buying

How CREA and the MLS are destroying commercial real estate through DDF

If you are a commercial real estate agent and you use the MLS, you may have noticed an unsettling trend in the last few years. CRE brokers are accustomed to having a particular flow to their deals that are unique and more elaborate in comparison to most residential real estate transactions. We are also accustomed to working both ends of a deal, especially when it comes to leasing. We have knowledge of how to complete these transactions with professionalism, transparency, and without assistance.

In recent years CREA has implemented DDF (Data Distribution Facility) to all MLS listings by default, unless your board office allows you to disable it at the brokerage level, many don’t. Why is DDF damaging to the commercial real estate profession? DDF allows any brokerage utilizing the MLS to market your listing, without additional consent from you, automatically. While this allows for more exposure of one listing on the internet, it’s a double edged sword that has led to incompetent representation for commercial buyer/tenant leads. Brokerages that are all or mostly residential focused are now getting buyer and tenant leads for commercial real estate listings they don’t have, and more importantly, don’t have the experience or expertise to properly represent someone in a commercial real estate transaction.

A few years ago I operated a small but profitable commercial real estate brokerage. My desire to focus on dealmaking rather than broker of record responsibilities lead me to the decision to close shop and join another brokerage. I was accustomed to operating strictly with commercial standards and it was rare for me to encounter a deal with another agent who wasn’t a commercial practitioner. These days my MLS listings barely generate direct leads for me, instead I’m regularly bombarded with showing requests from residential agents who have received a random lead and don’t know how to handle it. The vast majority of real estate practitioners are residential, with little or no experience to properly complete or even offer good advice for a commercial lease or sale transaction.

When commercial realtors encounter a residential agent with a buyer or tenant, it’s usually an incredibly frustrating experience to try and complete a deal. I for one often observe agents that:

-Don’t know anything about their clients needs or business requirements before showing a property.

-Don’t know the market conditions for commercial, office, or industrial properties.

-Know little or nothing about environmental site assessments.

-Don’t know what BOMA is or how to measure a building according to its standards.

-Make interior measurements and assume the landlord is trying to charge for extra square footage.

-Don’t know how to write a commercial offer to lease or commercial agreement of purchase and sale.

-Have never written, negotiated, or read a commercial lease.

-Can’t calculate the monthly rent.

-Don’t understand what TMI is.

-Misrepresent their clients interests because they simply don’t understand them.

-Can’t answer basic CRE questions and needs to consult their broker of record or another agent in their office for answers.

This list can unfortunately go on and on.

What this leads to is the public being misrepresented when they are accidentally matched up with someone who simply isn’t qualified to complete a commercial transaction and I have heard complaints from businesses who had incredibly frustrating experiences and difficulties as a result. Unfortunately I’ve raised concerns with CREA about this platform and there seems to be no concern about ensuring that people are matched up with quality commercial practitioners for their business needs, and there seems to be no concern for commercial practitioners unique business model.

Is there a solution? As long as the MLS is being used and has DDF implemented it will continue to degrade the commercial real estate profession at a rapid pace. Maybe it’s time commercial practitioners acknowledge the harm that is being caused to this industry and pursue an alternative. CREA has designed the MLS to cater to the housing industry and over the years have continuously failed to improve the commercial real estate sector. What if all commercial practitioners abandoned use of the MLS in pursuit of an alternative such as Loopnet or Spacelist to be the new norm? That’s a conversation worth having.

Until then, if you’re a business owner in need of commercial real estate services, just make certain that you’re dealing with an agent that’s qualified to represent your interests.

Small Office or Institutional building for sale in St. Catharines

Behold 172 Eastchester Ave in St. Catharines with a recent price increase due to the amount of activity. A clean and well maintained small building used for office or institutional uses in the East end of the City. The building has been previously used as a private career college and a church but it can be converted to offices, medical, educational, or other uses.

What makes 172 Eastchester so special? Aside from being well priced at under $200 per sq. ft., this building features 17 on-site parking spaces plus additional free street parking, it has large bay windows that bring in amply natural light, it has a finished basement for more usable space, and it has an elevator which can be re-instated with the implementation of a regular maintenance contract. These are all rare to find features, especially at this price point.

If you are in the market to buy a small office building you will want to check out this listing. Looking for something else? Let me know what you need and I’ll see if I can find an option somewhere by contacting me

10 things to consider if you're a tenant wanting to buy a commercial or industrial building

I work with a lot of tenant’s and something I commonly hear from them is that their goal is to buy a building. Owning commercial or industrial real estate can be an excellent investment and a worthwhile pursuit, however, I have discovered that most tenant’s with this goal aren’t aware of what is required to buy a building when they make this statement. Not only do I do commercial and industrial leasing, I also do sales, and I want tenant’s to know what the process is like not because I want to discourage them, but because it’s a process that is approached best with eyes open and expectations realistic. I would say most tenant’s abandon this pursuit after learning about the requirements and the process.

