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Considering a Commercial Real Estate Investment Property? Read This First!

Posted on November 26, 2019 by Mike Kushner in Blog, Commercial Real Estate No Comments

Investing in commercial real estate can be one of the most lucrative real estate investments you can make. Investors can realize extraordinary capital gains and huge cash flow wins. On the flip side, there can be quite a drastically different outcome when your CRE investment properties sustain long vacancies or big drops in market value.

For many reasons, investing in commercial real estate can be higher risk than other types of real estate investments. This is why it’s so important to be well versed with its nuances and trends – or to have a trusted advisor who is. To put yourself in the best position for a favorable return on your investment, there are certain things anyone thinking about investing in commercial real estate should know. Here is a brief overview of the things you should think about to determine if investing in commercial real estate is right for you.

Start with a Solid Plan

Before you embark on any big undertaking, you should always begin with a plan. The same is just as true for commercial real estate investments. Before investing your hard-earned cash or equity in a commercial property, you should first have a proper investment plan in place that fully equips you to identify the right property for your portfolio. Without a framework to guide your decisions, you may make the mistake of buying a property on impulse or out of pressure from others, even when it really doesn’t fit your goals for long-term strategy, risk mitigation, capital growth and, cash flow.

Understand the Time Required to See a Return

Next, do your research to gain an understanding of a realistic time frame to see a return. Many new investors dive into things thinking they’ll surely see a return in a fraction of the time it will really take to fully develop the investment and make it profitable. Pulling out too early can mean losing a substantial part of your investment, so be sure you plan for the appropriate amount of time that your money may be tied up in a particular commercial real estate investment.

Join with Other Professionals Who Share Your Goals

Successful commercial investors rarely go it alone. They build a team of other professionals who share their same goals. A successful team includes commercial buyer’s agent, appraisers, commercial property inspectors, engineers, lenders and closing attorneys. All of whom are all an essential part of achieving success in real estate investing and who work together to set a clear strategy, conduct detailed research, and source the correct property at a fair price, and with the right conditions that fit the team’s goals. When it comes to choosing your team, choose wisely. Others involved should complement your own shortfalls in knowledge, and in return you may be able to supplement theirs.

Compare and Contrast Your Investment Opportunities

It might seem obvious, but those new to commercial investing often overpay. One of the best ways to prevent yourself from making this mistake is to know where the value point is on the property, be fully aware of comparable prices for any similar properties, and not become focused on the cash flow and lease structure. Paying too much for commercial property locks up your funds in a more rigid way than it would with residential real estate. Banks are far more reluctant to provide equity releases or cash outs for commercial investing.

Do Your Due Diligence

It’s okay to start out cautious. One of the biggest mistakes new commercial real estate investors make is signing on the dotted line without doing their due diligence. If this feels like a daunting task to take on, consider working with an experienced buyer’s agent whose job it is to analyze the property cash flows, educate the buyer on market value and market lease rates, and recommend other professionals (mentioned above). It takes time, resources, and an understanding of market connections to fully vet a commercial investment opportunity.

Consider Additional Expenses Beyond Your Investment

Smart commercial real estate investors know they must carefully allocate their budgets so there is sufficient coverage for expenses such as the mortgage, taxes, insurance, and advertising. When you don’t have enough cash flow to fund these areas, your property can quickly become a liability when really it should be an asset.

Keep an Open Mind

Just because your former tenant was a medical office doesn’t mean your new tenant has to be. This is why buying versatile commercial properties that allow a number of options is a wise investment strategy. When the real estate market fluctuates, you’re better prepared to tackle unexpected situations and experience fewer losses when doing so.

Have Contingency Plans

Finally and most importantly, you need to have at least one, if not multiple contingency plans in place in case things should take an unexpected turn. Investing in commercial real estate always comes with risks, some more than others. You need to be prepared to lose it all; therefore, you should have a plan in place of how you will react – and rebound – if that happens.

What is your experience with commercial real estate investments? Whether you’re a seasoned expert in this field, or have just started to explore the options available to you, giving these topics close consideration with each and every investment will put you in the best potion for a favorable return.

Do you have something to add to this list? Share your input by leaving a comment below!

Jobs – Not Economy – Drive Commercial Real Estate Activity

Posted on August 22, 2018 by Mike Kushner in Blog, CPBJ Articles, Trends No Comments

Note: This article was published by the Central Penn Business Journal. Click here to read the original version.

Earlier this month, it was reported that the number of Americans filing for unemployment benefits rose less than expected. To put this into perspective, claims dropped to 208,000 during the week of July 14, which was the lowest it has been since December 1969! After peaking at nearly 300,000 claims in October of 2017, we have seen a mostly steady (with some variation) decline in unemployment claims moving forward.

Dropping unemployment numbers indicate a strong labor market. The United States has an estimated 149 million jobs – 19 million more than it did just nine years ago. When you think about that type of job growth, it’s easy to see how it will have an impact on commercial real estate. To accommodate 19 million more workers, businesses have had to add space. Even for jobs that are run outside of traditional office space, there are still many more that do utilize office, retail or industrial real estate to some capacity.

Source: Bureau of Labor Statistics

Many people may assume that it’s the economy that drives commercial real estate activity, but really it’s jobs. The two are closely correlated, but for several compelling reasons jobs have the greater impact and drive businesses to either expand or contract their commercial space.

