5 registered members, LoopNet provides its users more
efficient and cost effective ways to list, search, market and finance commercial real estate
properties. In addition to a commercial real estate listing service, LoopNet's services include;
RecentSales, a commercial comparables database; Premium Membership; advanced marketing
and searching tools; LoopLink, market-leading product that powers the web sites of more than
1,000 commercial real estate organizations; and LoopLender, an online financing service.
PA SiteFinder – One-stop shopping for property information and other assistance for
brownfields real estate transactions.
PropertyManagerz.com – PropertyManagerz.com is a business-to-business vertical portal
bringing information, interactive services, and e-commerce to the commercial real estate
industry. PropertyManagerz.com serves building owners, property managers, building engineers,
vendors, contractors, and tenants in commercial/industrial, multifamily, and retail industries.
They help professionals stay up to date on information, locate and qualify vendors and
contractors, maintain building-specific records, and interact with tenants and building owners.
SpaceForLease.com – Nationwide listings for commercial properties, targeted to landlords,
tenants and brokers. Property groupings are site-specific (for example, medical buildings, office
warehouses and malls) and offer cross-database posting opportunities. One-time site registration
Sublease.Com – Provides a venue for commercial property searches and for listing available
properties, targeted specifically to the sublease market. Features the sublease "Hot Sheet," a
frequently updated list of available properties organized by state.
(Note: There is a fee for listing properties.)
WebRealEstate.com – With over 300 real estate companies listing more than 100 million square
feet of property, we help decision makers determine the right commercial properties to lease,
purchase or sell. We even take aerial and ground photos to help you get your property online
quickly and inexpensively in a content-rich, banner-free environment.
http://www.buildings.com/, - All about Buildings
http://www.wipo.int/ipstats/en/, - Industrial Property Statistics
WIPO collects and publishes annual statistics on industrial property, by country and in
accordance with the relevant international industrial property classification systems administered
by WIPO. The statistics relate to patents, utility models, marks, industrial designs, plant varieties
and microorganisms and are published in a unique collection of statistical tables which bring
together data supplied by Industrial Property Offices in respect of filings under national, regional
and international legislations.
Industrial Property Brokers
Industrial Property Brokers is a brokerage firm specializing in marketing and leasing industrial
property in the West Central Ohio region. Through an association with CCIM networks, Industrial
Property Brokers provides local and worldwide property services.
Tim Echemann, Broker, of Industrial Property Brokers has 20 years experience in industrial sales
and leasing. Prior to starting Industrial Property Brokers, Tim served as Vice President of Sales and
Marketing for Miller Valentine Brokerage in Cincinnati. He also managed the Dayton office for
Ostendorf-Morris Colliers and was instrumental in the tremendous growth of Colliers International in
the Dayton, Ohio area.
Focusing on the Greater Dayton/Cincinnati and exurban areas, Tim has successfully completed over
$14,000,000 of transactions in a three year period including a number of "Fortune 500" companies.
Among his many accomplishments, is the sale of the 119,000 sq. ft. Aerovent facility in Piqua. The
sale of 125 acres of industrial ground located near the Honda of America plant in East Liberty, Ohio
was another significant transaction. In addition, Tim negotiated the sale of the Alcoa Corporate
Administration Services facility in Sidney. Tim also sold the 191,000 sq. ft. Honda Distribution Center
in Dayton, Ohio to Foster & Gallagher. This sale was significant as other brokerage firms had
marketed the property for over five years and Tim sold it within one year.
Honda, Campbell Soup, Alcoa, Union Camp, Medalist Apparel, Dayton Walther, Paul Sherry,
Pioneer Standard Electronics, Visador, Nestle, Miami Valley Steel, Lucas Ledex Inc., United
Technologies, General Motors and JW Harris
Commercial Property Insurance
Commercial Property Coverage Outline
Property Insurance is any type of insurance that indemnifies an insured party who
suffers a financial loss because property has been damaged or destroyed. Property is
considered to be any item that has a value. Property can be classified as real property
or personal property. Real property is land and the attachments to the land, such as
Personal Property is all property that is not real property. The Building and Personal
Property coverage form is the form used to insure almost all types of commercial
property. The insuring agreement in the Building and Personal Property coverage form
promises to pay for direct physical loss or damage to covered property at the
premises described in the policy when caused by or resulting from a covered cause of
loss. The following is a brief outline of coverages and how they are used within the
Commercial Building And Personal Property coverage form.
Buildings and Business Personal Property
Coverage for the building includes the building and structures, completed additions to
covered buildings, outdoor fixtures, permanently installed fixtures, machinery and
equipment. The building material used to maintain and service the insured's premises
is also insured. Business Personal Property owned by the insured and used in the
insured's business is covered for direct loss or damage. The coverage includes
furniture and fixtures, stock, and several other similar business property items when
not specifically excluded from coverage. The policy is also designed to protect the
insured against loss or damage to the personal property of others while in the
insured's care, custody or control.
Coverage Extensions and Additional Coverages
In addition to the limits stated in the Building and Personal Property coverage form,
the policy has a coverage extensions section and an additional coverages section. The
coverage extensions section provides limited coverage for newly acquired or
constructed property, property of others, certain outdoor property, and the cost to
research and reconstruct information on destroyed records. When coverage is placed
on the all risk form, two additional extensions are added for property in transit and
coverage for certain repair costs related to damage caused by water. The two
additional extensions are covered by certain perils only. The additional coverage
section provides coverage for indirect losses that result from a direct loss. The
coverage applies to removal of debris, preservation of property, fire department
service charges and pollutant cleanup and removal. The coverage extensions and the
additional coverages have limitations and are subject to certain conditions.
Limit of Insurance
The most the insurer will pay for loss or damage in any one occurrence is the limit of
insurance stated in the policy declarations.
The standard deductible is $250. However, other deductible amounts are available
and the deductible applies only once per loss.
Causes of Loss
The term peril is used when discussing losses. A peril is a cause of loss. Basic property
insurance policies are written to cover the perils of fire, lightning, explosion,
windstorm, hail, smoke, aircraft or vehicle damage, riot or civil commotion,
vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Other property
insurance policies, often referred to as the broad form policy, add coverages for
water damage, weight of snow, ice or sleet, breakage of glass and coverage for falling
objects. The broadest coverage is the special form, which is best known as the all risk
form. All risk covers all causes of loss, except those specifically excluded from
coverage. It is possible for a commercial property policy to have more than one cause
of loss form.
Replacement Cost and Actual Cash Value
Property can be valued in several different ways. Insurance companies commonly use
two approaches to determine value, which also determines how a loss will be paid;
the replacement cost method and the actual cash value method. Insurers consider
replacement cost of a property item to be the cost to replace it with new property of
like kind. Actual cash value is replacement cost, minus the accumulated depreciation
for age and condition.
