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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!

What’s the difference between a listing agent and tenant rep agent?

Posted on April 8, 2019 by Mike Kushner in Blog, Tenant Representative/Buyer Agent No Comments

The use of the term real estate agent casts a broad umbrella under which people tend to lump all real estate professionals into the same category. The truth is that there is a big difference between the role of a listing agent and a tenant/buyer agent. While both might be referred to as simply a “real estate agent,” it’s important to understand when and how you would use each when it comes to buying or selling real estate.

Listing Agent – A listing agent might also be referred to as a seller’s agent. This is the person who represents the seller or landlord in a deal. His or her job is to list and market the property to attract potential buyers, then negotiate an acceptable deal on behalf of the seller.

Tenant/Buyer Agent – On the other side of the deal you have the tenant/buyer agent. This is the person who represents the tenant or buyer looking to lease or purchase property. His or her job is to find and bring a tenant/buyer to properties which meet their criteria, then represent them in a deal to ensure terms and pricing is fair to the buyer.

How is a listing agent compensated?

Most commonly, a listing agent signs an exclusive right-to-sell/lease listing with the seller/landlord, meaning only the listing agent’s brokerage is entitled to an agreed upon commission upon the sale or lease of the property. The brokerage then typically shares the commission with the agent. Exclusive listings are bilateral agreements between a broker and a seller/landlord. It’s important to know that a listing actually belong to the broker or brokerage, not the listing agent unless he is also owner of the brokerage. However, it is important to make the distinction between a tenant/buyer agent and a subagent of the seller/landlord. If the tenant/buyer does not have a formal written agreement with the tenant/buyer agent then the agent who is showing the property and providing information to the tenant/buyer is considered a subagent of the listing agent and is not representing the interests of the tenant/buyer.

How is a tenant/buyer agent compensated?

Generally, the listing agent cooperates with the tenant/buyer agent and shares a portion of the earned commission in exchange for bringing a tenant/buyer to the table, if that tenant/buyer then submits an offer that the seller accepts. This is referred to as a “co-op” commission. It’s important to note that a tenant/buyer agent is at no cost to the tenant/buyer.

Do I really need to work with an agent?

Legally, no. You are not required to work with an agent and can opt to list your property as a For Sale By Owner (FSBO). But there are benefits to working with a listing agent. Foremost, it becomes their responsibility to market and sell your property in a timely fashion and for an agreeable price. They will schedule showings and handle all of this for you. Many sellers benefit from working with a listing agent because their property may sell faster and at a higher price point than if they decided to go it alone. Also, many people value having a professional to take these time-consuming tasks off their hands.

If you are on the other side of the deal as a tenant/buyer, again you do not legally need to work with a tenant/buyer agent in order to buy or lease a property. However, similarly to the points regarding working with a listing agent, a buyer may also experience benefits when working with a tenant/buyer agent. Foremost, you will have their knowledge and expertise to guide you through the buying/leasing process, and someone who will represent your best interests. A tenant/buyer agent can also make your property search less time consuming by showing you only properties that they know fit your criteria. Think of them as your tenant/buyer “concierge.”

Can the listing agent also be the selling agent?

Simply stated, no. A listing agent should not be the selling agent within the same deal. Why? Because there is a major conflict of interest in doing so. Think of it like having the same lawyer represent both the defense and the prosecution in a case. Neither side will receive fully unbiased, honest representation, and the counsel walks away with twice the compensation. In fact, states such as California have gone as far as making such “dual agency” practices illegal.

Too often, a tenant/buyer begins looking at property without hiring a selling agent (aka tenant/buyer agent) to exclusively represent them. Usually they do not realize that a selling agent is not at the cost of the tenant/buyer, since the tenant/buyer agent will normally co-broke a commission with the listing agent. A tenant/buyer agent is compensated by splitting the commission with the listing agent. So, the client gets representation at no cost. The commission arrangement between the owner and listing agent will be paid whether or not the tenant/buyer has representation.

