Selling Commercial Real Estate? 24 Practical Techniques to BOOST YOUR ROI on 5 Different Property Types
When selling commercial real estate, the favorite phrase, “A little bit goes a long way,” holds much truth. Before listing and showing your property, a wide range of tasks can, and should, be undertaken to increase the chances of a sale and boost the potential ROI.
A study by the Florida Nursery Growers and Landscape Association found that something as simple as landscaping can potentially increase a commercial property’s resale value by 14 percent. And, even more surprisingly, landscaping can also increase the time it takes to sell commercial property by as much as six weeks.
With some as straightforward as cleaning up, and others requiring an investment of a few thousand dollars, each recommendation is aimed at increasing the profit of your commercial property. Below are 24 practical tips to improve any of the five major types of commercial real estate.
What is Return on Investment in Commercial Real Estate?
In commercial real estate, return on investment (or ROI) is the amount an investor profits from a property sale after all expenses are deducted. The ROI is calculated by comparing the total cost of the investment (including the initial purchase price plus any other expenses) to its current value or sale price. All expenses associated with the commercial property should be included, such as repairs and renovations, commercial real estate loans and interest rates, and costs associated with selling commercial real estate (e.g., commercial appraisal, commercial real estate agents, advertisements, and upkeep for curb appeal).
To determine your exact commercial real estate ROI — meaning actual profit — you must sell the property first. But you can estimate your ROI based on comparable property sales. However, remember that commercial real estate doesn’t always sell at market value.
Essential General “Staging” Rules When Selling Commercial Real Estate
While many improvements are property-specific, a few tips for selling commercial real estate benefit each commercial property type. Here are four of the most apparent, yet important tips:
Avoid immediate eyesores. The most obvious (and visible) advice may include fixing any noticeable blemishes or monstrosities. Tasks involve mowing the lawn, installing attractive signage, and removing clutter.
Improve air quality. While air quality cannot always be controlled outdoors, depending on location, you can take a few opportunities to reduce pollutants inside. Enhance the air quality by using environmentally-friendly cleaning supplies to clean and dust regularly, and shampoo (or replace) rugs.
Update the lighting. The Department of Energy found that replacing traditional incandescent bulbs with either compact fluorescent lamps (CFLs) or LED bulbs produce an energy savings of approximately 25-30 percent. While these bulbs are pricier upfront, they last longer and provide substantial savings over time. What a great selling point to a potential buyer!
Consider going solar. Switching to solar may seem like a substantial investment; however, the Department of Energy recently noted that the average solar electric system cost has dropped approximately 50 percent since 2010. Additionally, there are many tax rebate and incentive programs that businesses may qualify for, thus reducing the costs of switching to solar. The benefits of going solar more than makes up for the initial price, though. Aside from reducing greenhouse gas emissions, lowering your carbon footprint, and helping to rid carbon dioxide from our atmosphere, solar power can also reduce energy bills by as much as 75 percent! As you can see, selling commercial real estate with a solar panel system already installed is a huge selling point in itself; so much so that you can increase your sale price to cover any initial costs you may not have made back immediately.
CRE Property #1: Industrial/Warehouse Space
Unlike other types of commercial real estate, selling warehouse space or industrial real estate does not depend as much on indoor aesthetics. That said, prospective industrial real estate buyers prefer that the property be usable immediately. Take these steps when selling commercial real estate, such as a commercial warehouse or industrial building:
Make the exterior as attractive as possible. Staring at a commercial warehouse building with broken windows and graffiti will not flood your calendar with potential buyers. Power washing, painting, and fixing anything broken are less expensive steps that will undoubtedly encourage an investor’s attention.
Highlight your signage. While commercial warehouses aren’t always the prettiest buildings, much can be done to enrich the external appearance to make the property more inviting. A large, professional-looking sign surrounded by well-landscaped grass or bright flowers will increase curb appeal when selling commercial real estate.
Implement energy-saving options. Automatic, energy-efficient options such as climate control and light timers necessitate a small up-front cost but do wonders for saving money over the long term. Having the ability to turn down the building’s heating and cooling system automatically or shutting off the lights when the building isn’t in use are considered desirable options for buyers.
Ensure the roof is fully intact. Buyers consider the roof a priority out of all the parts and features of a commercial industrial building. Whether your roof requires fixing broken or missing shingles, or a complete replacement, this is one of the more expensive improvements that holds much weight. When in doubt, invest in your roof.
CRE Property #2: Retail/Restaurant Storefront
Retail space for sale differs from other types of commercial real estate because owners are trying to either (1) attract customers, or (2) attract tenants that plan on attracting customers. Aesthetics matter more here when compared to selling warehouse space; however, the pressure placed on typical staging is not as heavy as it is with apartment and office buildings for sale. To boost your chance of selling commercial real estate in the form of a retail space or restaurant, consider the following tips:
Spruce up the parking lot. While much of the focus should be on the building, the parking lot should also be at the top of the improvement list. With retail and restaurant properties for sale, access to a clean, ample parking lot is a big draw. Consider resealing the parking lot, fixing potholes, and repainting the lines.
