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Comment: Four big commercial real estate myths exploded

These common myths arise repeatedly in the commercial real estate market, says veteran Saskatchewan broker
You can never price a property simply by the address and you always have less time than you think to make a leasing decision. | ICR Commercial

Myths are described as either traditional stories of phenomenon or, more commonly, a widely held but false belief or idea. The commercial real estate market is no exception.

Myth No.1: My buddy paid (insert bargain price) right down the street for the same thing.

Not all commercial real estate sites are created equal, and zoning can vary even on the same block as you’re the property you are considering. This will affect the allowable uses which then affects the allowable tenants or buyers. The more flexibility a site offers, the more attractive it can be.

Also, land relative to building structures plays a role in value, as the percentage of land required versus the building is tied to use. Land-shy properties become harder to accommodate business and therefore could be de-valued.

There are many reasons why some sites might be worth more or less than its neighbour so you can’t judge value by address alone.

Myth No. 2: This rental property has been vacant for a long time, so I’m sure there the landlord is ready to give it away.

Without understanding why a property is vacant, potential tenants or agents have little reason to believe there is a “deal” to be had. The owners could be writing off the bad debt or making the vacancy work in their favour in some other way.
In some multi-tenancy properties, the landlord is simply trying to keep the peace. Tenants talk and landlords do not want to sour relationships with existing tenants by adding new tenancies at a lower price.

The single most important motivator for most landlords is maintaining asset value. Their financing is tied to the rates they receive on their properties. By cutting rents, they are in jeopardy of limiting their financing leverage or reducing asset value.

Myth No. 3: I’ve got plenty of time to get a lease in place.

Whatever timeframe you’ve set aside for your search and lease negotiation, double it. Searching, viewing, securing and moving into a property can take a lot longer than you realize.

Decision making timelines are well within your control but be prepared to wait on the other side.

Landlords are eager to lease vacancy, however, they often have other businesses and believe it or not, personal lives. They can be unavailable to make snap decisions or expedient in responding to offers.

The best way to bust this myth is to find out from the listing agent what kind of response time the landlord requires.

You may also need to engage third parties for part of the transaction and sometimes cannot speed up the wheels of bureaucracy. Keeping on top of the professionals you’re using for reports or financing often keeps things rolling more smoothly than not.

Remember, patience truly is a virtue.

Myth No. 4: This building can be repurposed for the next person.

This myth comes with a caveat. While developers are mindful of building new structures that be used for the most purposes, commercial assets can have a shelf life. It’s not uncommon that tenants or owners find themselves unable to reuse previous tenant improvements.

So long as that can be torn out, though, the space can get a new lease on life. Buildings that have been constructed with a specific use are the most obvious types in this category.

A cost analysis could reveal that retrofitting a building may not be feasible. The same can be said of older functionally obsolete properties with dimensions that are simply no longer desirable to tenants.

Demolition and redevelopment of the site can often be the logical step to recover the highest rents and most functional uses going forward.

– Kelly Macsymic is a sales and leasing agent with ICR Commercial Real Estate and business manager for Stuart Commercial real estate, Saskatoon, Saskatchewan.