Without representation, tenants or buyers often find themselves needing the expertise, advocacy and unbiased advice of a listing agent. This can result in a number of troubling issues and frustrations for the tenant/buyer. 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.

When it comes to understanding the differences between a listing agent and a selling agent (aka tenant/buyer agent), the most important take away is that whatever side of the deal you’re on, you want to be sure you have your own representation to advocate for your best interests and negotiate a favorable deal.

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A Decline in International Students Will Hurt a Lot More than Colleges and Universities

Posted on March 22, 2019 by Mike Kushner in Blog, Community, Trends No Comments

According to a report by MarketWatch, the number of overseas students coming to the U.S. for grad school declined for the second year in a row. There is much speculation as to what could be causing this trend; however, one reappearing theme ties back to the current political climate here in the United States.

As you likely remember, President Donald Trump initiated a ban on people entering the U.S. from multiple Muslim-majority countries, all of which have a track record of sending students to America for higher education. It’s not difficult to see a near-immediate impact. For example, U.S. graduate school applications from Iran, one of the countries targeted by the travel ban, fell 27% between fall 2017 and fall 2018. The travel ban isn’t the only blamed culprit. President Trump has floated changes to student visas that would reduce the amount of time international students can stay in the U.S.

Naturally, colleges and universities in the U.S. who rely on international students to make up a significant portion of their admissions are concerned. If the U.S. continues to present hurdles that make it unappealing, if not impossible for certain international students to study in the U.S., our colleges and universities are not the only pillars of our community who should be concerned. A decline in international students will have a ripple effect on our economy which will flow into many different industries, including real estate.

How significant is this impact and what industries should be most concerned? Let’s take a closer look at the economic impact of fewer international students coming to the U.S.

International Students Drive Economic Growth

Simply put, international students are pivotal to our economy. First, they often pay the highest tuition rates which is why colleges and universities carefully account for enrolling so many international students to keep their budgets in line. Next, while international students are studying in the U.S., they are spending money on food, clothing, living essentials, as well as renting space to live. Many smaller colleges have built on-campus apartments primarily for the use of their international students. Compared to students that reside with their parents and commute to school, international students have a markedly different economic impact on the school and the surrounding community.

To put a value on this point, the Institute of International Education, an organization that promotes research and international study, estimates that international students contributed $39 billion to the U.S. economy in 2017. In fact, some colleges and universities rely so heavily upon their international students that they have gone as far as taking out an insurance policy to protect themselves against the drop in international enrollment!

A Local Look

The facts and stats reporting the decline in international students coming to the U.S. takes a national look, but what about locally here in Central Pennsylvania? Are we seeing the same trends? One of the area’s leading universities for international enrollment is Penn State Harrisburg. College Factual ranks Penn State Harrisburg as 114th out of a total 1,300 colleges and universities for popularity with international students. And the pool of international students is diverse. At least 50 countries are represented on the Penn State Harrisburg campus with the most being from China, India, and, South Korea.

Interestingly from 2011 to 2016, enrollment of international students has been steadily increasing with 716 international students being enrolled at Penn State Harrisburg in 2016. What this doesn’t account for is the most recent travel ban and change to student visas implemented in 2017-2018 that would not be reflected in this data; however, it is likely to be released soon. With international students making up about 14.2% of the student body at Penn State Harrisburg, should the University also experience the decrease in international enrollment that has been sweeping the nation, it will join the ranks of so many other educational institutions hurting due to this downward trend.

As It Relates to Real Estate

It’s clear how international students impact the colleges and universities in which they are enrolled, but what impact do they really have on real estate and is this decline enough to cause any significant changes to our residential and commercial real estate markets?

International students arriving in the U.S. to study are in immediate need of semi long-term housing, typically at least two years and up to 6+ years depending upon the type of degree they are pursuing. International students can technically choose to purchase real estate on their student visa, but mortgages and lending have a whole host of challenges, making cash to most desirable and feasible option for purchasing home a home. Most commonly, international students decide to rent real estate either from the college or university that they are attending or from a landlord in the community.

