What to know about commercial real estate?
What to know about commercial real estate?
First, the question we must ask is “What is meant by commercial real estate or commerce”?
Real estate business and commerce is the real estate market that corresponds to all transactions of rental, purchase or sale of all real estate for business purposes.
These goods range from commercial premises to land, through factories, private parking, not to mention shopping centers or stores, etc.
In general, when someone seeks a safe investment, it is on housing real estate that his choice is made. And this, without taking into account the concept of profitability. In the majority of cases, residential real estate is considered less risky, but it is not always more advantageous. Faced with this, commercial real estate is an option not to neglect.
Indeed, commercial real estate is not only an original investment, but also very attractive.
What are the benefits of investing in commercial real estate?
Investment in commercial premises, despite the fact that it is less known to the general public, offers several advantages, including:
- Financial stability: For the occupant, the commercial space is a source of turnover. In contrast, for the tenant of a home, it is primarily a cost. With a commercial tenant, the payment of rents is therefore more assured because the premises he uses allows him to make profits.
- Rental stability: Due to the presence of its clientele, the trader is attached to his location. Indeed, a sign on a commercial space is particularly important. Any turnover of tenants is therefore less. For the owner, having long-term tenants is an advantage because it significantly reduces the costs of managing the property.
Commercial real estate allows the owner to avoid the hazards of rental housing management.
Investment in commercial real estate also offers interesting financial advantages:
- A better return: In residential rental real estate, profitability is around 2 to 4%, while commercial real estate allows profitability that can range from 5 to 7%. With rental real estate therefore, it is possible to benefit up to twice as much profitability.
- Greater flexibility: It should be remembered that unpaid rent cases are much less common in commercial real estate.
Many companies avoid owning the building they occupy for tax reasons. For them, it is better to rent the premises and pay part or all of the costs associated with the building. These costs include taxes, insurance and maintenance. Depending on the case, we talk about:
- “Net” rent: In addition to the basic rent, it is the tenant who pays all or part of the property tax.
- Rent “supernet” or “Net, Net”: In addition to the basic rent and taxes, the tenant pays the insurance on the space he occupies.
- Rental “hypernet” or “Net, Net, Net”: In this case, it is the tenant who pays all expenses related to the building, including improvement costs, in addition to the basic rent.
- A great freedom to determine the selling price: In the world of commercial real estate, there is no average cost per m² to be respected. The owner can freely set the selling price of his property. It can impose a high rate if the location of the property is highly coveted.
Know that the commercial lease gives a great advantage to the owner because the latter is allowed to put the tenant at the door in a simple and easy way.
How to invest in commercial real estate?
Like any investment, taking precautions is necessary before embarking on this field. To benefit from the advantages of investment in commercial real estate, it is strongly recommended to have a good knowledge of the specificity of this type of investment.
- Choose a Limited Partnership
The main characteristic of a Limited Partnership or SCS is that its capital is divided into shares. To ensure additional income and savings, the choice of an investment in a CBS is strongly recommended.
This choice avoids many inconveniences. The investor partner, who is the operator, is a specialist in commercial real estate operations. The risk of errors in the choice of real estate is then avoided.
By adopting this savings solution, it is necessary to take shares in the capital of the CBS in question. This solution guarantees a yield of more than 5% per year, while allowing visibility on the repurchase price of the securities at the time of subscription. Thus, the investment is safer than for a self investment.
- Choose a Civil Real Estate Investment Company or SCPI
For an investment in commercial real estate, it is also possible to invest in a real estate investment trust (SCPI). This type of investment mainly concerns offices and businesses.
It is a management company of capital collection and acquisition of real estate assets that manages the SCPI. The purchase of performance SCPI units entitles the REIT in question to acquire several real estate assets and to manage the lease.
The amounts invested in commercial real estate are freely adjustable. And it is in the form of dividends that the rents are paid back.
With SCPI, profitability is important. On the other hand, no tax reduction is granted. In case of bank financing or existing land deficit, the majority of the income paid is taxable in the property income. This makes it possible to benefit from a tax-free rent.
As regards the capital gains on the resale of shares of SCPI, their treatment is identical to those of real estate gains.
In view of all this, it can be said that the type of financial investment with REITs offers the security and return on investment in commercial real estate. It is recommended for the long term.
What is lease management?
Also known as “Free Management”, the lease-management is a consensual contract by which the lease of a business or a craft is sold, in part or in full, by the owner.
And the manager who operates it does so at his own risk. As we have seen above, there can be no business without customers. Similarly, there must also be goodwill and especially a clientele, so that there is lease management.
To be able to exercise, the lessee must have the quality of trader and have great commercial capacities. And it is also required by the order of March 25, 2004 and Article L 144-3 of the Commercial Code that the lessor has operated the fund for at least two years before placing it in lease-management.
The transfer and sale of business assets
The sale of a business may be carried out at the same time or as part of other operating assets. With the transfer, the transfer of the activity to a new operator is allowed.
Nevertheless, the owner can continue to operate the fund in exchange for shares of the company. But the goodwill can also be rented out or covered by a guarantee, notably to guarantee a loan.
It is by an authentic deed or deed that the deed of assignment must be established. It can also be established by private deed.
Whether for the first or the second case, it is required by Article L 141-1 of the Commercial Code that the deed of transfer of goodwill include the following mandatory information:
- First, the sale price of the fund must be named;
- The name of the previous seller of the fund must also appear in the deed, as well as the date and nature of the act of acquisition. The price of intangibles, merchandise and equipment for this acquisition must be disclosed.
- The status of liens and guarantees on the fund is also written there;
- Sales and results of operations for the three fiscal years preceding the sale must be presented.
- Even if the fund is leased by the seller, this obligation is still imposed on him.
- If the lease will take place, its date, its duration, as well as the name and address of the lessor and the transferor will also be mentioned in the act.
In the event that one of these obligatory mentions is missing, this entails the nullity of the operation.
The players in the real estate business and commerce
Generally, the real estate professional is also called real estate agent specialized in real estate business. In the 2000s, he was known as a real estate business negotiator.
Whatever the name given to him, he is a real estate agent who exclusively practices his profession in the real estate business. For this, he has a professional card, as well as a professional insurance corresponding to his job. Usually, he works with private and public owners, economic development agencies, and institutional, such as banks, insurance companies, SCPI, etc.
In his profession, the main mission of a real estate professional is to find the clients and their needs. Indeed, its role is not limited to discovering a point of sale and negotiating the price. Despite this, the marketing of private homes, apartments, houses or garages does not concern it.
To be good business real estate negotiators in order to better support their clients, these specialized agents must have solid legal skills, master the techniques on business regulations, know how to analyze accounting documentation and have an excellent understanding. market and the economic environment.
Many specialized companies offer this kind of services. Among them, one can note Flagship specialist of the transfer of trade. To make your transactions a reality, whether you are an investor, a merchant, a landlord, and most importantly a seller, the entire Flagship team is dedicated to you.