When the agreed value option is used the coinsurance requirement is removed and
the insurer agrees to cover loses for it's agreed value. As an example, the insured has
property insured for $100,000 and the agreed value is also $100,000, if a loss occurs,
any loss up to $100,000 is covered at 100% When this option is used the insured and
the insurance company agree on the value of the property before the policy is issued.
This option is usually assigned to one-of-a-kind property.
Most building and business personal property polices have a coinsurance clause which
requires the insured to carry insurance equal to at least a specified percentage of the
actual cash value of the property. If a loss occurs, and it is determined that the
amount of insurance carried is less than the amount required, a penalty could be
placed on the insured.
An insured can insure a building for its full value at the beginning of the policy year,
but, at the end of the year, it might not be covered for it's full value. This problem
can be corrected by adding inflation guard coverage. With inflation guard, the policy
limit increases gradually during the policy term so that the total increase amounts to
the desired percentage increase at the end of the policy term.
This endorsement extends your cause of loss to include damage that results directly
from an earthquake. Coverage is provided for replacement of buildings only. All
earthquake shocks that occur within a 168 hour period (one week) are considered to
be a single occurrence. A separate deductible applies and is determined by the value
of the insured property.
Business Income Coverage
Business Income is the net profit or loss that would have been earned or incurred if
the suspension of the business had not occurred, plus any normal operating expenses
that must continue during the suspension of the business. Business Income insurance
pays the actual loss of business income sustained by the insured because of a
necessary suspension of the insured's operation during the period of restoration
following a loss. The suspension must result from direct physical loss or damage to
real or personal property. Coverage is provided against the same causes of loss
covered under the insured's property policy. Under certain conditions, the policy also
provides an extension of coverage for newly acquired property.
The insured's operations are the business activities of the insured, which occur at the
location listed in the policy. The period of restoration is the period beginning on the
date of the direct loss, and ending when the damaged or destroyed property could
have been restored.
The business income and extra expense form provides the following additional
Extra Expenses are any expenses over and above those that would have been incurred
during normal operation of the business. Some of the covered extra expenses are;
expenses incurred to avoid or minimize the suspension of operations, expense to
repair or replace property, and expense paid for overtime work to speed up the
restoration of the business.
Civil Authority is when access to an insured's premises is denied by civil authority as
the direct result of damage or destruction of a neighboring or adjacent property
belonging to others. If the damage or destruction is caused by a cause of loss covered
by the insured's policy, this coverage would apply. The insured's premises would be
covered for the loss of income during the period of suspension, up to a maximum of
Alterations/New Buildings provides coverage for loss of income resulting from a delay
in beginning operations. The delay must be the result of damage to new buildings or
structures, either completed or under construction. Damage to additions or
alterations to existing buildings are also covered. The damage must be the result of a
covered cause of loss.
Extended Business Income
This coverage provides the time needed for the insured's former customers to return
once the business suspension is over by providing coverage for loss of income until
sales return to normal, or up to a maximum of thirty days.
Maximum Period of Indemnity
Maximum Period of Indemnity is a restriction of the period of restoration provided
under the policy. If this option is selected the insured's loss payment is limited to the
lesser of (1) the amount of loss sustained during the 120 days immediately following
the loss or (2) the policy limit. The coinsurance requirement does not apply if this
option is chosen.
Monthly Limit of Indemnity
Monthly Limit of Indemnity is an option that allows the insured to recover a
percentage of the actual policy limit during each thirty day period of interrupted
operations. If a loss occurs, payment would be made for the lesser of the actual
amount of the loss, or the maximum amount allowed to recover with this option.
Under this option, the coinsurance requirement does not apply.
Extended Period of Indemnity
Extended Period of Indemnity is an option that extends the "extended business income
coverage" over the standard thirty-day period. The insured can extend the coverage
to 60 days, or up to a maximum of 360 days. The selected time would depend on the
time the insured estimates it would take for revenues to return to normal after a
suspension of the business.
Agreed Value is an option that requires the insured to complete a business income
report/worksheet showing the actual financial data for the previous twelve months,
and estimated financial data for the next twelve months. An agreed value is
determined from the financial data submitted. If a loss occurs, the insured's policy
limit must be equal to the agreed value amount, if loses are to be paid in full. When
this option is in force, the coinsurance clause does not apply.
Equipment Floater Coverages
The primary function of the ACORD Equipment Floater Application #146 is to collect
underwriting and rating information for the Contractors Equipment Form. However,
the application may be used for any other Inland Marine coverage that will fit into its
structure. Since there areseveral Inland Marine Coverage Forms that fit into the
structure of this application this document will briefly explain the many kinds of
inland marine policies that cover many kinds of loss exposures. Inland marine policies
are divided into two categories; filed and non-filed. Filed policies are characterized
by a large number of potential insureds and reasonably similar loss exposures. The
rates and forms of filed policies must be filed with the state insurance department.
Non-filed policies are characterized by a relatively small number of potential
insureds, and diverse loss exposures or both. The rates and forms for Non-filed
policies are not filed with the state.
Contractors Equipment Floater
The property covered on the contractors equipment floater might range from simple
hand tools to very large cranes. Virtually any type of mobile equipment or tool can be
insured. The equipment covered can be used in a wide variety of operations such as,
home improvements to strip mining. It might be used to build roads, buildings,
pipelines, or many other types of structures. The coverage provided is for direct
physical loss to the equipment. Rental reimbursement coverage can be added by
endorsement to cover the cost of renting substitute equipment if covered property is
out of service by a covered cause of loss.
Builders Risk / Installation
The inland marine builders risk portion of the policy form covers structures being
built, temporary structures at the building site, and building materials that have not
yet become part of the building. The building materials are covered while on the
insured location, in transit, or in storage at another location. Business income
coverage can also be provided on the policy. The installation portion of the policy
usually insures a contractor's interest in building supplies or in fixtures that the
contractor has been hired to install.
Electronic Data Processing Equipment Form
The inland marine electronic data processing policy is used to insure damage to data
processing hardware, software, and media. The policy also covers the extra expense
to continue data processing operations following a covered loss that resulted in
damage to the system.
Bailee policies are written to insure dry cleaners, repair shops, public warehouses,
and several other types of businesses with large amounts of the customers' goods in
the insured's possession. There are two major types of bailee policies. The Bailee
Liability Policy covers damage to customer's goods only if the insured is legally liable
for the damage. The Bailee’s Customers Policy covers damage to customers' goods
without regard to the bailee's liability.
