Women Talking Commercial Real Estate

Recently, CEG brokers Nicole Langer and Diane Signorelli discussed commercial real estate over plates of pasta at Yarusso-Bros, an East Side St. Paul Italian restaurant. Two Italians having a delicious Italian meal while I was enjoying great food in Italy! 🇮🇹 Both Nicole and Diane have listings for sale in the neighborhood, one property an industrial standalone building on Payne, and the other, two plots of land along Bush Avenue. They met to support each other and to build relationships with people in the neighborhood. As I’ve said before, commercial real estate is a relationship business. Here are five additional topics that came up between women talking commercial real estate:

1.        Some areas of the CRE market are tight. Pricing properties for those hard to find spaces can be difficult when comps aren’t readily available. Brokers have to shift from market-based comparisons to performance-based or cost-based. They need to look at the cash the property generates or how much it would cost to build a replacement and then factor in the operating expenses, condition, depreciation, market demand, etc.

2.        We’ll see more properties becoming available because of notes due. Owners could potentially find a change from 3% interest rates up to 6-8%, causing their payments to double. Now there’s talk that the Fed is going to raise rates instead of lowering, as has been the trend the last few cycles. This increases borrowing costs and puts downward pressure on valuations.

3.        On the upside, more buildings enter the market for sale making a buyer’s market rather than a seller’s market. Those looking to buy will find some good deals leading to new business startups, business expansions, and/or investment opportunities. Higher interest rates could be offset by owner financing or seller carryback, which is a great tool. Sellers carry all or part of a mortgage and collect monthly payments from the buyer, becoming the bank. It’s especially beneficial if you want to save your cash for another deal. History shows when there is a recession, launching a new business can be advantageous, just look at the history of UPS. Those companies survive longer and gain more market share than those launched during economic booms. Nearly half of Fortune 500 companies were launched during economic downturns.

4.        Potential buyers and tenants need to have their financial story in order before viewing properties with a broker. Brokers need to vet clients so not to waste valuable time on people that don’t have the papers to back up their intentions. It’s disappointing to owners and ties up brokers from working with clients that are serious about making a deal. As brokers, Nicole and Diane agree, don’t go into a showing without knowing the intended use or the client’s budget. If clients are buying, know their bankers as finances can entangle deals. It’s the brokers job to bring qualified people to potential landlords and sellers.

5.        Helping clients is what brokers do, but it’s important to know your limits. Brokers are not lawyers nor business startup mentors but are connected to resources that offer support. Nicole and Diane value the work of SCORE Twin Cities, a nonprofit dedicated to helping small businesses succeed through free mentoring and education. As a resource partner to the Small Business Administration (SBA), new business owners are paired with retired or active entrepreneurs or executives that mentor in the areas of finance, operations, and marketing. SCORE opens new business owner’s eyes, so they know what they’re walking into. Nicole and Diane also strongly recommend that clients use a commercial real estate attorney to review leases. It’ll cost money upfront but could save tenants much more if they have to fight your lease down the road. It’s important to have a good commercial real estate broker and an experienced attorney involved to set a tenant and their business up for success. You don’t know, what you don’t know.

Conclusion

Commercial real estate is a great industry to be in, and it’s only going to grow. Any time there is a recession, new companies come into play and can thrive, especially if they launch just before recovery. The current commercial real estate market is shifting toward a buyer's market as rising interest rates and maturing loans increase property availability, though finding accurate valuations remains a challenge. To capitalize on these opportunities, potential buyers should utilize creative financing like owner carrybacks and ensure their financial documentation is fully prepared before viewing properties. Brokers emphasize the importance of using external experts, such as SCORE mentors for business planning and real estate attorneys for lease reviews, to navigate these complex deals safely.

Jeff Salzbrun is the owner/broker of Commercial Equities Group (CEG). As a veteran-owned real estate brokerage, CEG has been involved in thousands of sale and lease transactions, ranging from single offices to 250,000+ square foot buildings. At CEG, we get your deal done. We know space, and we know the CRE business.

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