To start, the biggest thing you need to know is that getting a commercial real estate mortgage is way different than getting a mortgage for your home for many reasons. It’s common to encounter large downpayment requirements, fees, appraisals, an environmental site assessment etc. which adds time to the approval process. Many residential mortgages achieve approval within a couple weeks, but on the commercial side it could take months. Below is a list of things to consider before you even start looking at properties for sale.

1) High Downpayment Requirements - Probably the most notable obstacle for buying any real estate is ensuring you have enough for a downpayment. In comparison to residential mortgages that can offer a great deal of flexibility on the down payment requirements, it’s common to see a demand of 25% - 40% downpayment. I’ve met many business owners that have assumed this requirement can be much lower and have come to realize they just don’t have the ability to put together that much cash. There may be some flexible exceptions out there through private lending options or through the BDC that can present better options for buyer/users but this is dependent on the business.

2) Bigger Deposits - With bigger downpayment requirements comes the need for bigger deposits (and for other reasons). It’s common for knowledgeable commercial real estate brokers to try and achieve a deposit around 10%. Why? Commercial sales can take a long time to come together and if you’re expecting to tie up someones property with lengthy conditions you need to prove that you’re worth the wait, and, show that you obviously have a good chunk of cash ready for a downpayment. If you’re expecting to tie up a property with a few grand, you may be perceived as unrealistic.

3) Longer Closings - In comparison to home sales which can go firm within a couple weeks, it’s common for commercial sales to take a couple months, sometimes even longer depending on the structure of the deal. The main culprit for longer deals is usually the financing where lenders request environmental site assessments that can take anywhere from weeks to months to complete. It would be wise to expect occupancy of the building to be months into the future, don’t expect to be moving your business in within the span of a month. It’s not impossible, just very unlikely.

4) Different Mortgage Requirements - In addition to high down payment requirements, commercial mortgages are typically structured differently. The interest rates are different from residential and it’s not common to get an amortization period as long as you could achieve in a residential mortgage. Not only are the down payments higher, your mortgage payments will be higher with having to pay the building off sooner. It’s also common to come across fees in the process of commercial lending which is not something you typically encounter when buying a house.

5) Environmental Site Assessments - In Canada (and probably most of the United States) it is standard for commercial mortgage lenders to request an ESA for commercial and industrial properties to prove it is within ministry of environment standards. Most times it is standard for the seller to prove the property is within MOE standards so the cost of the report usually falls on them, but, this condition can take anywhere from weeks to months to complete which can create a lengthy conditional period and a potentially drawn out closing. Things usually get drawn out and costly if contamination is discovered.

6) Lender Selection - You would think that most of Canada’s big banks are a great source for a commercial mortgage but few actually specialize or excel in offering this service. If you’re not exactly happy with your preferred bank for commercial mortgages you may want to explore lenders that specifically market themselves for that service.

7) Borrowing Potential - If you think that owning a building might be the best thing for your business, it actually may not be for everyone. Each business only has the potential to borrow so much money and if it’s perceived that most or all of your borrowing potential is tied up in bricks and mortar, it may be difficult or impossible to borrow money for other business purposes, like if you wanted to borrow to upgrade some expensive equipment or make alterations to the property. Unfortunately I have met some tenant’s who have felt that buying a building paralyzed their business growth and regretted their decision. The positive idea of building ownership can make you blind to this potentiality.

8) Lease Payments are Tax Deductible - Mortgage payments… not as much.

9) Cost of Alterations - Unless you’re building new to spec, you will likely find it impossible to find a building that is perfect for your business needs in its current state. Alterations to make sure the building is a good fit for your business are almost always necessary because the previous business was different and had different layout needs than your business. The cost may not necessarily be high in some situations but you will want to make sure you have a proper budget allocated for this after closing.

10) Maintenance and Repairs - As a tenant the building is likely repaired and maintained by arrangements through the landlord or a property management. This is handy because it allows tenant’s to focus on their business and not maintaining a property. Once you buy a building you become the landlord and are now responsible for arranging repairs and maintenance, just something to keep in mind.

If after reading this you feel that buying a building is the right thing for your business then please reach out and lets see if there are some options available for you in the Niagara Market. It would be wise to ensure the agent you’re working with has experience with commercial or industrial real estate sales.