Filed Policy Forms
Sign Coverage Form
The sign coverage form is used to insure neon fluorescent, automatic or mechanical
electric signs, and lamps. All covered signs must be written on a schedule with a limit
of insurance shown for each item on the schedule.
Equipment Dealers Coverage Form
The primary purpose of the equipment dealers coverage form is to insure the stock in
trade of dealers in agriculture and construction equipment. Coverage is provided for
customers equipment in the care, custody, or control of the named insured. The
coverage can be written on a reporting basis or non reporting basis.
Commercial Articles Coverage Form
The commercial articles coverage form is used to cover photographic equipment and
musical instruments used on a commercial basis. Coverage is provided for
photographers, motion picture producers, professional musicians, and others. The
form is not intended to provide coverage for dealers of these types of property.
Coverage can be written on a schedule or blanket basis.
Mail Coverage Form
The mail coverage form is written for banks, trust companies, insurance companies,
investment brokers and similar firms that frequently ship securities by mail. The mail
coverage form purpose is to cover securities and other negotiable instruments while in
transit by first class mail, certified mail, express mail, or registered mail.
Jewelers Block Coverage Form
This form was designed to meet the needs of retail jewelers. The form provides
coverage for damage to the jeweler's stock of jewelry, precious and semi precious
stones, watches, precious metals and similar merchandise. Similar property of others
in the insured’s care, custody, or control is also covered.
Commercial Property Insurance
Commercial property insurance helps businesses, including farms and ranches, pay to repair or
replace buildings, associated structures, and contents damaged or lost because of fire, storms,
theft, and other events outlined in the policy.
Note: Commercial property policies generally don’t cover building contents belonging to a
tenant. If you rent or lease your building, you should buy your own policy to insure your on-
premises property, including machinery, furniture, and merchandise. The cost of tenant coverage
will generally be significantly less than building coverage because the policy will only cover
contents, not the building itself.
Typically, business owners can buy a single policy to cover businesses operating at multiple
locations. However, you might need separate policies if some locations serve different functions
and have different risk profiles. This could be the case, for example, if your business has an
administrative office and a separate factory.
Almost all commercial property policies have a “deductible,” which is the amount you must pay
toward the cost of a claim before the insurer will pay. The higher your policy’s deductible, the
lower your premium should be. Keep in mind, however, that you’ll have to pay more out of
pocket if you have a claim. Your policy will also have a “policy limit,” which is the maximum
amount the insurer will pay for any covered loss.
Commercial property policies provide either “replacement cost” coverage, “actual cash value”
coverage, or a combination of both. Replacement cost coverage will pay to replace your property
with new property of like kind and quality, up to the policy’s dollar limit. An actual cash value
policy will pay the replacement cost of the property minus depreciation due to age and normal
wear and tear. Although replacement cost coverage is more expensive than actual cash value
coverage, it might better ensure that your business fully recovers after a significant loss.
In Texas, commercial property policies are not standardized. Insurers must comply with
minimum requirements but have a great deal of flexibility to develop their own policies. As a
result, coverages and policy terms may vary significantly by insurer and by policy.
Types of Commercial Property Policies
Different types of commercial property policies protect against different risks, or “perils.” Some
policies will cover only those risks specifically named in the policy. Other policies will cover all
risks, unless the policy specifically excludes them. Be sure to read your policy carefully. You
may need to buy additional coverages or specialized policies, such as flood, windstorm, or crime
coverage, to fully protect your business.
Commercial property policies in Texas generally fall into one of three categories:
Basic form policies typically cover common risks or perils, such as damage from fire,
lightning, windstorm, vehicles, aircraft, or civil commotion.
Broad form policies typically provide basic form coverage plus coverage for additional
perils, such as water damage, structural collapse, sprinkler leakage, and losses caused by
ice, sleet, or weight of snow.
Special form policies cover against all types of losses except those the policy
specifically excludes. Common special form exclusions include losses from flood, earth
movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin.
Note: Most commercial property policies cover damage from windstorms, except in counties on
the Texas coast. If your business is in one of Texas’ coastal counties, you’ll probably need a
separate windstorm policy. (Refer to the section on windstorm coverage for more information.)
Types of Commercial Property Coverages
Commercial property policies provide various types of coverage, either as part of the base policy
or through policy “endorsements.” Endorsements expand or amend a policy’s coverages and
usually increase your premium. You can buy certain coverages as separate stand-alone policies.
Following are some typical commercial property coverages:
Business interruption coverage pays for actual or projected lost income if loss from a
covered peril prevents normal business operations.
Extra expense coverage pays any additional costs to expedite resumption of your
operations after a covered loss.
Building occupied by the insured coverage insures a building that you regularly use but
do not own. This coverage can be important if you lease or borrow a building that is
critical for your operations.
Newly acquired or constructed buildings coverage insures a new building if you add it
to your policy within a specified amount of time. If you don’t notify your insurer within
the time period – usually 30 days – your policy won’t cover the new building.
Commercial property policies generally only cover buildings named in the policy.
Off-premises property coverage covers your property located off site. Some policies
might not cover off-premises property, or may provide only limited coverage. You can
usually buy an endorsement to cover off-premises property. If you can’t buy an
endorsement, you may have to buy a separate policy.
Employees’ personal property coverage insures your employee’s personal property
against covered losses if the property is on your premises. Generally, you must buy this
coverage as an endorsement if you need more than a limited amount.
Valuable papers coverage provides limited coverage of your business records and other
essential information. You may be able to buy an endorsement to increase this coverage.
Ordinance or law coverage pays any additional costs required to repair or rebuild a
facility damaged by a covered peril in order to comply with current building codes. Many
policies provide limited ordinance coverage, but you can increase it with an endorsement.
Boiler and machinery coverage covers boilers, air conditioning units, compressors,
steam cookers, electric water heaters, and similar machinery. Coverage generally extends
to machinery specifically listed in the policy and to any subsequent losses, such as when
a boiler explosion or water heater leak causes damage to other property. You can usually
purchase this coverage as either an endorsement or a separate policy.
Inland marine coverage insures goods in transit over land, by air, or by inland
waterways. It also covers projects under construction and transportation and
communications structures, such as bridges, tunnels, and communications towers.
Commercial multi-peril (CMP) policies combine multiple coverages, such as commercial
property, liability, inland marine, and commercial auto, to ensure full protection within the
convenience of a single policy. CMP policies typically have lower premiums than purchasing the
Business owner program (BOP) policies are a common type of commercial multi-peril policy
primarily for small businesses. BOP policies combine property and liability coverage in one
Other Coverages to Consider
You can buy several types of coverage to protect your business from crime. Common crime
Loss of glass and money due to theft pays for damage to glass and any loss of money
resulting from a break-in.
