How to Successfully Navigate your Commercial Real Estate Plan
By: Jerry Fennelly, SIOR, President, NAI Fennelly
Over the past decade, we have been amid what has been termed the “great generational wealth transfer.” This demographic trend revolves around the rapidly aging baby boomer population who are passing down assets to their Gen-X and millennial next of kin. While this wealth transfer can manifest itself in many ways, one of the most complicated asset types often involved are commercial real estate properties.
Whether it is costly maintenance, remote property location, or ever-growing property taxes, owning a commercial real estate building can often become a full-time job. While taxes play a significant role in the sale of an inherited commercial property, the ability to maximize rental value and ultimate sale value weighs heavy on owners’ minds.
With maintaining ownership and waiting to sell both bringing their own set of unique challenges, what is the heir of commercial real estate to do?
The good news is, there is already a time-tested NAI Fennelly roadmap for navigating this difficult process. By following the steps below, you can find a solution that works for you.
Tap the expertise of an experienced commercial real estate broker
It all starts with hiring an experienced commercial real estate broker. Historically, a broker’s role in a transaction would be to position the building, land or antenna with the highest long-term benefit for the owner of the property. As a result, selecting a broker was typically the first step in the strategy process but often accompanied by the hiring of several other consultants and professionals.
However, the commercial real estate services model has seen a dramatic shift in recent years, moving away from a transaction management role to a full-service advisory role. With this shift, commercial real estate brokers are no longer solely responsible for making sure the paperwork is filed correctly and the deal is closed on time. Instead, today’s broker can be an invaluable consultant to clients with complex real estate needs such as heirs to a commercial real estate building. Beyond understanding your asset’s value, a broker can work with you to identify whether the building’s current leases are at market value, what improvements it may need and help determine if selling or continuing ownership is the right move in the current market.
There are several important factors to consider as you look to select a broker, but most importantly, whoever is chosen should be deeply experienced in not just the geographic market but also the specific asset class that you’ve inherited. As every commercial real estate market is dramatically different, an experienced brokerage team can provide insights based on decades of work in the marketplace to ensure your strategy aligns with the reality on the ground while providing the necessary information for you to make an informed decision.
On top of that, asset class-specific expertise provides real-world examples of common challenges that owners might face and tips on how to overcome them. In addition to leveraging their expertise in the strategic and tactical aspects of your ownership, a local and experienced broker will often have a deep network of trusted real estate professionals who they can work with to provide a full end-to-end real estate experience while quickly solving any problems and informing the owner of any opportunities that suddenly appear.
Understanding your taxes
Another invaluable resource that your broker can assist with is finding an accountant deeply familiar with the constantly shifting tax codes surrounding commercial real estate investments. While the tax implications of commercial real estate ownership have always been tough to navigate, recently passed and proposed legislation as well as updates to the tax code only threaten to make taxes more difficult to understand. For example, a proposed raise in the capital gains tax from 18 percent to 25 percent would have deep impacts on anyone hoping to sell a commercial real estate property. Furthermore, possible changes to the 1031 exchange program could make it more difficult to reinvest proceeds from the sale of one investment property into the purchase of another, should that be the path you hope to choose. An experienced accountant will be able to provide you with answers to all your questions to help you understand how your continued ownership or sale of the property could impact you financially.
Interested in learning more about what to do with your commercial real estate? Contact us today and experience why NAI Fennelly has been trusted by hundreds of clients to help them successfully create and execute commercial real estate strategies.