Depending upon the demand for off-campus student housing, some real estate investors have created a significant business around owning and renting out real estate to students, including international students. Should there be a severe enough decline in international students, this could cause a decrease in demand for real estate. Property owners will need to make a strategic decision to either ride this wave, with a decreased income for an unknown period of time, or sell off some of their properties if they feel this trend could last a while.

Additionally, should a decline in international students persist, colleges and universities whose campus housing is mostly occupied by international students are not likely to invest in renovating or adding to this real estate until the decline stabilizes and/or reverses.

Key Things to Keep in Mind

All-in-all, this trend in decreasing enrollment from international students is one we must keep an eye on for a variety of reasons. When our colleges and universities are economically impacted, it is highly likely that other businesses and the community as a whole will also feel an impact. Should this provide to be a short-lived trend that passes as the political climate changes, there is the probable outcome that things will return to normal and possibly better than before.

However, we would be shortsighted to not think beyond forces within the U.S. To compound the issue, other counties are also competing for international students and are surely making every effort to market themselves as the most attractive option. It will be a constant battle for the U.S. to retain and grow its international students. Given our country’s reputation for high-quality education, this is not an impossible feat, but we must remain strategic to stay ahead of the curve!

What do you feel are the most critical areas to be impacted by a decline in international students? Beyond colleges and universities what other industries will be most significantly impacted?

Share your ideas by leaving a comment below!

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How Opportunity Zones Could Impact Central PA Real Estate

Posted on December 26, 2018 by Mike Kushner in Blog, Commercial Real Estate, Construction, Guest Blogger, Local Market, Trends No Comments

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

Opportunity Zones are being referred to as “real estate’s most exciting new investment vehicle,” but what are they and can they really live up to this title?

How this type of investment works and why it stands to be so beneficial is essentially this: capital gains are invested in Opportunity Zones, taxes are deferred, the basis is lowered, taxes are then paid in 2026 (at the same nominal value as in 2018), and after 2028 the Opportunity Zone holding can be sold with no capital gains tax due.

Better yet, there are very few restrictions on the properties in which one can invest. It’s estimated that there are $2.3 trillion worth of unrealized capital gains in the U.S. Even if only 15 percent of this is invested in Opportunity Zones, this will exceed the 2017 corporate income tax revenue and almost match the Medicaid spend of that same year.

The potential benefits don’t stop there. Opportunity Zones can also provide a tax deferral on gain that investors invest in a fund, and the elimination of gain in the new Opportunity Zone investment if it is held for more than 10 years.

This should paint a clearer picture as to why Opportunity Zones have real estate investors abuzz. To answer the most essential questions related to Opportunity Zones, and specifically how they stand to impact Central Pennsylvania real estate, Omni Realty has asked Silas Chamberlin to share his expertise and insight on this topic.

Silas Chamberlin, PhD is the Vice President, Economic & Community Development at York County Economic Alliance. Prior to joining YCEA in fall of 2018, he served as CEO of Downtown Inc. Chamberlin has also served as executive director of the Schuylkill River National Heritage Area, an organization promoting economic revitalization in five counties of southeastern Pennsylvania. And he has held leadership positions in the non-profit sector and state government. Throughout his career, Chamberlin has focused on helping communities leverage their unique assets to create opportunities for economic development and a higher-quality of life.

Mike Kushner of Omni Realty and Silas Chamberlin jump right to the meat of things starting with the local impact of Opportunity Zones, using the Greater York Area as a sampling.

Omni: How many census tracts in York County were approved for the Opportunity Zone program? And where?

Silas Chamberlin: York County has five designated tracts. All tracts are located in the City of York and are the tracts which encompass most of the city’s brownfield sites. Tracts in Hanover and Wrightsville were eligible for designation, but were not selected by the state.

Omni: Specifically, how will this program benefit the Greater York Area and how soon do you expect to see an initial impact?

