Commercial real estate loans (also abbreviated as CRE), can be defined as any offering of retail, office, industrial, and such other commercial spaces which can be leased (and at times bought), for business use. Commercial real estate can be broken down into various different categories. At the high levels, when you think of types of CRE, you normally think about the office buildings, warehouses, or shopping centers. But in actual fact, commercial real estatecommercial real estate encompasses much more than the aforementioned property types. Below are the different types of commercial real estate;
-Office properties: These include, but not limited to; single tenant buildings, skyscrapers, small professional buildings, and everything else in between. The office buildings are generally classified into one of the 3 categories; the Class A, Class B, or Class C. The classifications are largely dependent on the context. The Class A office buildings are considered to be the best in terms of location and construction. They are usually new buildings with great infrastructure and superb management. The Class B office properties may possess high-quality construction, however, they lack a desirable location. They are normally well managed and well maintained, but may lack proper infrastructure. They make a great investment for commercial real estate investors since they have the potential of high returns on investment through renovations and improvements. The Class C office buildings are basically everything else. They are usually much older buildings, poorly located, and usually require extensive updates and renovation. They also have low rental rates.
-Land; There are 3 categories of land; Greenfield land, Urban Infill land and Brownfiled land. The Greenfield land generally refers to the undeveloped land like a pasture or a farm. The Urban Infill land refers to the land which is located in the city and has been previously developed but is now vacant. The Brownfield land refers to land which was previously used for commercial or industrial purposes, but is now available for reuse. Brownfield land is usually environmentally compromised and requires significant clean up for it to be utilized. That being so, commercial lenders generally prefer land that’s in the path of some future developments.
-Retail; Retail properties can be free standing like the banks or the restaurant buildings. They’re usually found on lower floors of the office properties or multifamily structures.
-Industrial; Industrial properties can range from the smaller properties which are usually known as flex space or R & D properties to large warehouses and heavy manufacturing sites.
-Multifamily; These can include an apartment 4plex, sprawling apartment complexes, high-rise condominium units, among others.
-Others such as hotels, public houses, sports facilities, medical centers, nursing homes, hospitals, car washes, self-storage, theme parks, theaters, bowling alleys, marinas, and even funeral homes, also fall into the commercial real estate category.
After learning about the different types of commercial building available, let’s now take a look at some of the reasons why you should invest in commercial real estate;
-Stable income; One of the major benefits to CRE investment is that the assets are normally secured by the leases that provide a regular/steady income stream, which is significantly higher than your typical stock dividend yields. Unlike the short-term leases for the residential real estate, commercial property leases generally range between 3-10 years.
-Expenses are paid by the tenants; Another great reason why you should invest in commercial properties is that the tenants normally pay the building’s operating expenses; this is especially true in the triple net leases which are very common in the commercial real estate industry. The tenants pay the base monthly lease payment, along with their prorated portion of the property’s expenses, property insurance, real estate taxes, and even maintenance.
-Appreciates in value with time; Commercial Real Estate (CRE) investment generally has excellent appreciation in value as compared to other types of properties. Some of the ways for adding value to the commercial property include, but not limited to; upgrading, renovating, improving the appearance, enlarging, or even restructuring the lease. This also means that commercial property investment carries much less risk than the residential property or stock market.
-Higher income potential; Commercial loans attracts much higher lease payments or rent, per square foot as compared to the residential real estate. This means that an investor has much better chances of earning much more income from a CRE investment.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.