It all comes down to people and space.

Economic growth is measured by GDP and can be fueled by any number of factors, most of which won’t have a direct impact on commercial real estate. Businesses can earn more money without necessarily needing to hire more people or move into a different commercial location. Though it’s common that when the economy is growing, the commercial real estate industry becomes more active, the true driving force is jobs.

When businesses need more people, they also need more space to accommodate these people. A business using traditional office space is not likely able to hire more than three or so people before working quarters begin to feel a bit crammed. As a result, they move. It is increasing jobs, not just economy, that spurs new commercial real estate activity.

Change doesn’t happen overnight.

There is somewhat of a long tail on job growth driving commercial real estate activity. It takes time to catch up! When businesses are adding employees, they will usually make their current space “work” for as long as possible and then strategically move into a bigger space when they absolutely must. Conversely, when businesses are forced to lay off employees, they often stay in their current space, even if it means some space goes unused. The reason is it’s easier (and less expensive) to lay off employees as the first means of cutting costs than it is to downsize commercial space.

So, the job growth that we’ve seen over the course of many years is now driving the commercial real estate activity we are seeing today.

Slowing, but not stopping.

Job growth peaked in early 2015, then fell steadily through the end of 2017. Since then we have seen a modest, yet mostly steady increase in recent months. The reality is job growth, at any rate, cannot go on forever. The reason is, at some point, the United States will reach its “full employment” where everyone who wants a job, has a job. The unemployment rate, now at 4%, is about as low as it has been since the late 1960s, almost 50 years ago.

For commercial real estate, the link between job growth and space demand is clear and direct, though there may be lags. There will always be businesses who are looking to change their commercial space. Some will want more space, some will want less. Others will want to move to a newer space or will desire a different location. Businesses will close while others open. And so the cycle continues.

Short-Term Impact

Even with economic growth heating up, commercial real estate investors and property owners should not set their expectations for greater space absorption too high, at least in the short-term. Yes, there will be some pick-up in leasing associated with the spike in GDP growth. However, CRE professionals would be wise to focus more on job growth as the gauge for leasing prospects – and this outlook looks much more moderate because the ranks of unemployed workers available is largely exhausted. Looking at the short-term, we should not anticipate significant growth in property leasing this year. The surging industrial sector is the exception, which is the result of the shift from in-store to online shopping, not jobs.

Do you agree that it’s jobs, not the economy, that has the greater impact on commercial real estate activity? Why or why not? Join in the conversation by leaving a comment below.

[Online Resources] Real Estate, advice, blog, central penn business journal, Commercial Real Estate, cpbj, decline, Economy, effect, employment, expert, growth, impact, jason scott, job, jobs, labor, long-term, Mike Kushner, Omni Realty, opinion, rate, short-term, statistics, trends, unemployment

How to Prepare For a Commercial Business Relocation

Posted on June 25, 2018 by Mike Kushner in Blog, Commercial Real Estate No Comments

For any business who has navigated the challenges of moving into new office, retail or industrial space, you likely learned some valuable lessons along the way of things you would choose to do differently if you had to do it again. A commercial business relocation has a major impact on company culture, customer service and your bottom line. For this reason, it’s critical to be strategic about how you approach your move to set yourself up for a smooth and seamless transition.

To provide valuable insight on the topic of commercial business relocation, Omni Realty interviewed Dick Michaelian. Dick is a principal of Relocation Consulting & Management, Inc (RC&M) located in Mechanicsburg, Pennsylvania. Having been in the moving and storage business for over 36 years, with 26 of those with RC&M, Dick has helped local, state and federal governments, schools, colleges, healthcare, courthouses, museums and corporate businesses successful relocate to new facilities.

We asked Dick to answer five important questions regarding commercial business relocation covering everything from the biggest challenges to planning for a successful move. Take a look at Dick’s insight and advice that can be applied to any business or organization considering a relocation.

Omni: What are the biggest factors that cause businesses to relocate?

Dick Michaelian: The number one factor is change. While that sounds quite simple, it can be very difficult for an organization to change. Growing, shrinking, change of ownership or leadership are all examples of change. Other factors include the expiration of a lease or sale of a building as well as a desire to change a location because of customers or taxing entities.

Omni: For businesses considering a relocation, what are the most important details they should think through?

Dick Michaelian: A business should begin with the end in mind. How do you want everything to look and operate when the move is completed? From there, you should work back to where you are now and then determine how much time, money and effort will be required to get to where you want to be. Businesses often under estimate the amount of resources required for a good, effective relocation.

Another consideration is how to maintain your level of productivity during the transition. The last thing that should ever happen during a move is for a customer to be told “we can’t be of service to you because of our move.” The entire relocation should be virtually invisible to customers!

Finally, a business should strongly consider what and how it wants to change as a result of the relocation. Change will happen whether it is desired and planned or spontaneous and intrusive.

Omni: How early should businesses begin to plan for their relocation?

Dick Michaelian: The planning should begin as soon as the decision is made that the business is going to move. I’m working with a client now whose move is planned for late 2020 and they want to get a clear picture of what is required for their budget. Planning can never begin too early. The actual implementation of the plan usually begins about four to six months prior to the relocation.

Omni: Describe your recommended planning process for corporate relocation.