SC: Opportunity Zones will attract additional investment to qualified projects in our five opportunity zones. The tax break should help draw investors’ attention to projects that have not benefited from private investment in the past. YCEA is a working partner to help identify viable projects within the zones to market to Qualified Opportunity Fund investors. We are also vetting the creation of local and regional funds focused on the city’s zones.

In theory, we could see funds begin investing in qualified projects at any time. Opportunity Zones are intentionally driven by the free market and individual investment decisions, so it is difficult to tell how much investment will end up in York. Observers at the national level have noted that there may be more private capital available than viable projects, so York should certainly position itself to take full advantage.

Omni: Are the tax breaks provided through this program enough to incentivize private investors and spur activity?

SC: The short answer is yes. But it would be inaccurate to view Opportunity Zones as a panacea that will turn vacant buildings into viable investment opportunities overnight. The most competitive projects will be those that are already viable without Opportunity Zone funds, but would benefit from additional investment.

Unlike New Markets Tax Credits or other popular programs, Opportunity Fund investments are unlikely to subsidize a project because the project must be able to grow in value and return an investment to the fund. YCEA’s strategy is to identify viable projects within Opportunity Zones and then use the designation to attract investors’ attention. We see this as yet another tool in our economic development financing toolbox.

Omni: Are there any drawbacks to the Opportunity Zone program?

SC: Opportunity Zones rely on a self-certification process for creating a fund, which means that investors have lots of autonomy. This also means that economic development organizations and municipalities may not always be aware of investments being made in their zones. Because the zones are distressed areas by definition, there is a higher risk that outside investment could change neighborhoods and business districts without any local engagement or controls. There are potential controls that could help guide development in Opportunity Zones—such as zoning overlays—but these tools are not yet well developed, especially in smaller cities.

Finally, there is the risk for disappointment. Opportunity Zones absolutely provide another tool to attract investment, but there is a risk in promoting them as transformational and raising the hopes of residents and developers that untapped capital will begin flowing into the census tracts that need it the most. While there is reason to be hopeful, the reality of matching qualified investors to viable projects may narrow the scope and impact of the tax break.

The Bottom Line

Experts predict that after an initial wave of Opportunity Zone fund offerings in early 2019, there may be a pause that coincides with the issuance of additional regulations during which market participants will evaluate fund and project structures. After that, barring the rise of general economic headwinds, it should be full steam ahead for Opportunity Zone funds moving forward.

From a real estate perspective, Opportunity Zone projects need to be viewed as development projects because the requirement is to create new property or substantially improve property. To reemphasize Silas Chamberlin’s point, there is surely reason to be hopeful that Opportunity Zones will flow capital into census tracts that need it the most. But we must remain cautiously optimistic about how quickly and substantially this capital will come about. Much like anything related to real estate, and especially real estate investment, most outcomes remain at the mercy of the market and ever-changing government regulations.

[Online Resources] Real Estate, business, central pa, commercial, Construction, CRE, development, government, growth, harrisburg, jobs, lancaster, Mike Kushner, monety, Omni Realty Group, opportunity zone, pennsylvania, property, real estate investor, renovation, residential, silas chamerblin, tax break, taxes, york, york ounty economic alliance

Pros and Cons of Crowdfunding and Commercial Real Estate

Posted on November 28, 2018 by Mike Kushner in Blog, Commercial Real Estate, CPBJ Articles, Trends No Comments

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

By now you’ve likely heard of the concept of crowdfunding. Maybe you’ve even ran a campaign for yourself or used a crowdfunding platform to give money to a cause. When most people think of crowdfunding, they think of using it to raise money for charity, like Go Fund Me, or to help grow a business, like Kickstarter. But one sector of crowdfunding that is steadily growing is crowdfunding for commercial real estate investments. It’s exactly what it sounds like. A group (or “crowd”) of fellow CRE investors purchase shares of a property or properties. Their combined resources allow them to jointly own CRE properties that none could afford to invest in individually.

On paper – or should we say on the internet – it’s a seemingly simple concept with obvious benefits. But it’s not without drawbacks too. Next we’re going to take a closer look at the pros and cons of crowdfunding for commercial real estate, and how this investment option may or may not be a good fit for you.

