5 ways to maximize your commercial real estate investment
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Commercial real estate is a big investment, so when you’re looking for a space for your business operations, it helps to know which factors can help raise the value of your property—value you can then reinvest in your business, in areas such as new technology, training and development for employees, or expansion into new markets.
Here are some great ways to maximize your commercial real estate purchase to help ensure your property continues to increase in value or, at the very least, doesn’t depreciate.
1. Look for multi-use zoning to increase value
As a rule of thumb, the wider the allowable uses of a building, the higher the market resale value.
“Make sure you carefully assess zoning restrictions for a commercial space before making that buying decision,” explains Brett Prikker, Major Accounts Manager at BDC. “For example, if you purchase a building that is zoned for manufacturing only, then you’re buying something that may be less desirable for future buyers, who may want to use the space for other needs. It’s wise to look at commercial space with multi-use zoning, so when it comes to selling your premises, you have that edge.”
2. Buy the amount of commercial space that reflects market demand
Buying too much commercial space is a common temptation for entrepreneurs. However, doing so can affect the future marketability of a property.
“You can assume that the larger the building you buy, the smaller the pool of potential buyers who will be interested in the place when you sell,” says Prikker. Most Canadian businesses are small enterprises, and they’re not looking for large spaces to meet their needs.
“Generally speaking, if you buy property in the above-50,000-square-foot range, you’re dealing with a limited pool of buyers. What I’m seeing in the market is that those properties are just less in demand, because they’re not affordable for most entrepreneurs and harder to resell.”
3. Place your commercial real estate acquisition into a separate holding company
“It’s often wise to place your commercial real estate into a holding company separate from the operating business,” says Dan LaBossière, a BDC Assistant Vice President in Winnipeg, who has guided scores of entrepreneurs through the planning and financing of successful real estate acquisitions.
This can facilitate the eventual sale of your business, LaBossière explains, because many buyers will want to acquire only the operating company. For some, it makes for a more affordable acquisition; for others, it makes it easier to move your operations across town or to another city.
It also makes it easier for an entrepreneur to hold on to the real estate and use it as a source of retirement income after the sale of the business. “I’m a strong believer that this is a great source of retirement income down the road,” LaBossière says. “It facilitates the succession of the business.”
4. Invest in a building with world-class green certification (LEED)
Leadership in Energy and Environmental Design (LEED) certification provides independent, third-party verification that a building, home or community was designed and built using strategies aimed at achieving high performance in key areas, such as human and environmental health, sustainable site development, water savings, energy efficiency, materials selection, and overall indoor environmental quality. Consider buying a new building or retrofitting a used building that is LEED-certified, as these might increase property value.
Although entrepreneurs scouting the market for LEED-certified buildings or retrofitting properties will usually pay a higher price up front, they can recoup costs by improving energy efficiency, and by increasing employee productivity through improved air quality and design.
“Given the higher costs, ideally you might also try supplementing financing for LEED certification with subsidies and grants,” suggests Prikker. “It’s important to find a balance between being a good corporate citizen and ensuring that your efforts are financially viable.”
“You can also consider green initiatives that are less costly than LEED certification, such as adding a green roof or upgrading your air quality system,” he adds.
“I think we’re only beginning to see how these green standards are taking hold in the market, but eventually they will become the norm,” says Prikker. However, he cautions that setting realistic expectations is important. “The costs are not automatically transferred to the value of the investment,” he says. “There’s always the challenge of recouping those costs.”
5. Work with an experienced commercial real estate broker
“Many entrepreneurs make the mistake of doing too much speculation and not enough research when they are making decisions about the space they need,” says Prikker.
A broker will not only evaluate the space that fits your specific business needs, but he or she will help ensure you’re optimizing every dollar spent. Brokers will assess the commercial real estate market to see what types of properties are in demand and calculate the space needed to accommodate future growth.