Dick Michaelian: The planning process begins with leadership setting the path and goal. From there, it’s getting everyone to work together using the same data. Effective communication is critical. A ‘team’ approach works best, utilizing resources from different facets that will be playing a part in the move – large or small: IT, procurement, facilities, operations, administration and leadership. It’s essential to have a “big picture” perspective of the project while assigning expectations and due-dates to the players.

Once the plan is agreed upon and set, any changes should be well considered. You never want to change a plan in the middle of the move. That rarely proves successful in the end, as often the goal changes as well.

Omni: In your experience, what factors most commonly impact the success of a business’s relocation?

Dick Michaelian: The single most important factor are people moving. The reliability of the planning team members and their dedication to the success of the project is critical. No one person can be responsible for a fantastic move – it’s a team effort. However, one person can really make it hard for everybody else if they don’t want to move or change. Management has to set the tone. Getting the different elements to buy into the change that needs to occur is difficult; but, with the right vision and passion, good leaders will help their organizations through the necessary transition. I always enjoy observing this process with successful businesses.

Moving can be very difficult. Good leaders who recognize that they are in the “people business” have the most impact on the success of a relocation.

Another factor is timing. You never want to move until the new space is ready. And yet, most relocations occur without a new, completed space. Construction delays, last minute changes and contractors not performing are the major causes of this situation.

You can create a great new working environment for your business; but, if the move goes poorly, that’s what everyone will remember. Don’t underestimate the vital importance of a well-planned, smoothly executed relocation from beginning to end!

Is your business considering a relocation to new retail, office or industrial space? What piece of advice did you find most helpful? Join in the conversation, or ask a question by leaving a comment below!

[Online Resources] Real Estate, advice, business, central pennsylvania, commercial, Commercial Real Estate, company, industrial, Mike Kushner, move, moving, office, Office Space, Omni Realty Group, organization, relocate, relocation, retail, tips

Does Your Commercial Real Estate Property Qualify for Section 110 Construction Allowances?

Posted on June 11, 2018 by Mike Kushner in Blog, Commercial Real Estate No Comments

Section 110 of the current Internal Revenue Code (IRC) provides an interesting opportunity for commercial tenants and landlords alike. Essentially Section 110, in certain instances, allows commercial tenants to make improvements to their leased workspace with the benefit of not having to recognize income for any cash payments or rent reductions that are expressly identified in the lease as qualified Section 110 allowances. Additionally, under a qualified Section 110 provision, the landlord will be treated as the owner of the constructed improvements and entitled to depreciation deductions as nonresidential real estate.

The purpose of this tax provision is to provide a set of rules for certain construction allowances, in which the tax reporting and treatment will be consistent between the lessor and lessee. It’s important to understand the nuances of Section 110 that determine whether such improvements qualify. Qualified property is nonresidential real estate which is part of, or present at, “retail space,” which property reverts to the lessor at the termination of the lease. The term of the lease must be 15 years or less, applying certain rules.

For most commercial landlords and their tenants, it can be overwhelming to understand how and when it’s appropriate to take advantage of Section 110. If you find that you’re uncertain as to whether your situation qualifies, don’t let this be the reason you forfeit this potential tax break altogether. When used properly, Section 110 can offer a huge benefit to both parties, allowing tenants to enjoy an upgraded, functional workspace, and allowing landlords the ability to improve their commercial property.

Take a moment to answer these questions to determine if your property might qualify under Section 110. To help us answer, we’ve enlisted the expertise of Jim Holland, Certified Public Accountant (CPA) to offer insight into qualifying for this tax deduction. *It’s important to keep in mind that these are simplified questions and answers. More details may be necessary to fully assess your situation.

Is my space considered “retail?”

If you leased, occupied or use space in your trade of selling tangible personal property (i.e. products or goods) or services to the general public, this is considered retail space. You qualify!

Am I in a short-term lease?

If your lease, with extensions, is not greater than 15 years in length this is considered a short-term lease. You qualify!

Am I constructing qualified long-term real property for use in my trade or business?

If you construct nonresidential improvements (sec 1250 property vs. sec 1245 property) which revert to the lessor (i.e. landlord or person leasing you the space) at termination of the lease, the answer to this question is yes. You qualify! A note of caution: if the lessor chooses to use a cost-segregation study to reallocate the costs, a different language must be used in the lease agreement.

Who will ultimately own the improvements to the property?

To adhere to the requirements under Section 110, your lease must specifically indicate that the lessor retains ownership of all improvements to the property. In this case…you qualify!

Do I have an official agreement between the tenant and landlord?

If you have obtained a signed agreement, before payment or before the reduction in rent begins, from the lessor to lessee…you qualify!

Will the allowance be expended in the tax year it is received?

If the full amount of your construction allowance is expended within 8 and 1/2 months after the close of the tax year…you qualify!

Will both the landlord and the tenant disclose this information with their tax returns?

In order to fulfill this requirement, you must disclose both the landlord and tenants names, addresses, employer IDs, location, and amount reported on both lessee and lessor tax returns. In doing so…you qualify!

Does the Safe-Harbor Exclusion apply?

If you have met all of the above requirements, the safe-harbor exclusion applies to your situation. You qualify!