The Pros –

Affordable Price of Entry

Most people don’t have millions of dollars, even a hundred thousand dollars to put into a commercial real estate investment. This obstacle no longer has to stop interested investors from getting in on a great CRE deal. Through crowdfunding, pooling together funds is simple and fast. Commonly the price of entry is anywhere from $1,000 to $5,000. Compare this to outright owning your own investment property and you’ll see that this price of entry makes crowdfunding a really affordable opportunity.

Control of Your Cash

Compared to putting your money in a real estate investment trust (REIT), CRE crowdfunding gives you a lot more control and oversight. You get to choose exactly the type of property you want to invest in; you’re not relying on a trust manager to do this for you. For some investors, they love the thrill of the hunt of doing their own research and finding just the right property to invest in. If this is you, then you’ll enjoy that crowdfunding gives you control over when and how you invest your cash.

Diversity

Having a diverse investment portfolio is important. You want to be sure you’re not betting on just one horse. Through crowdfunding, you can invest in many different CRE properties within different sectors and classes. Even if you only have a moderate amount of money to invest, because the entry price for crowdfunding is so reasonable, this gives you the opportunity to diversify where your money is going.

Stability

No investment is completely stable, but when compared to traditional stocks and bonds, a CRE crowdfunded investment offers more stability because it’s not at the mercy of the stock market. Yes, other factors within the economy will certainly impact the value of the property, among other things; however, this is rarely an overnight change and can usually be predicted well in advance.

The Cons –

Longer-Term Commitment

When using crowdfunding to invest in commercial real estate, you’ll need to abide by your operating agreement. Usually when you invest, you have to lock this in for a set period of time. Sometimes this is several months, other times it’s several years. No matter how you look at it, crowdfunding investments are not easy to liquidate. They take time – and time isn’t always something people have, especially when it locks away cash that could be needed elsewhere.

Little to No Say in the Property

In the pros section we mentioned how CRE Crowdfunding gives you more control; however it’s important to note that really only pertains to your money. When it comes to the actual investment property, you have little to no say in the project. As a smart investor, you should do your homework to be sure you agree with the plans for the property and how it will be managed. Because after you invest, your opinion will most likely not be solicited.

The Unknowns

CRE crowdfunding most certainly has its risks. If you can tolerate these risks, then there is the potential for a high reward. A lot of the risks revolve around the unknown. Will the project stay on budget? Will it be completed on time? Will the property be managed as intended? Will the predictions and assumptions for the investment hold true? If you don’t like the risk and worry of the unknowns, CRE crowdfunding could really weigh you down.

Fees, Fees and More Fees

One final con is that there are a lot of hidden fees that could catch you off guard. The crowdfunding platform itself will apply fees to your investment. This varies from platform to platform, so be sure to read the fine print. Additionally, the investment property may also slap on additional costs for things like a construction fee, management fee, etc. Again, be sure to closely and carefully read every piece of your operating agreement because this is where you should uncover these fees before you sign on the dotted line.

The real takeaway here is that, like anything, crowdfunding for commercial real estate has its ups and downs. A smart investor will closely consider each side and weigh the risk versus the reward. Even with its cons, crowdfunding is a valuable investment opportunity that cannot be ignored, especially if you’re looking for ways to diversify your investment portfolio.

How do you feel about crowdfunding for commercial real estate? Is there something we missed on our list? Share your thoughts by leaving a comment below!

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Central PA’s Office Market Sets Recent Records for Vacancy, RBA and Rental Rates!

Posted on October 19, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

At first glance, it didn’t appear like Q3 2016 held any exciting news for Central Pennsylvania’s office real estate market. No top sales, no major projects delivered and only a couple projects under construction. But as we dug a little deeper into the numbers, we found that this quarter claimed recent record highs for RBA and quoted rental rates, as well as a record low for vacancy rate.

Together, these trends tell us that good things are happening within the local office real estate market, with numbers that continue to indicate growing demand. Let’s take a closer look at the highlights from Q3 2016 which we can use to analyze the current market and predict future trends.

