Commercial Real Estate Broker Austin

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Why you should hire a Commercial Real Estate Broker in Austin?

Whether you are a Buyer , Tenant or Seller of a commercial real estate property in Austin , wouldn’t you need a trustworthy professional to help you get a reasonable deal and help you avoid problems? There are plenty of situations over the past 15 years, where we have encountered the “do it myself” folks only to hear that they now have issues and need help, perhaps a bit too late?  Simple examples such as executing a lease that is way over market and now they are stuck and can’t sublet cause its too pricey.  They didn’t know what to look for in a lease document and now they have to pay much higher NNN expenses or they are liable for HVAC replacements.  There are many more examples that we can fill this article with.  So let’s discuss why its a smart move for you to hire a Commercial Real Estate Broker in Austin?

What is required by Brokers?Commercial Real Estate Broker in Austin

A professional commercial real estate broker in Austin must be licensed by the Texas Real Estate Commission and take continuing education every 2 years to renew their license.  You can’t get that looking at Loopnet like everyone else, there is expertise and knowledge from direct experience that has to be gained.  A Broker has a fiduciary to their client, that means represent their clients interests above their own first.  Does that mean a commercial real estate broker just does whatever their client tells them to do? No, it does not if a Client asks a seasoned professional to do something that is out of line, unreasonable they owe it to their Clients to let them know that it isn’t a good strategy and why.  Think about it, what is the reason to have experience and training if everyone knows more than you do, the bottom line is they don’t although the internet may trick you into thinking so.

Avoiding Problems

Filling our promulgated forms correctly is critical, which by the way costs the commercial real estate broker money just to have access to these. As a client, you get them for free! What a Deal! We have exclusive access to over 100 different forms , as a buyer, tenant or seller you have access to a few if you go it alone.  All commercial real estate brokers in Austin are supposed to abide by the National Association of Realtors Code of Ethics , the Code of Ethics holds commercial real estate brokers to a higher standard of professional behavior.  A Commercial Real Estate Broker in Austin has access to subscription only tools that we an pair with our experience of the local market and its trends to make sure negotiations are in your favor.  Don’t know what to look for in a For Sale contract, lease contract or listing agreement? We do.. although we cannot provide legal advice on language or re-write provisions we are able to point out the warning signs for Clients.  So, if you have a property for sale, property for lease, looking to purchase or looking to lease why not get an advantage to your team today? We are here to help, we help you, then we help ourselves in that order.

Austin Commercial Buildings

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Austin Commercial Buildings

Summary of Austin’s commercial buildings and activity for 2017 (portions obtained from Co-Star )

Austin is going thru expansions for commercial properties especially in the Downtown area.  Austin’s downtown commercial building leasing rates are up +30% compared with per-recession lows. Vacancies remain low as well with only approx 25,000SF of space avail for lease south of the Capitol building.  Pre-leasing activity remains strong for commercial buildings most of the new construction buildings deliver leased.  Over 2M square feet has been delivered to the Austin market since 2012.

Building Sales

Sales of Austin commercial buildings have hit highs , as high as $665 per square foot at a 5.9 cap rate. The specific Austin commercial real estate that sold for these numbers had new construction going for it as well as the average remaining lease terms were about 6 years and were to high credit tenants.

LEED Certified Buildings

Cap rates for commercial property

Unemployment rates in Austin stay Low

Another key factor is the robust population growth and how unemployment in the Austin area , for Q2 it hovered around 3.3% and moving into July of 2017, unemployment went below 3% . Business expansion was up to 5.7% . Key transportation issues and affordability has cropped up in the Austin area as it continues to grow. Vacancy rates have fallen to lows of not seen since the 2nd quarter of 2001.  For new construction moving into the third quarter, the sub-markets that saw the highest delivered new construction were East and Northwest Austin.

Austin Commercial Leasing

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Austin Commercial Leasing

 

This is a summary of Austin’s commercial leasing market for office space moving into the 3rd Quarter of 2017.  Continuing occupancy has been the theme for some time now in Austin. The current vacancy rates are now at a 16  year low.  Tenant demand remained strong for the 3rd quarter with approx 1M square feet of office space being leased for 2017. Construction wise for offices is expanding with approx an extra 2M square feet under construction . Austin commercial leasing for only 2 sub-markets was low which was Round Rock and East Austin.