As you can see, Section 110 provides a valuable opportunity for commercial tenants and landlords to improve their spaces while each receiving a benefit for doing so. If you meet the requirements, and it makes sense for your situation, taking advantage of the Section 110 tax breaks could open up new possibilities to create the commercial space you’ve dream about having! The most important thing to keep in mind is that you must be aware of the requirements to qualify under Section 110 in order to receive the maximum benefit. Speak to a professional advisor before entering any contract or commitment.

*General Disclaimer: These are simplified answers and your situation may be more complicated. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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Who Really Represents You in a Commercial Lease Negotiation?

Posted on January 24, 2018 by Mike Kushner in Blog, Tenant Representative/Buyer Agent No Comments

Who Really Represents You in a Commercial Lease Negotiation?

When it comes to leasing commercial workspace, too many tenants mistakenly believe that the landlord’s leasing agent/broker will somehow represent them in negotiations. Unfortunately, this is never the case.

The important question that this article answers is, “Who really represents who in a commercial lease negotiation?”

As a tenant, your wants and interests are usually different than the landlord’s, at times even diametrically opposed. It’s impossible for one broker to represent both sides of your deal faithfully and fairly. There will always be conflicts of interest and the broker most often favors your landlord, not you as the tenant.

Too often, a commercial tenant begins the process of leasing office space without hiring a tenant representative to 100% exclusively represent them. Usually they do not realize that a tenant rep is not at the cost of the tenant, since the tenant rep will normally co-broke a commission with the listing agent.

At some point, tenants then find themselves too far down the road to fully benefit from the expertise, advocacy and unbiased representation of a true tenant rep. This can result in a number of troubling issues and frustrations for the tenant. These include losing the upper hand in negotiations, being subject to unfair pricing and unsatisfactory terms and too late realizing that things could have gone far better if they had a professional dedicated solely to representing their best interests.

It’s important for every commercial tenant to understand the vast difference between a tenant representative and a traditional commercial real estate broker.

Helping us answer this critical question and more is William Gary, Principal at MacLaurin Williams, LLC and founder of The Tenant Rep Channel. Gary’s firm is committed to exclusively representing commercial tenants and owner-occupants and creating valuable resources that help to educate the public on the value of exclusive, 100% tenant representation.

Differences Between Tenant Representatives and Traditional Real Estate Brokers

A real 100% tenant rep should be able to meet all the criteria needed to take the exclusive tenant rep pledge. A landlord’s agent or traditional broker simply cannot make this pledge to tenants and owner-occupants. A real tenant rep never puts him or herself in position to double-end an occupier’s transaction and double-dip on fees/commissions. That’s what traditional CRE brokers frequently attempt to do. It’s their highest goal.

Furthermore, a 100% tenant rep acts as a true fiduciary, advocate and loyal, obedient agent for an occupier. On the other side of the table, the opposing landlord’s agent does this for the landlord. A true 100% tenant rep also conscientiously avoids and turns away from conflicts of interest. Traditional brokers create and run towards them to try and double their fees in your transaction.

Vision and Mission of the Tenant Rep Channel

After resigning from the ITRA Global Organization, MacLaurin Williams, LLC still wanted to have a 100% tenant rep network to serve multi-market clients. Gary explains, “We wanted to compete harder and more effectively against large tenant rep chains and traditional brokerage houses that all perform tenant representation.”

Initially, The Tenant Rep Channel was intended to be an informal 100% tenant rep network just for MacLaurin Williams’ own use. But it escalated when Gary asked two other 100% tenant reps, Chris Carmen (Indianapolis) and Craig Melby (West Palm Beach/Asheville) if they might find a use for it, too. They were immediately interested – and so it grew from there!

Unlike traditional CRE broker networks, The Tenant Rep Channel is an informal, virtual model that doesn’t have any initiation fees, dues, required conferences, travel expenses for airfares and hotels, by-laws or contracts. The mission: Just keep it simple and base it around a shared Google map + list of major markets that every participating 100% tenant rep firm must prominently display on its own website.

Amazingly, the bigger independent, 100% tenant rep firms were just as interested in The Tenant Rep Channel’s marketing tool as the smaller firms. They still felt like they needed a big coverage footprint to compete head-to-head more successfully against the big brokerage houses, such as CBRE, JLL, C&W, Colliers, Newmark, etc., as well as Savills Studley and Cresa as tenant rep chains.

The Tenant Rep Channel’s growing success comes from its ability to provide a big coverage footprint for independent, 100% tenant rep firms. It’s an instant and very real 100% tenant rep network, with most TRC principals having 20 and 30 years of CRE experience. It’s a super heavyweight group in terms of experience, talent and skills.

Omni Realty Group is proud to be a part of The Tenant Rep Channel’s growing network.

How Awareness of the Traditional Broker Conflict Will Reshape Commercial Real Estate

With more education and awareness of the inherent conflicts of interest in the traditional CRE broker model, combined with new resources like The Tenant Rep Channel, you might anticipate that a major shift would take place in the Commercial Real Estate Industry where tenants and buyers would flock to and favor 100% tenant reps over traditional brokers.

However, Gary notes, “Too many occupiers still believe that CRE brokers are pretty much all the same, other than some work for big firms and some for smaller shops.” He goes on to add, “Occupiers often know some CRE brokers as friends or family and they’re comfortable hiring them without understanding the complexity of local agency laws.”

