investors real estate investment opportunity in california General Information
Commercial property
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Types of Commercial Real Estate
Commercial real estate encompasses a wide array of property types, including office buildings, apartment properties, malls, shopping centers, warehouses, distribution facilities, and research-and-development or research-laboratory properties. Buildings made up of a mix of office and industrial space are called “flex” properties. If 50% or more is office, the property is called “office/flex.” If less than 50% is office, it is called “industrial/flex.” Some flex properties include research-and-development or laboratory space.
Most investors also consider hotels to be commercial real estate, but some look at hotels as operating businesses, and lump them in with a subset of properties that include assisted-living facilities and casinos.
With the possible exception of raw land, all commercial properties, including the “niche” properties described below, have one trait in common: They are capable of producing income, either in the form of capital gains or rental income.
Niche Property Types
In recent years, an increasing number of investors have begun investing in so-called niche property types. These include specialty properties such as apartment complexes specifically for college or university students, age-restricted apartment complexes for older residents, self-storage facilities, and office buildings that cater to doctors and other medical-related tenants.
Other investors acquire raw land, with the goal of obtaining the appropriate permits so that, within zoning regulations, properties could be built on it.
Some investors are beginning to look at infrastructure as a possible niche real estate investment. Currently, infrastructure is often classified as a subset of private equity investing. Some companies invest in “social infrastructure” (prisons, courts, hospitals, municipal garages, municipal buildings and schools) or “transportation infrastructure” (airports, rail stations, ports, toll roads, bridges and tunnels) – areas that have some crossover with real estate. For example, there are already real estate investment trusts that invest in prisons, and investment funds that invest in hospitals or garages. And most airports and rail stations have a retail/restaurant component.
Private Equity Real Estate Investments
Some investors make private equity-style real estate investments. Such investors acquire real estate-owning companies or stakes in such companies, rather than invest in individual properties or real estate debt. Another form of private equity real estate investing is the creation of a company, which would then invest in real estate-owning companies, properties, debt or a combination of the three.
Basic Terms to Know
Office, industrial and retail properties are measured in square feet. Buildings can be measured in “gross square feet” or “net square feet.” A 1987 article in the New York Times offered definitions of both terms: Gross square feet - “the sum of the areas at each floor level, including cellars, basements, mezzanines and …. Included are all stories or areas that have floor surfaces with clear standing head room (6 feet 6 inches minimum) regardless of their use.” Net square feet - “the sum of all areas within the perimeter walls of the unit measured to the inside faces of said walls and including all columns, shafts, ducts and risers whether separately enclosed or not.”
Apartments, hotels and self-storage facilities can be measured in square feet, but are more commonly measured in units or rooms. For example, an apartment complex may have 200,000 square feet, but would more commonly be described as having 1,500 units. A hotel may have 100,000 square feet, but it would be more common to identify it as having 500 rooms, or "Keys".
Properties are often identified not only by their address, city or state, but by the submarket in which they are located. Some submarkets are essentially neighborhoods, such as in Manhattan, which identifies such places as Chelsea, Harlem and Times Square as submarkets. Other submarkets are regions, such as Northern New Jersey or Silicon Valley, in Northern California.
The cap rate is the initial annual return that a buyer can expect on his investment. It is calculated by dividing the projected net operating income for the first year of the investment by the purchase price. If a building sells for $10 million and generates $1 million of projected net operating income, the cap rate is 10%. Investors can use cap rates to compare the returns of their real estate holdings to the performance of other types of investments, such as stocks and bonds.
For some properties, it is important to consider the initial annual return. But for other properties, it is more appropriate to consider the stabilized return – ones that are either not well leased, have leases that are about to expire or are candidates for conversion to other uses. The stabilized yield is determined by calculating a projected yield after the building’s performance has been maximized.
Properties can have various types of leases. A traditional office lease is considered a gross lease – meaning the property owner is responsible for virtually all costs related to the leased space, ranging from taxes and insurance to water and power costs. By contrast, some office tenants, and most industrial and retail tenants, pay a net lease. In such a scenario, the tenant is responsible for the costs related to the space. Depending on how many of the costs are assumed by the tenant, a lease may be considered single-net, double-net or triple-net. The charges and payments of building expenses are also known as Common Area Maintenance (CAM) expenses. In a typical net-lease, the tenant shall reimburse the landlord for all expenses related to the maintenance of the property such as cleaning, gardening, snow-removal