Robbery and safe burglary, property other than money is a more limited form of
coverage that does not include money or securities.
Forgery or alteration protects your business against forgery or alteration of checks,
drafts, promissory notes, or other directions to pay.
Theft, disappearance, and destruction coverage insures money, securities, and other
property against losses, both on your premises or in the custody of an employee or
messenger while off premises.
A policy may pay losses from crime on either a “loss sustained” or “discovery” basis. Loss
sustained coverage pays for losses that occur during the policy period, while discovery coverage
pays for losses that occur at any time. Both types of crime coverage require that losses be
discovered during the policy period or extended reporting period.
Some insurers may include flood coverage in their commercial property policies for areas with a
low flood risk. However, most flood insurance in the United States is available only through the
National Flood Insurance Program (NFIP). Some insurer may provide flood coverage as excess
over the NFIP coverage.
To qualify for NFIP coverage, your business must be located within an NFIP-participating
community. These communities have adopted federal building and floodplain management
programs to reduce the likelihood of flood damage. “Special Flood Hazard Areas” are areas
within NFIP communities that are at high risk for flooding. NFIP requires all structures within
these areas to have flood insurance.
Note: More than a quarter of all floods in the United States occur in areas designated as low-to-
moderate risk. You should consider flood insurance even if your business is outside a hazard
You can buy flood insurance through licensed insurance agents. For a list of agents selling flood
insurance in your area, call NFIP
Understanding Commercial Property Rates
Insurers use a process called “underwriting” to evaluate the likelihood that a business will file a
claim. The greater the likelihood, the higher the premium will be. If an insurer determines that a
business poses a high risk for a loss, it may decline to issue a policy entirely.
Fire risk is typically the primary factor that determines a business’ commercial property rates.
State-licensed fire inspectors contract with insurers to perform inspections as part of the
underwriting process. Inspectors use a standard rating system and weigh five factors to determine
a structure’s “fire rating.” The five factors are:
Construction materials. Buildings made of potentially combustible materials will have
higher premiums, while those made of fire-resistant materials could earn a discount.
Additions to an existing structure might negatively affect a fire rating, so it’s a good idea
to consult with your agent or insurer before remodeling. Internal structural elements can
also affect a fire rating. Using wood partitions, floors, and stairways in an otherwise fire-
resistant building will likely nullify any rate reduction. Fire-resistant interior walls,
floors, and doors can help preserve a good fire rating.
Location. Buildings in cities or towns with good fire protection, as assessed by the Texas
Commission on Fire Protection, typically cost less to insure than buildings outside a city
where fire protection may be limited.
Occupancy. A building’s use also affects its fire rating. An office building will likely
rate favorably. A restaurant – with grills and ovens – or an auto repair shop will likely
rate less favorably. One relatively hazardous occupant will negatively affect the fire
rating of an entire building. If your business is in a building with a more hazardous
occupant, your premiums will be higher than they would be for your business alone.
Fire protection measures. Automatic sprinklers can reduce a building’s fire rating by as
much as 50 percent. Buildings with fire extinguishers and automatic alarms and those
within 500 feet of a standard fire hydrant will generally have lower ratings.
Exposure. Nearby hazards increase a building’s fire risk. Proximity to external fire
hazards, such as a lumberyard or oil storage tank, will negatively affect a fire rating to an
even greater degree. Internal exposure risks might include cluttered buildings and
grounds, heavy mechanical or electrical equipment, or on-site storage of volatile
To learn the fire ratings of the buildings on your business’ premises, ask your insurance agent.
Your agent can access a statewide database of the ratings for all commercial properties. If you
disagree with your buildings’ ratings, first try to work with your agent, insurer, and the inspector.
If you are still dissatisfied, contact TDI’s Inspections and Fire Safety Office, the state’s final
arbiter of disputed commercial property ratings
P.O. Box 149104
Austin, TX 78714-9104
Shopping for Commercial Property Insurance
Commercial property insurance rates and coverages can vary significantly from one insurer and
policy to another. It pays to shop around. The following tips can help you save money or avoid
other pitfalls when buying a commercial property policy:
Minimize all possible risks before applying for coverage. Examine your business
premises and operations carefully for things that could contribute to the likelihood of an
insurance claim. Improving employee safety, security, and inventory management can
reduce the amount you pay for commercial property insurance and other types of
coverage, such as workers’ compensation and general liability insurance. Most insurers
also offer loss-control or risk-reduction services. Contact your agent or insurer for help
identifying and eliminating potential risks.
Get quotes from several companies. When comparing prices, make sure you’re
comparing policies with similar coverage. A cheaper policy might also provide less
Keep shopping if an insurer declines to cover your business. Insurers have different
underwriting criteria. If one company turns you down or is too expensive, another may be
willing to issue coverage or offer a lower premium.
Consider higher deductibles. Higher deductibles can lower your premium. Remember
that your out-of-pocket costs will be greater if you have a claim, however.
Verify your agent’s and insurer’s licenses. Agents and insurers must be licensed to sell
commercial property insurance in Texas. An unlicensed insurer may not meet the state’s
minimum financial and regulatory requirements, meaning the company may not have the
financial resources to pay your claim. To learn an agent’s or insurer’s license status, call
TDI’s toll-free Consumer Help Line or use the “Insurer Search” or “Agent Search”
feature on the TDI website
Commercial Property Types
Here is a short list of properties that we can finance.
If you don't see your type of property here, please
ask us as we are adding different property types
regularly to meet our client's needs.
Multifamily - Structures containing five or more dwelling
units with common area facilities such as entrances, lobby,
elevators, stairs, mechanical space, walks or grounds.
Units must be rented on a non-transient basis such that
tenants consider their unit their permanent residence.
Properties that offer weekly or monthly housing would not
be considered multifamily properties.
Retail - Retail buildings are designed for retail sales and
display and usually have display or decorative fronts. This retail classification encompasses a wide
variety of uses including, but not limited to: markets, convenience stores, drugstores, department
stores, big box retailers, barber shops, laundromats, etc.
Bed & Breakfast - Bed and Breakfast inns are residential-type buildings designed for transient
boarding and are family style in character. B&B inns are usually one structure but some may include an
adjacent guest cottage with similar quality amenities as the main unit. Owner operators live on-site,
by a small size
industrial process takes place. Office space within light
industrial ranges from 3% to 25% of the total area. Buildings must include sufficient plumbing and
lighting to accommodate personnel. Common uses found in light industrial properties may include:
cabinet making, assembly processes, home service industries, etc. Absent from these properties is any
type of heavy machinery, welding operations, cranes or hazardous materials.