As 100% Tenant Reps, we’ve not done a good enough job of making it clear that the CRE Industry is terribly plagued by conflicts of interest and that these conflicts of interest frequently do serious damage to the best interests of occupiers. Most people can grasp that their attorneys should not have any conflicts of interest in their legal matters; it’s more of a Win vs. Lose situation. But occupiers don’t make the same leap when it comes to hiring CRE Brokers to handle their CRE transactions.

The bottom line is that in order to reshape the Commercial Real Estate Industry, it’s incumbent upon 100% tenant reps to better explain “why” conflicts of interest are so damaging for occupiers. We need to educate tenants and buyers on what can go wrong. Simply saying, “We don’t have conflicts of interest,“ doesn’t resonate with occupiers. It’s not nearly enough.

Occupiers need to learn why conflicts are harmful for them; how they can waste tons of valuable time and spend significantly more money; money that is their valuable net profits.

Gary concludes with these final thoughts, “One thing that we initially hoped would occur on The Tenant Rep Channel is happening. By being connected through this network, creative ideas are getting shared worldwide and some really innovative things are blossoming organically.

The 42Floors Elite Site Widget, which is a full market, commercial property search module for our own websites, is one example. I urge every 100% tenant rep to check it out and really assess the value it could have for your business. We all need to get serious about educating occupiers on the stark differences between 100% tenant representatives and traditional CRE brokers!”

Do you have another question related to the differences between tenant representatives and real estate agents? We welcome you to join in the discussion by leaving a comment below!

[Online Resources] Real Estate, advice, agent, answers, broker, buyer agent, commercial lease, Commercial Real Estate, conflict of interest, exclusive, industrial, Mike Kushner, negotiation, office, onmni realty group, retail, technology, tenant rep, tends, the tenant rep channel, traditional, william gary

Central Pennsylvania’s Retail Real Estate Market Experiences Record-Setting Quarter

Posted on September 15, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

This quarter has posted some of the highest and lowest numbers we have seen since 2012. In Central Pennsylvania’s local retail real estate market, vacancy rate is low, rental rate is high and both net absorption and total RBA have increased. But overall, what does this tell us about the state of our economy and what we can expect in future quarters?

Let’s take a closer look at some of the record-setting numbers we experienced in Central Pennsylvania’s retail real estate market in 2016’s second quarter and what they mean to the health of the economy.

Select Year-to-Date Deliveries:

Coming in at number three on the list of select year-to-date deliveries is the retail property located at I-81 and Walker Road in Chambersburg. Phase I and II, delivered in Q1 2016, total 109,237 square-feet of space that is 92% leased (44,000 square-feet with 4,400 square-feet vacant). Some of the major tenants include Kohl’s, Target, Giant, Red Robin, Staples, PetSmart, Michael’s, Olive Garden, VisionWorks, ATT&T and many more. Palisades Development, LLC are currently processing LOIs for the remaining space. Phase III is planned and construction will proceed when leasing warrants.

At number 15 on CoStar’s list, is another Palisades Development, LCC retail property located at 968 Norland Avenue in Chambersburg. This 10,800 square-foot building is 100% occupied and was also delivered in Q1 2016.

Select Top Retail Leases:

On the list of Select Top Retail Leases, Harrisburg area east claimed the top spot. Listed at number one is the Harrisburg East Shopping Center with 69,954 square-feet of space. Although not listed by CoStar’s as a “Select Top Retail Lease” for this quarter, plans are in place for the Giant currently in Colonial Commons, to make a move 0.2 miles down Jonestown Road to the Harrisburg East Shopping Center into the retail space formerly occupied by Gander Mountain. This will provide more space for Giant and is already attracting additional retail businesses nearby including a CVS Pharmacy and potentially a fast-casual restaurant, reports KIMCO, owner of the shopping center.

Select Top Sales:

Only one of the nine Select Top Sales from April 2015-June 2016 is from the Central Pennsylvania submarket. The Shoppes at Susquehanna Marketplace sold for $44,000,000 to Clarion Partners. With an RBA of 110,365 square-feet, this came at a cost of $398.68 per square foot.

Additionally, the West Porte Center, listed by CoStar as a Select Top Retail Lease, is more accurately represented as a sale. PennDOT purchased 67,126 square-feet of land for a new Amtrak station in Middletown that is expected to be finished in 2018. This is estimated to be a $32 million project which will include features like a covered pedestrian bridge to provide direct access to Penn State Harrisburg’s campus.

Absorption and Demand:

Net absorption increased this quarter from 64,467 square-feet (in Q1) to 110,449 square-feet, currently. Total RBA also increased, though just slightly, from 88,822,714 square-feet (in Q1) to 88,854,312 square-feet, currently. Six buildings were delivered with a total RBA of 31,598 square-feet. Additionally, five buildings are under construction.

Vacancy:

This quarter, the vacancy rate decreased by 0.1% to 4.7%. This once again matches the vacancy rate of Q4 2015, which is the lowest rate the Central PA submarket has experienced since prior to Q3 2012.

Rental Rate:

The quoted rental rate increased this quarter by $0.11 to $12.00. This is the highest price per square-foot the local retail real estate market has experienced since prior to Q3 2012.

Our Summary/Analysis:

Q2 2016 provided to be an exciting and record-setting quarter for Central Pennsylvania’s retail real estate market. We experienced a recent record low for vacancy rate at 4.7% and a recent record high for quoted rental rate at $12.00 per square-foot. These two trends go hand in hand, so it’s no surprise they would correlate together.