Select Year-to-Date Deliveries:

CoStar’s list of Select Year-to-Date Deliveries includes two properties in Central Pennsylvania. Though none of these were delivered in Q3, it’s worth recapping that activity that has taken place so far in 2016. The Sterling Place Corporate Center in Mechanicsburg was delivered in Q2 with 129,000 square-feet of fully leased space. At 440 Walker Road, Chambersburg, 9,199 square-feet of space was delivered in Q1. Only 63% was preleased.

Top Under-Construction Properties:

Although no new properties were delivered in Q3, we expect to see at least one new office building delivered to the Central PA market in Q4. This property, located on Hogestown Road in Mechanicsburg, will add 129,000 square-feet of office space. It is 100% preleased.

Absorption and Demand:

Net absorption dropped this quarter by 70,917 square-feet. There has been a lot of fluctuation in net absorption from quarter to quarter and this continues in line with the trend. Total RBA did not budge from last quarter which was 54,902,624 square-feet. This maintains the recent record high that we reached in Q2, the highest RBA in Central PA since prior to Q4 2012.

Vacancy & Rental Rate:

Vacancy decreased again this quarter to a recent record low of 6.0%. This is the lowest vacancy rate we have experienced since prior to Q4 2012. As might be expected with a decrease in vacancy, we also experienced an increase in the quoted rental rate. Now at $17.30 per square-foot, this is $0.04 higher than last quarter and only $0.03 less than the recent record high of $17.33 we saw in Q1 2016.

Our Summary/Analysis:

All in all, Q3 brought positive news for Central Pennsylvania’s office real estate market. An increase in demand for space is driving down vacancy and driving up the price per square foot. New properties are at least 50%, if not 100%, preleased before they even hit the market. With another 100% preleased property expected to be delivered next quarter, we predict that 2016 will have a strong finish, indicating a healthy and growing office market.

Based upon the data for Q3 2016, what do you find to be most interesting or important? Share your insight by commenting below!

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New Industrial Space Popping Up All Over Central PA While Vacancy and Rental Rates Increase

Posted on August 14, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

The Central Pennsylvania industrial real estate market is an active place to be right now! In second quarter 2016, three new properties were delivered with three more under construction. Most interestingly, none of this new space is preleased. Both vacancy and rental rates continue to rise to some of the highest numbers we have seen in recent quarters.

What do these trends tell us about the health of the industrial market and the local economy? Let’s take a closer look at the highlights from second quarter 2016.

Select Year-to-Date Deliveries:

The Lebanon Valley Distribution Center, located at 139 Fredericksburg Road, Fredericksburg was delivered this quarter with an RBA of 874,126 square-feet that is not preleased. Another Central Pennsylvania building delivered in second quarter 2016 is the property at 192 Kost Road, Carlisle. It has an RBA of 422,200 square-feet and is not preleased. Third, LogistiCenter 78-81 delivered another 405,000 square-feet of unleased space this quarter. Combined, this is 1,701,326 square feet of new, unleased industrial space delivered in second quarter 2016.

Top Under-Construction Properties:

In addition to the buildings delivered to the market this quarter, there are three more under-construction properties in Central Pennsylvania that will be delivered in the coming year. The Eden Road Logistics Center will be delivered in fourth quarter 2016. It has an RBA of 754,881 square-feet and is 0% preleased. Trade Center 44 is also expected to deliver in fourth quarter 2016. This property has an RBA of 620,000 square-feet and is 0% preleased. Finally, Crossroads Logistic Center is expected to deliver in first quarter 2017 with an RBA of 398,250 square-feet. It is also 0% preleased.

Select Top Sales:

Three of the nine Select Top Sales between April 2015 and June 2016 took place in Central Pennsylvania. Coming in at number one on the list is Park 81 in Shippensburg. This 1,495,720 square-foot facility sold for $83,000,000 to CBRE Global Investors, LTD. Number five on the list is 100 Louis Parkway in Carlisle. This 400,596 square-foot facility sold for $28,850,000 to Industrial Property Trust. The final Central Pennsylvania property on the list, ranking number seven, is located at 1225 S. Market Street, Mechanicsburg. With 596,703 square-feet, this property sold for $21,350,000 to Allen Distribution.