Mixed-Use - Mixed-use properties must contain at least one commercial unit (retail, office etc.) and at
least one residential unit. Common types of mixed-use properties include a ground floor retail or office
unit with apartment(s) above, all within the same building. The primary use at the property must be for
residential purposes in order for it to be considered Tier 1 mixed-use. The mixed-use property type can
be classified in any tier depending on the percentage of the multi-family component and the type of
Mobile Home Park - Mobile home parks are considered as long as not more than 25% of the total
spaces are used for RV. Mobile home parks vary in quality and amenities and all will be considered
unless the RV component is too high.
Office - Office buildings are buildings designed for general commercial occupancy and are normally
subdivided into smaller units. Office use implies a general business use that does not include retail,
manufacturing or warehouse type operations.
Self Storage - Mini-warehouses are warehouses subdivided into a mixture of cubicles of generally
small size, designed primarily to be rented for small self- storage or noncommercial storage and may
include some office-living space.
Warehouse - Warehouse buildings are designed primarily for storage purposes. An amount of office
space included is usually commensurate with the quality of the building but typically rages from 3% to
12% of the total area. Plumbing and lighting are usually limited due to anticipated light personnel load.
The design of the building usually includes a light frame with large open interior areas. Cold storage
and transit warehouses (truck terminal) are included in this category.
Automotive - Automotive is a somewhat broad category and encompasses a variety of uses that
support the automotive segment. Included within this category are auto repair shops, used car lots,
quick-lube facilities, tire repair shops, etc. The type and size of building will vary with the use. Many
buildings are designed specifically for the auto trade characterized by overhead doors, car lifts and
usually a small office area.
be in good
franchise to maintain this tier.
Funeral Home - Funeral homes include those used for
viewing purposes as well as those that include embalming services.
Industrial - Where the principle structure is designed for manufacturing processes, heavy assembly or
involves the use of heavy machinery. It contains an average amount of office space commensurate
with the quality of the building and the intended use. Their heavy frames, walls and floors, specialized
manufacturing processes and power or utility-service characterize industrial facilities.
Rooming House - Rooming houses are similar to that of multifamily but the nature of the occupancy
is more transient. Rooms are rented on a daily, weekly or monthly basis and usually only include a
bedroom. The residents share the bathroom and the kitchen. Rent paid usually includes all utilities and
units may be furnished. Most rooming house properties contain less than 20 units.
Day Care - Day Care Centers are early childhood, handicapped, adult, and senior care facilities; or
developmental centers, such as kindergartens, nurseries, or children's pre-schools. They have light
kitchen facilities, activity rooms and multiple rest rooms, and are more residential in character than
Health Care - Included in this category are all Assisted Living or Nursing Home types of operations
where a license is required to operate the business. Quality and service levels vary considerably. Also
included in this category are hospitals and medical treatment facilities, such as out patient care or
walk-in emergency medicine.
Restaurants - Restaurants are constructed for the purpose of preparation and sale of food and/or
beverages, which include cafeterias, bars, and taverns, where design is of restaurant type.
RV Park - RV parks are those that are designed for recreational vehicles. May include mobile home pad
rentals but will be considered an RV park if 25% or more of total park is for RV. Transient type
occupancy is common.
Unflagged Hospitality - Hotels or motel properties with no national franchise affiliation are
considered "unflagged." "Mom & Pop" style operators typically run these types of facilities and the
quality and level of service varies considerably.
Top 3 Commercial Real Estate Property Types - Niche
Commercial Real Estate Types
From James Kimmons,
Your Guide to Real Estate Business.
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Commercial real estate covers a diverse group of structure types and uses, as well as vacant land. Learn specifics
about some of the most common ones here.
These categories are discussing the sale of "real property", the land and/or buildings. Though business owners
frequently sell their business entity together with the real estate, the valuation of the business enterprise itself is not
treated in this discussion.
1. Multi-Family Commercial Real Estate
Multi-family commercial real estate property types include duplex homes, and other construction for habitation by
mulitple family groups. Condominiums are frequently called multi-family because of their construction as a group, but
are normally listed and sold as single family residential units. Duplex homes are also frequently listed and sold as
residential units to a buyer that lives in one side and rents out the other.
Commercial RE InvestmentsTriple Net Lease, Tenant in Common, 1031 Exchanges, REITs, Funds,
Covington CapitalSearching for Real Estate Opportunities Nationwidewww.covcap.net
Commercial PropertySearch 1000s of commercial real estate listings for sale or
2. Retail Space Real Estate Properties
This category would include single buildings used as stores for clothing, electronics and other consumer products, as
well as malls, strip centers and the like. Restaurant spaces are a specialty subset of the retail category, with some
listings shown as restaurant/retail. Valuations can be based on size and land value, retail sales per square foot or
other investment return calculations.
3. Office Buildings and Office Complexes
A single building designed for office use, or a group of offices in a single building or cluster of buildings would fall into
this category. When offices are grouped in structures with single ownership, they are listed as commercial office
rental property. The owner derives income from the rental payments of the office tenants. These can be valued based
on the rental income return on investment, rather than methods using square footage and land value. Medical &
Dental offices are a subset.
Real estate investing can be an excellent career, if you keep your wits about you and handle
things right. However, it’s possible to make big mistakes if you’re not well educated. That’s why
knowing about the different types of commercial property can be a big help. Being aware of the
different kinds of commercial real estate gives you access to the benefits and drawbacks of each.
Here’s a little bit of information to help you get started.
Commercial real estate covers a wide range of properties, including apartments, malls, office
buildings, shopping centers, distribution locations, warehouses, and research properties. Some
properties fit into two of these categories at once, such as buildings that combine office and
industrial uses. These are referred to as flex properties. If the property contains more than half its
area in office space, it’s called office/flex. When it’s mostly industrial use, it’s called
industrial/flex. Other flex properties may include shopping areas or laboratory and research and
Hotels may also be included in the category of commercial real estate. However, some investors
consider a hotel to be more of an operating business, and categorize them with the subset of
properties including nursing homes or assisted living facilities and casinos. The one thing that all
commercial properties have in common, with the exception of raw land, is that they’re capable of
producing income. That income may come in the form of capital gains, or it may be through the
receipt of rents from tenants.
In addition to these major property types, you may also see commercial real estate categorized as
niche property. This category includes specialty properties like apartments built for students, age
restricted living meant for older residents, self-storage, and office buildings that are suited to a
particular sort of business, such as the medical field.