Another positive indicator for the health of the retail real estate market is the increase in net absorption and total RBA. Though neither were record-setting per se, net absorption nearly doubled in a single quarter which is impressive in its own right. It’s safe to say that the market is growing in demand, increasing in price and is able to absorb the new buildings that have been delivered.

What trend do you think will have the greatest impact on the Central Pennsylvania retail market? Share your insight by commenting below!

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5 Signs You Need New Office Space

Posted on August 7, 2016 by Mike Kushner in Blog, Office Leasing, Tenant Representative/Buyer Agent No Comments

It can be difficult to see the signs that you need new office space for your business. Maybe it’s the fear of change or the discomfort of moving all of your files, equipment and employees to a new office. Whatever the hesitation, the consequences of not moving to a better functioning space can be far worse than the temporary inconvenience of relocating.

Take a look at these five signs that you might need new office space and think about how they relate to your own work environment.

You’re struggling to retain/attract talent

Is your turnover rate increasing? Are potential hires turning down your job offers? While many other factors contribute to these issues, don’t underestimate how your office space may be playing into the struggle to find and retain talent. People want to work in an energizing, fun and inspiring environment. If your office space is crowded, disorganized and in desperate need of repairs, it’s time to look for an upgrade or risk having talent walk right out your door.

There’s a lack of privacy

While it may seem fun and hip to have your employees work in one big open space together, keep in mind that people need privacy, just as much as they need community, to get work done. If your office space lacks a private area for holding meetings or making phone calls – or even just a space where employees can go to work in silence for a few hours, it’s time to look for an office that provides a little more privacy.

It doesn’t reflect your brand or company culture

Are you an innovative tech startup, but you’re working in an office space that looks like it belongs to a law firm from the 1950’s? When your work environment contrasts with your brand and company culture, it can have a negative impact on your employees. It’s important to work in a space that complements the brand you’re working to create. This is a subconscious reminder to employees of the business’s core values you want them to represent in everything they do.

There’s no room for growth

If you’re a business that has plans to grow your operations and add to your number of employees, yet you don’t have room for one more desk, let alone a filing cabinet, it’s time to start looking for new office space! Don’t wait until you are desperate to move, or you may make a desperate decision that isn’t in your best interest. Start looking for more space preemptively and work with a qualified commercial real estate broker who can help you negotiate the best deal possible.

You’re paying too much

Finally, if you’re dumping too much of your profits into your office lease, it’s time to look for a more financially responsible work space. Sure, a pricy loft with views of the Harrisburg Capitol is great for your ego, but it’s terrible for the sustainability of your business. This is a red flag that it’s time to work with a tenant representative who can show you a wide variety of attractive options while staying within your budget.

Can you relate to one or more of these signs? Ask us your office space related questions and we will personally respond with our expert advice!

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6 Lessons Learned from a Tenant Rep

Posted on July 18, 2016 by Mike Kushner in About Us, Blog, Tenant Representative/Buyer Agent No Comments

As the owner of Omni Realty Group, Mike Kushner has been exclusively practicing Tenant Rep/Buyer Agency since 1998, when he first established the company. Now, with almost 20 years of experience under his belt, Mike shares his top six most valuable lessons learned from his career as a tenant representative/buyer agent.

Everyone Deserves to be Treated with Respect

This lesson is so simple, yet so often overlooked. Any successful business owner, regardless of industry or size, should treat everyone they encounter with respect. The bottom line is that you never know how they may impact your business in the future. Employees, vendors, customers and anyone else can all serve as walking testimonials for your business – and you. Give them every reason to talk about how great you are to work with. Don’t risk having someone out there badmouthing their experience with you because of something that could have been prevented by treating them with a little more respect.

Never Take Your Reputation for Granted

Businesses balance on their reputation of service and the ethics and integrity of how they provide that service. I have always operated my business with an important rule in mind: We are the reputation we create. There’s really no way around it; you are the only one who can make or break your own reputation. Make every effort to protect it!

Do What You Say You Are Going to Do

Few things can destroy the integrity of the relationship that exists between service provider and customer as quickly as non-performance. Fail to deliver, and the customer will lose trust and become justifiably skeptical of future commitments. Furthermore, they will quickly move on to someone who will deliver

We Are Always Learning

Every day brings new experiences that broaden my understanding of this wonderful industry that is my livelihood. Keep your eyes and mind open to opportunities to learn. These can come in unconventional ways and at unexpected moments – don’t overlook them!

It’s Often Difficult for Tenants and Buyers to Spot “Double Dipping”

This lesson is very frustrating for an exclusive tenant representative and that is that tenants and buyers don’t easily see that a broker is taking advantage of them with a “double end” deal (i.e. collecting commission checks on both sides of their transactions). Also known as “double dipping” in commercial real estate circles, this practice is far more common that it should be.

Not only is it greedy and unfair, it’s insulting to the tenant or buyer to think that they aren’t smart enough to eventually realize what’s going on. The bottom line is that listing or selling brokers are salesmen. They get paid more if you lease in their listed building and are therefore incentivized to get you to do so. If you work with anyone who is not an exclusive tenant rep, you are not likely to see all the options truly available to you.