Sectors producing the demandAustin office market Q2 2016

Austin’s commercial leasing for offices was lead by engineering and tech firms which accounted for more than 1/3 of the leases executed. Vacancy rates are not sitting at 8.8% which is down 50 points, the lowest since the second quarter of 2001.  Current OPEX costs have risen,up $0.30 cents per sf per year while NNN lease rates moved downward by $0.90 cents per square foot per year. The market is being supported by a very low un-employment rate coming in at 2.8% . Tenants can expect more of the same in the near term with rates staying static , most landlords are looking for minimums of 3+ year term commitments. Contact Shire Commercial to help you find a suitable office space , specialists in Austin Commercial Leasing.

Austin office space locations

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Master Lease

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Master Lease

Making money and profits in commercial real estate require an investor or owner to control a property. The most common way of course is ownership. Some investors purchase the property at least not right away. Instead, they can choose to master lease the property.

Scenario and Potential Solution

Example: Let’s say you are looking at a multifamily property that needs quite a bit of upgrading.  The investor could offer to purchase the property , but perhaps you do not have the ability to acquire the financing and maybe the owner does not want to sell the property using a land contract or a mortgage deal.

Cap rates for commercial property

Continuing with the property example, this property let’s say is not cash flowing to pay expenses , property taxes, and mortgage payments. The current owner wants to turn this money losing property into a profitable property.

However, they don’t want to spend the time and effort it will take to bring the property up to speed. The investor offers a master lease on the entire building and then guarantees the owner a steady income with no hassles. In return as the investor you retain the right to upgrade the property and the manage the property so you can increase the Net operating income.

Generally master leases give the lessee terms of 5-15 years, with an option to purchase at an agreed upon sales price down the road. During the period of the master lease, the investor would pocket the delta between what you pay to operate the property to include lease payments to the owner and the lease payments collected from tenants.

This becomes a profitable venture if you upgrade the property and increase the NOI as discussed above. Obviously your goal is to collect higher rents than what you are paying to the owner of the property.

Capital Reserves

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New Accounting Rules- Shorter Term Leases?

Banking institutions, financial service firms and other enterprises may have to take on new leasing negotiations. New rules regarding capital reserves against liabilities are going to be in place.  A Landlord -Owner can expect some of these types of organizations to negotiate leases with shorter terms and maybe fewer renewal options. This can provide some uncertainty for owners as to how they are going to manage assets with shorter lease terms for tenants.

Capital reserves must increase by 5% on a balance sheet. If a firms lease obligations total 50 million annually, then their  capital reserves would increase by 5 percent, or $2.5 million, to cover the liability. To minimize tenant turnover, the landlord will need to think more strategically regarding improvements and amenities to the property to retain tenancy.

 Example: Capital reserves to be required

A financial institution that has a 3 yr term lease in place with $1M in rent and $3M of liabilities, they would be required to have at 2X the liabilities $6M in capital reserves.

Negotiations on Office Lease OptionsAustin office expenses

Building owners will experience accounting changes regarding lease extension options.  This will require the existing tenant to review those options more carefully. If a lease offers  a tenant a better deal or discounted lease rate with a  lease extension at the end of the term, the “economic incentive” could impact how the lease is classified beginning on Day One.

If a tenant signs a 10-year lease with two five-year renewal options that carry an incentive, such as a 95 percent of market rental rate during the extension period. Even though the lease is technically a 10-year lease, it could be viewed as a 20-year lease for businesses’ accounting purposes if it there is a “good chance ” that the options will be exercised.

Within the new regulations, corporate real estate users will have to determine whether their office leases qualify for the finance or operating lease accounting treatment. This will require their assets and liabilities to appear on their balance sheets. Tenants may need additional time for lease negotiations because they have to bring additional people into the process.  An owner can expect possible delays so are advised to start the lease negotiation process as early as possible.