Raw land is the last category of commercial property. This is undeveloped land without any
existing structures on it. Some investors acquired this land, intending to obtain the right permits
to build commercial properties on it, within local zoning laws. These properties can then be used
to obtain income, either as rentals or in the form of capital gains. So, raw land can eventually
produce income, too. It just does so less directly.
Each type of commercial property comes with its own benefits and problems. For instance, raw
land allows the developer to build as he or she chooses. However, the cost of building and the
time required is often greater than fixing up an existing property to your standards. Raw land can
make up for this by being less expensive than property which has already been developed, and is
a great choice if your project needs a specific location or you’d like to control the building
process. Raw land can also be a great choice if you can buy it while it is still zoned agricultural
and change the zoning to commercial. The change in zoning alone can add great value to the
Shopping malls provide a great deal of rental income, provided that they’re properly designed.
Shopping centers are similar, but may require a lower initial investment, since they can be
purchased at a smaller size. It’s important, when building these kinds of facilities, to plan
properly. Provisions for food and beverage outlets and adequate parking make a big difference in
the amount of trade that is available to provide income for your property.
Warehouses and self-storage units have the benefit of requiring minimal staff and upkeep,
although it’s important to maintain them. Properties such as research and development or
research laboratories may sell for a greater amount than if the building were put to a lower use.
Each type of property has its own characteristics. Picking the right one can take some work.
Therefore, it’s a good idea to talk to people who have experience in the field to decide what kind
of commercial property investment is right for you. Doing your research before you invest and
staying informed is an important part of being successful in a commercial real estate investment
career. Knowledge is the best way to avoid making a big mistake, and can turn a potential money
sink into a profit.
Anthony Seruga and Yolly Bishop of Maverick Real Estate Investments, Inc. work with builders,
developers and other players in the commercial real estate industry to acquire and develop
properties. They use progressive investment strategies that have proved extremely profitable. In
addition to their own deals, they teach both seasoned and inexperienced investors how to be big
players in the game. Visit the website for more info.
When it comes to commercial real estate investment, investors often want to know which
types of properties they should consider investing. This article discusses about 5 groups of
properties and reasons why you should or should not consider them.
1. Land: the people who invest in raw land often hope to buy agricultural land near
commercially-zoned land at a few thousand dollars per acre. They dream their lot will be re-
zoned to commercial in the near future which is worth hundreds of thousand dollars or more
an acre. People who convince you to invest in raw land often try to sell you this dream.
While this dream actually happens just like it’s possible to hit the jackpot in Las Vegas, the
reality is most investors lose money or get little return in land investment. It is a very risky
investment as land generates either no or very little income. From an income tax viewpoint,
land does not depreciate in value so you cannot claim depreciation. On top of that the
interest rate to land loan is also very steep compared to other types of commercial
properties. So each month, you would need to come up with money to pay for the mortgage
while collecting none. You should consider invest in land if you
- Know how to develop so you could convert raw land into a shopping center.
- Know exact what you do and have deep pocket.
- Own the land of a shopping center (you don’t own the buildings).
2. Apartments: this is a management intensive investment as the turn over rate is high.
The leases are short-termed often at one year of month to month. As tenants move in and
out, you would need to spend money to get the unit ready for occupancy. Apartment
tenants tend to have higher late payments history than other tenants as they are more
often have a tighter budget. If you don’t like the headaches dealing with lots of tenants, you
probably want to stay away from apartments. The key to successful apartment investment
- Control or minimize the expenses. This may sound like a trivial task until you see the
expense list provided by the property manager. These expenses include: advertising,
accounting, bank fees (for insufficient funds), capital improvement, coin laundry subsidy,
cleaning, collection fees, garbage disposal, insurance, landscaping, legal (eviction) fees,
maintenance, offsite property management, onsite property management, pest control,
painting, repairs, sweeping, security, property taxes, utilities and water.
- Invest only in properties in a good location with no deferred maintenance.
- Stay away from areas with rent control, e.g. Berkeley, Los Angeles.
Otherwise you may end up getting little cash flow or even having negative cash flow. If one
of your investment objectives is to get high cash flow, you may want to stay away from
apartments. In California, if you own a 16 or more units apartment you must have an onsite
manager. This increases the expenses further. In general, apartments are easy to buy and
harder to sell. There are always lots of them on any markets. The upside about apartments
is they tend to have high occupancy rate as everyone needs a roof over their heads. Due to
this fact the interest rate for apartments is often ¼- to ½ percent lower than other
3. Special Purpose Properties: These are properties designed for a specific business, e.g.
restaurants, gas stations, and hotels/motels.
- Restaurants: some investors like to invest in brand name fast food restaurant like Burger
King, Pizza Hut, Jack In The Box, KFC. These are single tenant properties with long term
absolute triple-net lease which often require no management responsibilities from the
landlord. However, the rental income or cap rate for these restaurants is often lower in the
5-7% range. Emerging regional brand name restaurants like Johnny Carino’s, Back Yard
Burger, Zaxby’s or Tia’s TexMex tend to offer higher cap rate in the 7-8.5% range.
However, when you look deeper in the financial statements they may not make a profit yet.
The restaurant operators sell the real estate to investors higher cap rate and lease back the
property for 20 years. They in turn use the sale proceeds to expand their business by
building more restaurants. So if you are willing to take higher risks, you will be rewarded to
high income with these emerging restaurants.
- Gas stations: when you buy a gas station, you buy both real estate and the gas station
business. Most gas stations also have convenience stores and sometimes several car repair
bays. The profit margin for gas is fixed at 10-20 cents per gallon [many customers wrongly
blame the high gas prices on the innocent gas station operators] but is pretty high for
convenience store. This is considered an owner-occupied property which qualifies you to a
SBA loan with as little as 10% down payment is required. If you don’t plan to get involved
in running the gas station, auto repair and convenience store business, you may want to
stay away from gas stations as gasoline is a chemical that could contaminate the soil. Once
a leakage occurs and contaminates the environment, it takes years and lots money to clean
up the soil. You may even be liable to damages from owners of adjacent properties as
contamination may spread out to their properties. It’s almost impossible to sell your
property as no lenders want to loan the buyers the money to buy it.
- Hotels/Motels: once you buy a hotel/motel, you buy the real estate and a 24-hour-a-day
365-day-a-year business. This business requires hard work, and marketing skills to get the
rooms filled. The rooms are worthless if they are vacant. The business tends to be seasonal
and may be affected immediately by economic downturns and political events, e.g. 9-11.
Many of these properties are owned by Indians with the last name Patel as they seem to
work harder and know this business well.
4. Office Buildings: these properties are single or multi-story buildings. The older two-
story office buildings without elevators tend to have trouble finding tenants on the upper
floor as many service businesses may have physically-challenged customers who cannot
walk up the stairs.