Business Should Review Their Lease Far More Often Than They Do

Most businesses only look at their leases every five years (or right before renewal). The truth of the matter is that real estate occupancy cost is a major expense for any business and should be reviewed on a regular basis, at least annually. Furthermore, the terms of your lease should provide for a lease audit to allow you to ensure that expenses being passed through to you, the tenant, are fair and accurate.

In short, working with a commercial real estate broker should be a pleasant and stress-free experience. If it’s not, you’re likely working with the wrong broker who isn’t putting your interests first. If nearly 20 years of experience has taught me anything, it’s that the people – not the property – are the priority.

Which of these lessons do you feel is the most important for running a successful and respected business? Share your opinion by commenting below!

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Central PA Retail Market Reacts to 7 New Buildings Delivered in First Quarter 2016

Posted on June 27, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

2016 has already proven to be an interesting year for Central Pennsylvania’s retail real estate market. A total of seven new buildings were delivered this quarter alone with a combined RBA of nearly 150,000 square-feet of space – only some of which is occupied. As a result, this new space has impacted vacancy and rental rates as well as net absorption. Here is a more detailed look at some of the highlights from Q1 2016 for Central Pennsylvania retail.

Select Year-to-Date Deliveries:

Seven new buildings were delivered to the Central Pennsylvania retail market in Q1 2016. Six of these properties made it to CoStar’s list of the Philadelphia Market’s Top 15 Select Year-to-Date Deliveries. They are as follows:

Number 2 on CoStar’s list is the building at I-81 and Walker Road with an RBA of 109,237 square-feet that is 12% occupied.
Number 7 on CoStar’s list is the building at 968 Norland Avenue with an RBA of 10,500 square-feet that is 71% occupied.
Number 10 on CoStar’s list is the building at Cedar Crest Crossing with an RBA of 7,310 square-feet that is 100% occupied.
Number 11 on CoStar’s list is the building at 2101 Strickler Road with an RBA of 7,043 square-feet that is 0% occupied.
Number 13 on CoStar’s list is the building at Donegal Square with an RBA of 6,108 square-feet that is 0% occupied.
Number 15 on CoStar’s list is the Chik-Fil-A located at Chambersburg Square with an RBA of 5,000 square-feet that is 100% occupied.

Absorption and Demand:

After hitting a low of negative 152,049 square-feet in first quarter 2015, net absorption has been on a steady climb. However, this trend came to an end this quarter with a significant decrease in net absorption, dropping from 281,270 square-feet (Q4 2015) to 105,984 square-feet (Q1 2016). The seven new buildings, with a combined RBA of 149,898 square-feet, most certainly had an impact on the market’s ability to absorb the new space. It’s also worth noting that Central Pennsylvania comes in second, only behind suburban Philadelphia, in year-to-date net absorption and deliveries.

Vacancy:

This quarter the vacancy rate barely budged, increasing from 4.8% to 4.9%. What’s worth noting is that this is one of the very few times we have seen the rate increase during a nearly four-year-long trend of decreasing rates. After hitting a high of 6.0% in the latter part of 2012, rates hit their lowest number last quarter at 4.8%. Could this quarter’s increase be the start of an ongoing trend of increasing rates? The seven new buildings delivered to the market this quarter would indicate yes, which brings us to our next area of focus.

Rental Rates:

Lastly, the quoted rental rates have increased by $0.05, from $11.83 last quarter to $11.88 this quarter, returning them nearly to where they were in Q3 2015. Over the past four years, Central Pennsylvania’s rental rates for retail space have increased and decreased without much consistency. It will be interesting to watch these numbers throughout the rest of the year.

Our Summary/Analysis:

With nearly 150,000 square-feet of new retail space dumped into the market this quarter, Central Pennsylvania has responded to these changes well – all things considered. The vacancy rate moved just ever so slightly and rental rates actually increased, proving the market has a demand for this new space. Further proof is that Central Pennsylvania ranks second to suburban Philadelphia in year-to-date net absorption and deliveries. We should keep a keen eye on how the new construction will continue to impact our local businesses and economy as there is sure to be additional movement and emerging trends!

What trend this quarter do you find most noteworthy? Share your thoughts by commenting below!

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ABC’s of Commercial Real Estate: What you need to know about each classification of office space

Posted on June 8, 2016 by Mike Kushner in Blog, Commercial Real Estate, CPBJ Articles, Office Leasing No Comments

Note: This article was originally published by the Central Penn Business Journal. Click here to read the original version.

You are likely aware that there are different classifications of office space, specifically Class A, B and C. But what qualities determine the letter associated with any given commercial property? Is it the location, the layout, the finishes or the amenities?

The answer is it has to do with all of these things! The classification of office space is very important to keep in mind both as a real estate investor and as a business tenant. Your budget and use of the space will help determine the class best suited for your needs. When looking to rent or buy commercial real estate, you can save a lot of time and frustration by teaming up with an experienced tenant representative or buyer agent who can advise you on the most appropriate class.

Here’s an overview of the pros and cons of each of the three classifications of office real estate!

Class A

Overview: As you might expect by the name, Class A office space is considered extremely desirable investment-grade properties and command the highest rents or sale prices compared to other buildings in the same market. These buildings are in prime locations with efficient tenant layouts that function as well as they look. Some Class A office space is an architectural or historical landmark designed by prominent architects. Simply put, Class A office space is for the renter or investor who wants the highest level of quality and convenience and is willing to pay a premium for it.