Absorption and Demand:

Net absorption once again dropped this quarter to 69,303 square-feet. If this trend does not soon reverse, we are inching our way closer to a negative net absorption that we have not seen since second quarter 2013. Net absorption has been declining each quarter since reaching a peak of 2,382,561 square-feet in second quarter 2015. Though this quarter was not the drastic decrease we have seen in most recent quarters, it is still contributing to the downward trend.

Vacancy:

Vacancy has increased this quarter, rising to 6.0%. This is the highest vacancy rate we have seen since second quarter 2014. After reaching a low of 4.5% in second quarter 2015, vacancy has continued to rise steadily.

Rental Rate:

The quoted rental rate is also on the rise. Second quarter 2016 ended with a rate of $4.30 per square foot. This is the highest rate we have seen since prior to third quarter 2012. It was only midway through 2015 when we saw this rate exceed $4.00 and it has been steadily rising ever since.

Our Summary/Analysis:

With so much new, unleased space entering the Central Pennsylvania industrial real estate market right now, it’s obvious why net absorption continues to decrease. By first quarter 2017, another three new, unleased buildings will be completed which leads us to predict that a negative net absorption in in our not too distant future. Following this trend, vacancy rates will continue to rise as well.

Where it gets interesting is even with all of this new, unleased space and vacancy rates on the rise, second quarter 2016 experienced the highest quoted rental rate we have seen in recent years. What this tell us is that the demand for industrial space in Central Pennsylvania continues to outpace supply.

In a recent Central Penn Business Journal article, many experts weigh in on the thriving industrial market. The consensus? We will continue to see growth, especially with retailers’ increased emphasis on faster home deliveries. To accomplish one-day deliveries, for example, this calls for more facilities in closer proximity. The demand may not necessarily be for larger warehouses, but for more warehouses placed in prime locations. And Central Pennsylvania is a prime location for warehousing and distribution, indeed!

What additional impact do you think all of this new industrial space will have on the Central Pennsylvania market? Share your insight 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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The Truth About Real Estate Commissions

Posted on March 2, 2016 by Mike Kushner in Blog, Commercial Real Estate, Tenant Representative/Buyer Agent No Comments

When it comes to real estate transactions, everyone knows that commissions are involved; it’s how brokers get paid! But what’s not so common knowledge are the various details surrounding these commissions like who actually gets paid, who’s responsible for paying and how much is owed.

Whether you’re the tenant or landlord in the deal, you’ll want to have clear answers to all of these questions before working with a broker or proceeding with any real estate deal. Understanding the “fine print” will help alleviate the stress and potential pitfalls of being uninformed regarding commissions.

Let’s take a look at some of the most essential questions surrounding this important real estate topic…and their answers!

What parties earn a commission?

Typically, a commission is paid to both the listing agent/landlord representative and the tenant representative, if a real estate transaction has both of these parties involved and they are different from one another (here’s why they should be!).

It’s important to note that if you are a tenant looking for a property, you will want to have your tenant representative with you from the very first time you see a property. If another agent (whether you know them/asked them or not and regardless of whether they represent both buyers and sellers) bring you to a property, he/she is legally entitled to a portion of the leasing commission as the “procuring” agent.

You may never see this agent again or benefit from their advice/expertise, but since that agent showed you the property, that agent will be paid a commission. This complicates the situation if you should choose to then hire a tenant rep different from the initial agent who showed you the property – and a commission dispute may ensue. To avoid all this trouble, it is best to establish your tenant rep from the beginning and have only him or her show you properties!

Who is responsible for paying this commission?

After a lease is signed, it is typically the responsibility of the landlord (or property owner) to pay a commission to both the listing agent/landlord representative and the tenant representative. As the tenant, it is not usually assumed to be your responsibility to pay a commission to your broker. This is paid by the landlord at the time the lease is executed, unless otherwise negotiated.