- Single-tenant buildings: the properties are used as corporate headquarters of big
corporations like Cisco. These big buildings tend to be more sensitive to the economy. Once
vacant, it’s hard to find a replacement tenant.
- Multi-tenant buildings: these properties are leased by small businesses, e.g. real estate,
tax accountants. Investors who purchase these properties want to spread out the
investment risks. When one tenant vacates a unit, you lose just a small percentage of rental
- High Quality Tenants: most of them have good credits, lot of assets and promptly pay the
rent when due.
- Leases: The leases for office building vary from full service [landlords pay property tax,
insurance, maintenance and utilities] to NNN [tenants pay property tax, insurance,
maintenance and utilities]. The NNN lease is a litmus test on whether the office building is in
high demand by tenants or not.
- Medical buildings: these properties are leased primarily by doctors and dentists. A good
medical building should be in front of or across the street from a hospital. This makes it
convenient for doctors to go back and forth between hospital and their offices. Some
investors prefer medical buildings as medical tenants are very recession proof.
5. Shopping/Retail Centers: These centers are mostly single-story and can accommodate
wide varieties of tenants: retail and service businesses, restaurant, medical, school, and
even church. As a result, this is the most popular type of commercial properties that
investors look for. They are always in high demand as there are more buyers and few
- Multi-tenant strip: the advantage of this investment is when a tenant moves out, you only
lose a portion of the total income while you are looking for a new tenant. So you spread out
the risks in this property.
- Single-tenant building: The advantage is you just have to work with one tenant. Some of
the tenants, e.g. Costco, Home Deport, Walmart, CVS Pharmacy sign 10-20 year lease and
guarantee with their corporate assets which could be worth billions of dollars. This makes
your investment very safe.
- High Quality Tenants: most of them have good credits, lot of assets and promptly pay the
rent when due. They often sign long term 5-30 year leases so you don’t have worry about
finding new tenants every year. They keep your property in good condition and sometimes
even spend their own money to make it look better in order to attract the customers to the
- Triple Net (NNN) Leases: the leases for retail centers are often in favor of the landlord.
The tenants pay a base rent and reimburse the landlord for property taxes, insurance,
maintenance and sometimes even property management fees. This takes away a lot of risks
from you as an investor. The NNN lease in a sense is a litmus test on whether the property
is in high demand by tenants or not.
- Ground Lease: occasionally a retail center with ground lease is for sale. When you buy this
center, you only own the improvement but not the land underneath. It could be a trophy
property but you should think thrice about investing. Once the ground lease expires and the
land owner refuses to extend the land lease, you own nothing! So it’s easy to buy this
center but very hard to sell.
3 Reasons Why Commercial Properties Are A
Better Investment Than Residential
Commercial properties should be the cornerstone of your investment portfolio. When
investors were leaving the stock market in droves, they turned to investing in real estate.
And real estate is an excellent choice compared to stocks. The tax deductions and potential
for price apreciation are enough reasons for burned out stock market investors to make the
But real estate is a wide open field, where should you focus your time and money?
Many people might believe that residential property investing is the best way to go. Just
look at all the television programs that are now on the air, such as "Flip This House" on A&E
and "Property Ladder" on TLC. They focus on buying residential properties as investments.
But I think the better solution is investing in commercial properties. Here are 3 reasons
#1 No More Qualifying For Loans
With commercial properties, the properties qualify the loan...not the borrower. Lenders
concentrate primarily on the income produced by the property to determine the financing
risks. So with a few financial calculations, you can determine if the property will qualify the
loan amount requested.
#2 No More Personally Guaranteeing Loans
There is a term that is never heard of in residential financing...non-recourse. Non-recourse
financing is a type of debt in which the borrower is not personally liable. If you default on a
non-recourse loan, the lender must recover the amount you owe by foreclosing on the
property by which the loan is secured. This won't affect your personal credit score.
#3 Deal With Professional Tenants
Investing in residential property, you will eventually find yourself in the world of tenant hell.
Where excuses and non-payment go hand in hand. And government entitlement programs,
such as Section 8 can cause you to lose your mind with bureacracy.
But with commercial property tenants, you will find them to be more professional. They are
in a business and treat their leases as such. With these leases, they can be long term (5,
10, 15 years) and the they can be written so that the tenant pays for maintenance, taxes
Most investors want to invest in commercial properties but let the fear of the unknown stop
them. But with proper training and education, buying them is not that difficult.
Types Of Commercial Lenders
There are different types of commercial lenders that will loan you money for your projects.
The type of lender you use will be dependent on several factors: property type, LTV’s,
amortization, recourse, interest rates, time to close and other factors.
Lets take a look at the major commercial lenders in the market.
These CMBS (Commercial Mortgage Backed Securities) are long term, fixed rate financing
that is typically permanent and non-recourse.
Banks or Savings & Loans
They have shorter terms (3-5 yrs) with fixed or variable rates. Usually they are for
permanent and construction financing and they are full recourse.
They offer long or short term with fixed or variable rate financing. As well as permanent and
These commercial lenders are institutional quality with long term, fixed rate financing.
Typically the loans are permanent and non-recourse.
Government Sponsored Enterprise (GSE)
Fannie Mae/DUS and Freddie Mac
Fannie Mae and Freddie Mac are purchases loans from commercial lenders. The rates on 5+
multifamily apartments are comparable to CMBS loans, but they are properties that would
not otherwise qualify.
FHA HUD 223(f)
FHA loans are backed by the U.S. government. They offer higher LTVs and better terms &
rates on 5+ unit multifamily apartments for properties that would not otherwise qualify.
Small Business Administration (SBA)
Backed by the U.S. government, these are loans for 51%+ owner occupied properties.
These types of loans are also known as Stated Income, Low or No doc, private and hard
money. These loans are more flexible with fast closings (great if you’re in a pinch for
financing). But they also tend to have higher interest rates and back end or participation
According to the Mortgage Bankers Association of America, about 20% of commercial
mortgage loans done in the U.S. are with conduits, 20% are done with commercial banks,
20% done with life insurance companies, 13% with Fannie Mae and 8% with FHA. The top
commercial/multifamily originators in 2005 were:
Wachovia for commercial bank/savings institutions and Conduits
Capmark Financial Group for Freddie Mac and FHA/Ginnie Mae
MetLife for life insurance companies
Deutsche Bank Berkshire for Fannie Mae
TIAA-CREF for pension funds
Cohen Financial for credit companies
Key Bank for REITS, mortgage REITs, investment funds and for other investors
Tremont Realty Capital, LLC for specialty finance companies
In general, there are basically two types of commercial lenders in the market: those that
hold the loan on their balance (portfolio lenders) and those that sell the loan into the
secondary market (conduit lenders). The secondary market represents Wall Street funds,
also known as Commercial Mortgage Backed Securities (CMBS).