Pros: With Class A office space, you know you’re getting the best – the best location, layout, finishes and amenities. You are likely to have other desirable businesses as your “neighbors” in the same building which can increase the value of your space. You can also rest assured knowing the space will be well maintained for the premium price, meaning less headaches or inconveniences for you in the long run.

Cons: This class of space comes with the highest rent or sale prices. You may also have less negotiation power since the space you’re getting is usually in top condition with every advantage to drive the price high – including many businesses who are eager to jump on the space if you don’t.

How It Relates to the Local Market: The Central Pennsylvania submarket has 93 existing buildings that are classified as Class A. Combined, that’s a total RBA of 8,820,990 square-feet. After submarkets Philadelphia CBD/Non-CBD and Southern New Jersey, Central PA is the submarket with the lowest vacancy rate in CoStar’s Philadelphia Office Market Area, coming in at 9.9% in first quarter 2016. The average asking rental rate for this the first quarter is $19.78 which is the third lowest rate in the market area.

Additionally, it’s worth noting that just because two buildings are both considered Class A, does not mean they are equal. This is all the more reason to work with an experienced tenant representative who can help you find the best space at the best price to meet your needs. Just take a look at the example of these two buildings in the Central PA submarket below. Both are Class A, but for which property would you be willing to pay the premium price?

Class A Office Space located at 100 Sterling Parkway, Mechanicsburg, PA

Class A Office Space located at 3 Crossgate Drive, Mechanicsburg, PA

Class B

Overview: Class B office space is a step down from Class A space in its location, design, quality and amenities. As such, this space carries a lower price tag. Class B buildings offer utilitarian space without special attractions and have “ordinary” design, compared to Class A. These buildings typically have average to good maintenance, management and tenants. They are less appealing to tenants than Class A properties, and may be deficient in a number of respects including floor plans, condition and facilities. They lack prestige and must depend chiefly on a lower price to attract tenants and investors.

Pros: Since Class B office space is “middle of the road” for the classes, you have the advantage of getting a better work environment than Class C for a price that’s less expensive than Class A. As an owner or investors of Class B space, you’re likely to find many tenants whose budget and expectations align best with Class B space.

Cons: On the flip side, Class B space has several drawbacks to consider for the cost savings. It’s not likely to be in as prime of a location as Class A nor have the same amenities and quality of finishes. You may find the layout to be less convenient and the building and its other tenants to be “less prestigious” than Class A.

How It Relates to the Local Market: The Central Pennsylvania submarket has 1,303 existing buildings that are classified as Class B. Combined, that’s a total RBA of 28,378,254 square-feet. With a vacancy rate of 7.7% in first quarter 2016, it is the lowest of any submarket in CoStar’s Philadelphia Office Market Area though it’s average asking rental rate is only the third least expensive at $17.36, coming in higher than I-81 Corridor and Southern New Jersey. If you find it overwhelming to understand and interpret the local market trends, a tenant representative/buyer agent can guide you with knowledge and expertise. He or she knows how these trends impact demand and pricing and can use it as leverage to help you negotiate the best deal.

Here are two examples of Class B office space so you can see the variations within a single class.

Class B Office Space located at 200 N. Third St., Harrisburg, PA

Class B Office Space located at 204 S. 3rd St., Boiling Springs, PA

Class C

Overview: Class C office space describes buildings that generally qualify as no-frills, older buildings that offer basic space and command the lowest rents or sale prices compared to other buildings in the same market. Such buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige. Things like inferior elevators, mechanical or electrical systems help reduce the cost, but also increase the possible headache for tenants. These buildings lack prestige and must depend chiefly on a lower price to attract tenants and investors.

Pros: The biggest benefit of Class C office space is its low price in comparison to Class A and B. If you’re looking for a simple and understated work space with zero frills, Class C might be a great option to help you stick within your budget while still gaining the space you need to grow your business.

Cons: When looking at Class C space, you need to keep your expectations in check. This is the lowest of the classes and likely to be the least desirable work conditions as well. There may be things that need obvious repair, the building and its location may leave a lot to be desired and your neighboring tenants are not likely to be prestigious businesses. Having said that, sometimes you can get lucky and find a Class C space in an area that still has “good bones” and a lot to offer the right business. It’s always important to keep an open mind, especially when working with a limited budget!

How It Relates to the Local Market: The Central Pennsylvania submarket has 2,162 existing buildings that are classified as Class C. Combined, that’s a total RBA of 16,600,363 square-feet. With a vacancy rate of 5.1% in first quarter 2016, Central PA has the second to lowest vacancy rate in CoStar’s Philadelphia Office Market Area. It’s average asking rental rate for the first quarter is $14.99 which is the second lowest only to I-81 Corridor.

Again, here are two examples of Class C office space so you can see the variations within a single class. Depending upon your requirements, Class C office space might be just what you need, but make sure you work with a real estate broker who exclusively represents tenants and buyers to ensure you’re getting a fair and favorable deal!

Class C Office Space located at 4655 Linglestown Rd, Harrisburg, PA

Class C Office Space located at 1505 Market St., Camp Hill, PA

What other questions do you have about the different classifications of commercial office space? Ask by commenting below!

Note: This article was originally published by the Central Penn Business Journal. Click here to read the original version.

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