Everything You Need to Know About Commercial Real Estate to Succeed as a Real Estate Agent

What is Commercial Real Estate?

While Residential real estate is reserved for human habitation and private living quarters, Commercial real estate (CRE) is property that is used for business or workspace. For example, a single family house in the suburbs would be residential, but the coffee shop down the street is commercial.

CRE is a broad category of real estate, and it can come in a variety of forms. They are commonly divided into the following sectors:

Office: These buildings are used by businesses to house their employees. They can be either Class A, Class B, or Class C, depending on their quality and location.

Class A: The most prestigious offices in a given market. They are typically located in the best buildings and offer the best amenities, such as high ceilings, views, and parking. Class A offices also tend to be newer and have more modern finishes.

Class B: A step down from Class A offices, but they are still considered to be high quality. They are typically located in good buildings and offer a variety of amenities. Class B offices may not be as new as Class A offices, but they are still well-maintained and have good finishes.

Class C: The lowest quality offices in a given market. They are typically located in less desirable buildings and may not offer many amenities. Class C offices may be older and have outdated finishes.

It is important to note that these are just general descriptions of Class A, Class B, and Class C apartments and offices. The specific features and amenities of a property will vary depending on the market and the individual property.

Retail: These properties are used to sell goods and services to the public. Think shopping malls, strip malls, or stand-alone stores.

Industrial: These properties are used to store goods or to produce goods. Think warehouses or factories.

Multifamily: These properties are used to house multiple families. Think apartment buildings or condominiums.

Hotels and resorts: Hotels and resorts are used to provide lodging and other amenities to travelers.

Healthcare/Medical: Healthcare properties are used to provide medical care to patients. Think hospitals or clinics.

Commercial vs Residential for Agents

While there are some similarities between commercial and residential real estate, the two professions are vastly different.

Sales Cycle

Residential real estate transactions typically have a shorter sales cycle than commercial real estate transactions. This is because there is a higher demand for residential properties and the process of buying and selling a home is relatively straightforward. Commercial real estate transactions, on the other hand, can take months or even years to complete. This is because there is less demand for commercial properties and the process of buying and selling a commercial property is more complex.

Commissions

Commissions for residential real estate transactions are typically lower than commissions for commercial real estate transactions. This is because residential real estate transactions are typically smaller and less complex than commercial real estate transactions. Commercial real estate agents typically earn a commission of 5% to 7% of the sale price of the property, while residential real estate agents typically earn a commission of 3% to 6% of the sale price of the property.

Skills and Experience

Residential real estate agents typically need to have a good understanding of the local market and the types of properties that are in demand. They also need to be able to effectively market properties to potential buyers. Commercial real estate agents, on the other hand, typically need to have a deeper understanding of the commercial real estate market and the types of businesses that are looking for space. They also need to be able to negotiate complex contracts and understand the financial aspects of commercial real estate.

Work Environment

Residential real estate agents typically work with a wider range of clients than commercial real estate agents. They also typically work more flexible hours, as they are not as bound by the traditional 9-5 workday. Commercial real estate agents, on the other hand, typically work with a more specific group of clients, such as businesses or investors. They also typically work more traditional hours, as they need to be available to meet with clients during the workday.

Ultimately, the decision of whether to focus on residential or commercial real estate as a real estate agent depends on your individual skills, experience, and preferences.

To Recap:

In residential real estate, it is more common for people to buy a home rather than lease one. This is because people typically view their homes as a long-term investment, and they want to have the flexibility to make changes to the property as they see fit. However, in commercial real estate, leasing is much more common. This is because businesses often need to be able to move quickly to adapt to changing market conditions. Leasing also allows businesses to avoid the high upfront costs of buying a commercial property, which can be significant. To be a successful commercial real estate agent, you must be comfortable with leasing.

• Gross lease: In a gross lease, the tenant pays a fixed rent to the landlord, and the landlord is responsible for all property taxes, insurance, and maintenance costs. This is the most common type of lease for commercial real estate.
• Net lease: In a net lease, the tenant pays a base rent to the landlord, plus a percentage of the property taxes, insurance, and maintenance costs. This type of lease is often used for retail and industrial properties.
• Triple net lease: In a triple net lease, the tenant pays a base rent to the landlord, plus 100% of the property taxes, insurance, and maintenance costs. This type of lease is often used for industrial properties.
• Percentage lease: In a percentage lease, the tenant pays a base rent to the landlord, plus a percentage of the tenant's gross sales. This type of lease is often used for retail properties.
• Ground lease: A ground lease is a lease for the land beneath a property, not the building itself. The tenant pays rent to the landlord for the land, and is responsible for all costs associated with the building, including taxes, insurance, and maintenance. Ground leases are often used for retail and industrial properties.

The type of lease that is best for a particular commercial real estate transaction will depend on a number of factors, including the type of property, the tenant's needs, and the market conditions. It is important to consult with an experienced real estate attorney to determine the best type of lease for your specific needs.

Here are some additional details about each type of lease:

• Gross lease: Gross leases are the most common type of lease for commercial real estate. They are relatively simple and easy to understand, which makes them attractive to both landlords and tenants. However, gross leases can be more expensive for tenants in the long run, as the landlord is responsible for all property taxes, insurance, and maintenance costs.
• Net lease: Net leases are a bit more complex than gross leases, but they can be more beneficial for tenants in the long run. In a net lease, the tenant pays a base rent to the landlord, plus a percentage of the property taxes, insurance, and maintenance costs. This means that the tenant is responsible for some of the costs associated with owning the property, but they are typically lower than the costs associated with a gross lease.
• Triple net lease: Triple net leases are the most expensive type of lease for tenants. In a triple net lease, the tenant pays a base rent to the landlord, plus 100% of the property taxes, insurance, and maintenance costs. This means that the tenant is responsible for all of the costs associated with owning the property, which can be significant. However, triple net leases are often used for industrial properties, where the tenant needs to have a lot of control over the property.
• Percentage lease: Percentage leases are typically used for retail properties. In a percentage lease, the tenant pays a base rent to the landlord, plus a percentage of the tenant's gross sales. This means that the tenant's rent is directly tied to their sales, which can be beneficial for both the landlord and the tenant.
• Ground lease: Ground leases are often used for retail and industrial properties. In a ground lease, the tenant pays rent to the landlord for the land, and is responsible for all costs associated with the building, including taxes, insurance, and maintenance. This means that the tenant has more control over the building, but they are also responsible for more of the costs.

It is important to note that these are just general descriptions of the different types of leases for commercial real estate. The specific terms of a lease will vary depending on the property, the tenant, and the market conditions.

Commercial real estate is a complex and specialized field that requires a deep understanding of the market, the different types of properties, and the different types of leases. With the right education, training, and experience, you can build a successful career in commercial real estate and help businesses find the space they need to grow and thrive.