I am happy to announce that I just assisted one of my high-tech clients in leasing this 15,000 SF, 100% A/C’d flex building (5,800 SF office space / 9,200 SF warehouse) in Pinellas Park. This was a Tenant representation assignment for me. Cushman & Wakefield represented the Landlord.
This building will be their new corporate HQ for manufacturing their electronics products. The term was 5-years and the rate started at $7.50/SF NNN. Lease commencement was March 1, 2020.
Having spent eight (8) years in the Silicon Valley in tech and software earlier in my career, I held management positions and I leased various spaces for our teams at that time in different locations at times of economic and tech expansion. I also closed offices when needed during times of company re-organization or when leases were up or when offices were under-performing. Our criteria were varied and suited to the demands of tech productivity, sales and growth. We needed proximity to our target customers in the region, high speed bandwidth, a working environment geared for our culture and productivity needs, suitable parking and the lease flexibility to accommodate rapid expansion or the possibility to downsize or close the office after a merger, acquisition or economic downturn substantially affecting business. I saw all stages of the commercial real estate cycle in those years and how our business demands and changes in direction affected our commercial real estate obligations and decisions.
Generally, what I found then and that still holds true today is that high-tech companies, especially earlier stage organizations and start-ups, have difficulty predicting degree of future growth since so many factors are in play the in the high-tech sectors. Tech sectors that look promising today can be filled with intense competition or better alternatives in as little as 6-12 months. Positive cash flow and excessive burn rates are also major factors for start-ups and early stage companies. More established tech companies may have more predictable sales, profits and growth however they also have to make commercial real estate decisions to help them maintain a leadership position with customers, profits and foster longer-term growth.
Regardless of the degree of company maturity or years in business, today’s high-tech leaders must factor their specific short term and longer-term strategic business considerations into their commercial real estate planning, objectives and decision making. Having a commercial real estate broker in their corner who has been in the trenches of high-tech and commercial real estate and understands their challenges can go a long way toward helping them navigate the market, find the right spaces for expansion, negotiate good deals and make good commercial real estate decisions. I specialize in this area of commercial real estate. Let me know if you would like to speak further about your high-tech commercial real estate objectives!
Q: I’m thinking of investing in income producing real estate in 2020. What are some of the common methods for analyzing and evaluating return on investment (ROI) performance for an income property?
A: When you buy an investment property, you are effectively buying an income stream. Therefore, it is important to be able to measure the performance of that income stream relative to other investment options you may be considering.
Many investors will look at ‘Capitalization Rate’, commonly referred to as ‘cap rate’ which is derived from dividing a property’s annual net operating income ‘NOI’ (gross income – operating expenses) into an asking price, as follows: NOI ÷ Price = Cap Rate. The higher the cap rate, the better the return. Since there is a direct relationship between price and cap rate, as the price of the property goes down, the cap rate goes up and vice versa. For example, an investment property costing $1,000,000 with a NOI of $60,000 has a cap rate of 6%. If that same investment property were to sell for $900,000, the cap rate on the same NOI ($60,000) increases to 6.7%. Cap rate analysis is a quick measure of a property’s first year return, but it only looks at a first-year pre-tax return (before any debt service) and not a full projected return over the holding period of the investment property.
Investors also look at ‘Cash on Cash’ as a measure of an investment’s potential. Cash on cash is derived as ‘cash flow before tax’ (net operating income – annual debt service) divided by initial investment = before-tax cash on cash. Cash on cash is an effective additional way to look at the performance of an investment property on a before-tax basis after annual debt service.
There are other more advanced methods to evaluate a property’s investment yield potential over a longer term or the projected holding period using tools such as Internal Rate of Return (IRR) and a Discounted Cash Flow (DCF) analysis. The bottom line is that when evaluating an income property investment, it is essential to analyze the ‘actual’ financials of the investment property during your due diligence period whenever possible to ensure you understand its performance and can compare the performance against other investment options and then make an informed investment decision. Also, use caution when evaluating only pro-forma (not actual) income and adjust your investment risk threshold and decision making accordingly if actual financials are not available.
1. Give yourself plenty of time to find a suitable property and execute a lease. Commercial inventory available in the local areas is low and you will have competition for spaces. 3-6 months from the time you start to the time you want to be in the new space is strongly recommended. A space requiring a buildout will likely require even more time for architecture, engineering, permitting and construction. So start your search process early!
2. Interview and select a commercial agent to assist you with tenant representation and help you with your search. A good tenant rep can help you with the leg work of searching, possibly find off market opportunities for you, promote your needs with other agents and help you avoid potential pitfalls or mistakes in the lease negotiation process. In most cases, you will not have to pay the tenant rep, the landlord or landlord’s broker typically pays the tenant rep’s commission at lease execution. So why not have an expert resource in your corner? Engage the services of a commercial tenant representation agent!
3. Make sure to look at a broad range of locations to identify the best rent value opportunity for your business objectives. For example, properties in the downtown St Pete market areas are commanding top rents due to the high demand and low inventory. Conversely, there are typically more spaces available in mid-Pinellas County and those prices per square foot may be more attractive to you. Do your homework on rents in the various sub-markets around Pinellas County and the greater Tampa Bay area and make an informed leasing decision!
Have a commercial real estate question? Let me know! Email me at: firstname.lastname@example.org
SOLD! Recently closed on my vacant land listing on 1st Ave S in St Petersburg. Great re-development potential in the Grand Central District. Congrats to the Seller and Buyer. Kudos also to Fidelity National Title for their quality title work!
Real estate signs look best with a SOLD rider!! Just closed on the sale of my office condo listing on Pasadena Ave S. Congratulations to the Seller and Buyer!