How is the amount of commission determined?

The cost of commission varies and commission is most often calculated as a percentage of the lease value (also referred to as “total consideration”). When the signed lease has been executed and the tenant takes occupancy, generally one-half of the commission (paid by the landlord) is paid to the landlord rep and one-half of the commission is paid to the tenant rep.

For example, a tenant signs a 3-year lease for a 2,000 square-foot space at $20 per SF per year. The total consideration = $120,000 (2,000 SF * $20/SF per year * 3 years). The property owner pays a 6% commission (one-half to landlord rep and one-half to tenant rep). The total commission = $7,200 ($120,000 * 0.06).

It’s also worth noting that an agent may “split” their total piece of the commission, sharing it in some proportion with their broker. Commission splits range anywhere from 50/50 (most common) to 90/10, in favor of the agent.

Real estate services are NOT free.

Real estate transactions typically include commissions that are shared by the agents or advisors representing each party. Even though the property owner writes the commission check, it’s ultimately the tenant that funds the commission – in the form of rent payments (for leases) or purchase proceeds (for sales). Make certain that you are receiving full value from your “side” of the commission by having an unbiased, experienced, licensed real estate advisor assist you with the research for suitable spaces and in the negotiation of acceptable terms and conditions.

Do you have another question about real estate commissions that wasn’t answered in this article? Ask us!

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Omni Realty Helps to Open State-of-the-Art Medical Facility in Perry County

Posted on December 5, 2014 by mike.kushner in Blog, Healthcare, Local Market, Success Stories No Comments

A joint venture, three years in the making, between Omni Realty Group and Triple Crown Corporation will officially open its doors to a premiere medical facility in Perry County.

Outside the Medical Professional Center of Newport

This space will house state of the art imaging including MRI, CT, Mammography and X-Ray; laboratory services; cardiology care and cardiology diagnostic testing; and physician specialists – including endocrinology, obstetrics/gynecology, orthopedics, urology and others.

State-of-the-art medical equipment is one of the many benefits the Medical Professional Center of Newport brings to Perry County.

This major project began in January 2012 when Mike Kushner, owner of Omni Realty began researching possible locations for the facility. One of the biggest challenges was finding a well-located tract of land with public water and sewer in Perry County’s semi-rural areas. While it took some time to locate the right land for this project, it was also one of the most critical details to secure.

Mike was successful in finding the ideal location for the facility, named The Medical Professional Center of Newport, on Bretz Court off of Shortcut Road in Howe Township. The new space will allow for many healthcare professionals to move into a shared space that will make quality healthcare more convenient and accessible for Perry County residents.

A look at the community gathering area inside the Medical Professional Center of Newport

“PinnacleHealth is pleased to partner with other healthcare providers in Newport to bring expanded and comprehensive outpatient healthcare to Perry County residents,” states Michael A. Young, president and CEO for PinnacleHealth. “Adding increased access to primary care and outpatient services is part of PinnacleHealth’s implementation plan based on the recent Community Health Needs Assessment completed last year.”

PinnacleHealth FamilyCare, who has operated a family practice presence in Newport for many years, will relocate from its office at 28 Shortcut Road and occupy 20,000 square-feet of this new space. Two additional medical office condos have been built and sold to local practitioners, Sisson-Boyer Eyecare, LLC and Daniel Hengst, DMD, Dentistry. Upon opening, 100 percent of this facility will be occupied by medical professionals.

Inside the new dentist office located within the Medical Professional Center of Newport

The Medical Professional Center of Newport exemplifies an emerging trend in healthcare real estate strategies which is to develop a hub and spoke healthcare delivery model. The center will provide a central location for a majority of common healthcare needs. Perry County residents will now be able to receive primary care, specialty care, imaging and laboratory services at a single facility which will increase efficiencies and service of care.

What are your thoughts on this new facility opening in Perry County, Pennsylvania? Share your opinion by commenting below!

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