Monday, January 1, 2018

5 Commercial Real Estate Lessons Learned in 2017

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Good bye 2017 and hello 2018! This year was particularly good to us as commercial real estate professionals. Our market continues to rock on, break value records, and enjoy the longest up-trend in decades.

Since the doldrums of 2009-10, sales prices have tripled in some cases and lease rates are not far behind.

As I reflect on the year of 2017, what lessons were learned? Indulge me while I regurgitate a few.

When you believe you've seen it all - guess again. This year we revived a suspended entity - a seller's LLC where no renewal fees had been paid or tax returns filed - for 28 years!, auctioned a property through Ten-X, convinced a buyer - on behalf of our seller -  to cancel a non-contingent deal, achieved record selling prices for several buildings. Never, in a span of four decades have I experienced any of these events. Whew!

EVERYTHING will sell - if properly priced. I will forever remember this year for the mis-fit toys that traded. You know the mis-fit toys - a Jack-in-the-Box who wants to be a dentist? Commercial real estate has its version of mis-fit toys as well. Price it properly and it will go!

Pay close attention to where we are in the cycle. Several clients renewed leases this year. Unfortunately, lease rates are close to their all-time high. Sign a ten year lease today and chances are - come renewal time - rates will be comparable to today. A three year lease may present you with a surprise - a rate lower than you currently pay.

Most don't understand what we do. I frequently speak to groups of residential agents and other trade organizations. Questions revolve around our profession - what we do, how we are compensated, are we that different from our residential counterparts. We do three things; either on the owner or occupant side - sell buildings, lease buildings, or renew leases. Most commercial brokers "eat what they kill" - we are paid commissions for closed transactions and receive no guaranteed salary. Commercial deals are business transactions vs a consumer sale in the case of a residential deal. Both are contractual agreements. Generally, residential brokers sell house whereas a commercial broker will do as many lease as sale transactions.

This up trend is unlike any we've witnessed. Historically, commercial real estate values ebb and flow in 7-10 year cycles. Typically, when housing hits the skids, we follow within a year. Our present up-tick started in the third quarter of 2009 - eight and one half years ago. Many of us believe an adjustment is overdue. But, despite our dark predictions, the market keeps rising to heights never witnessed. 2018 should be interesting indeed!

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