A portfolio lender makes their profits from the spread or margin above the interest rate
index. A conduit lender makes their profits based on the difference from what they can sell
the bond for on Wall Street and the value of the sum of all of the loans in the pool. That is
the main reason why conduit lenders are able to price a commercial mortgage loan more
aggressively than a portfolio lender.
So which lender is the best for you?
Well…it depends. It really depends on your project and investment strategy. So ask yourself
1. Is this a development project or is it fully developed?
2. What are your short term and long term plans for the property?
3. What are your needs in regards to interest rate?
4. As you build equity, will you want to refinance?
Portfolio loans have fixed-rate structures, such as fully amortizing loans, with no calls or
balloons tied to a long-term, historically, stable index. Portfolio loans can better meet the
needs of rehab or development projects.
Conduit loans are good for properties that are stable with good tenants (such as NNN
properties). They offer low, fixed rates with long amortization and are non-recourse. While
both portfolio and conduit lenders may have a lock-out period and yield maintenance,
conduit loans also have defeasance issues if the loan is refinanced. This is because if the
loan is refinanced, you are pulling the loan out of the pool of loans that backs the bond,
thus changing the risk structure of bond. As such, the borrower has to pay to have another
bond with similar risk, yield, duration, payment priority put in place of their loan. Conduits
also don’t allow for secondary financing and have high pre-payment penalties. Conduit
lenders are not known for moving quickly—typically taking 4 to 6 months to close.
Generally, regardless of the loan size, the fees for doing the loan (3rd party and closing
costs) are the same for conduit and portfolio lenders.
Because there are so many different factors when looking for a commercial lender, it really
pays to have a good commercial mortgage broker on your team, that can provide the know-
how in getting the best lender for you.
http://www.boma.org/, About BOMA International
BOMA International was founded in 1907 as the National Association of Building Owners and Managers. The
association assumed its present name in 1968 as it broadened its reach to include Canada and other affiliates around
the globe. Today, BOMA International represents 92 local associations throughout the United States and 12 affiliates
in Australia, Brazil, Canada, Finland, Indonesia, Japan, Korea, Mexico, the Philippines, Russia and South Africa.
BOMA's 16,500-plus members own or manage more than nine billion square feet of commercial properties in North
BOMA International is a primary source of information on office building development, leasing, building operating
costs, energy consumption patterns, local and national building codes, legislation, occupancy statistics and
Throughout BOMA International's 100-year history, its goal has always focused on actively and responsibly
representing and promoting the interests of the commercial real estate industry through effective leadership and
advocacy, through the collection, analysis and dissemination of information, and through professional development.
Learn more about BOMA International's 100-year history.
Who are BOMA's Members?
BOMA International's members are building owners, managers, developers, leasing professionals, medical office
building managers, corporate facility managers, asset managers, and the providers of the products and services
needed to operate commercial properties.
Collectively, BOMA members own or manage more than nine billion square feet of office space, which represents
more than 80 percent of the prime office space in North America!
More than 80 percent of individual members have annual operating budgets exceeding $1 million, while more than 75
percent of individual members are responsible for multiple buildings.
What Does BOMA International Do?
Monitors and lobbies pertinent legislative, regulatory and codes/standards issues, including electricity
deregulation, capital gains tax relief, telecommunications, indoor air quality, private property rights, risk
assessment, and codes and standards.
Publishes The BOMA Magazine, the official publication of BOMA International.
Publishes research documents and "how-to" guidebooks, including:
o Standard Method for Measuring Floor Area in Office Buildings (ANSI/BOMA Z65.1)
o The Experience Exchange Report - the industry benchmark for 75+ years! - a compilation of
income and expense data for office buildings across North America;
The Real Estate Professional's Guide to the Design-Build Process
o The Real Estate Professional's Guide to Emergency Preparedness
o The Real Estate Professional's Guide to the ANSI/IWA I-14.1 Window Cleaning Safety Standard
Hosts the North American Real Estate Congress and The Office Building Show
every June; conducts seminars on topics including office marketing and leasing, asset management,
technology, and security and emergency preparedness planning. In January, BOMA International sponsors
a Winter Business Meeting and biannually hosts the National Issues Conference.
Presents The Office Building of the Year (TOBY) and Earth Awards, the most prestigious and coveted
awards in the commercial real estate industry. The TOBY honors buildings demonstrating excellence in
building management, operational efficiency, tenant retention, emergency planning and community impact;
the Earth Award honors environmentally-friendly buildings.
The mission of the Building Owners and Managers Association International is to enhance the
LEBANON - A group of community and arts leaders is fine-tuning its vision for a regional arts and culture
center for Warren County.
The board of trustees of the Warren County Arts and Culture Center met Friday to further review details of
a feasibility study.
"I get the impression we're going to do something," said Richard Finan, board member and former
president of the Ohio Senate.
The initial feasibility study from consulting firm AMS Planning & Research shows that the growing
population of Warren County has a higher-than-average household income - about $68,000 versus about
$51,000 for the overall Cincinnati-Dayton region.
The study also indicates that some arts patrons would like to avoid driving into Cincinnati or Dayton for
shows, and a variety of local arts and music organizations would welcome a new place to perform.
Based on interviews conducted with community leaders, the study indicates a demand for at least a small
arts center now with a potential demand for a bigger center in the future. But details about the size,
location and cost of an arts center remain undecided.
According to one leader interviewed in the study, Warren County should not attempt an Aronoff-scale
project that could cost as much as $100 million. Instead, the arts center should be developed in smaller
steps, with an initial phase costing $7 million to $10 million.
The size of the proposed facility - be it 2,000, 1,200 or 500 seats - is still being discussed. So is the
The study mentions several potential sites, including the Warren County Fairgrounds, the former Rivers
Crossing development site between Lebanon and Mason, and undeveloped parcels controlled by the
Otterbein retirement community and Bishop Fenwick High School.
More questions may be answered when the second phase of the study is completed sometime in June.
The arts center board plans to complete a full review by October.
During the summer, a vision and a mission statement will be approved, committees will be formed, and a
Web site will be created to keep community members informed of progress.
Meanwhile, Warren County residents can look for an appearance by the Cincinnati Ballet on a stage in
Warren County in the fall of 2008 or spring of 2009.
Dan Cunningham, arts center chair and member of the Federal Reserve, said Friday that Henkle
Schueler Realtors will sponsor the performance.
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