De-clutter the interior. Retail and restaurants require a minimalistic approach when it comes to staging. Show off the basics of the building in a way that enhances its potential usefulness. Remove clutter from every aspect, including storage spaces, to achieve this effect.
Keep a professional appearance. Hand-in-hand with de-cluttering comes the need for a professional, staged presentation. Similar to staging a house, you want to allow buyers to visualize your property’s potential. In strategic locations throughout the storefront, try a fresh, neutral coat of paint along with a few props and accessories that relate to the particular theme of the business. Also, don’t forget to clean the windows inside and out. While outside, powerwash the building’s exterior to give it a fresh look.
Highlight the location. For shops and restaurants, the location can be just as (if not more) important than the actual property because of its accessibility to a customer base. Be sure to include information about, or consider giving a brief tour of, the biggest draws of the location when you sell commercial property like a store or eatery. Emphasize the area’s accessibility and parking, proximity to schools, traffic generators (e.g., grocers, shopping malls, superstores, and banks), and demographics. Your retail space for sale will always look better with more foot traffic, so “talk up” the location!
CRE Property #3: Apartment Buildings and Multifamily Units
As with retail and restaurant properties, an attractive parking lot and a professional appearance are requirements for apartment buildings and multifamily properties. However, additional techniques are specific to selling commercial real estate in this sector. Here are four options you should consider, whether you have a duplex, triplex, quad, or apartment building for sale:
Proper staging. While staging an apartment should also be done in a neutral color scheme, more leeway is encouraged here. Good staging gives prospective tenants ideas on what they can do with the property. Neutral paint allows the space to appeal to many buyers, but accessories like plants and artwork can make them feel much more at home. Additionally, filling the space with functional, quality furniture highlights the unit’s potential, but there’s no need to buy new furniture; find a furniture rental company nearby. An investor in your real estate will want to know the overall vacancy rate of your property, so make sure that those empty spaces are ready to rent!
Make the most of the space. There are ways to stage an apartment to maximize the space it offers. This step takes staging one step further, by adding options such as shelving, making a prospective buyer think vertically. Using crafty ways to separate space, such as an open bookcase in a studio apartment, keeps things open and airy but also helps designate between the sleeping and living areas. Again, an investor will want to know the potential of the spaces in your building, so make sure those empty units are entirely optimized.
Implement water conservation methods. Upgrades such as low-flow showerheads, sink faucets, and dual-flush toilets improve efficiency and save thousands of gallons of water annually. Renovations like these are attractive for investors, knowing that future improvements won’t be needed, and money will be saved.
Add or upgrade convenience machines. Not every apartment building or multifamily property offers amenities such as washers, dryers, and vending machines. For tenants, access to washers and dryers adds many conveniences to their everyday lives. The same goes for strategically placing vending machines in common areas near the gym, pool, or laundry room. These accompaniments will benefit you when marketing and selling apartment buildings to an eventual investor; thus, adding an extra flow of income from using the machines.
CRE Property #4: Office Building
“Have you seen my stapler?” is only iconic in the movie, “Office Space” – not so much when selling office space. A cluttered office is stressful; no potential buyer will be apt to invest money in a property with a counterproductive vibe. To avoid this scenario, prepare your office building for sale with the following tips:
Set a calming environment. Choosing to spend the money to update that old, sagging couch and scratched coffee table in the lobby can prove the difference between a sale or no sale. Other tips include replacing any dying or overgrown plants, and ridding and replacing any damaged or water-stained tiles in the ceiling. If the space is being used, desks should be cleared neatly of paper and other office supplies.
Consider “happy” accents. As with the other properties, it is best to keep paint colors neutral on the walls, but accenting the space with proven motivation-inducing, or mood-improving, colors like blue, green, yellow, or red will appeal to the eye. Another small accent that packs a big punch is professional tenant signage. Signs should be fully up-to-date and appealing to the eye (i.e., don’t use the office printer!). Moreover, as with the industrial property, surrounding outdoor signs, bright flowers, and clean landscaping make the building seem inviting and comfortable.
Clean everything! While cleaning applies to all properties, with office buildings, in particular, prospective buyers will inspect every area for prime cleanliness. Start with the lobby; clean any furniture, shampoo the rug, and don’t forget to clean the dust off of plants. Pay attention to bathrooms, janitorial closets, and mechanical rooms. Many selling commercial real estate such as an office building tend to disregard the mechanical rooms and janitorial closets. Don’t forget about these critical areas. If a buyer finds them in poor condition, it can quickly make them believe that other problems are hiding in the building.
Create a rent-roll. A rent roll is what the phrase indicates: it is a list of your tenants with essential information, such as the lease rate, amount due, and total income for each lessee. Buyers will want to calculate the potential income of their investment, so make it easy for them. A higher value is placed on tenants with longer term lease agreements.
CRE Property #5: Land
Selling commercial real estate in the form of land – specifically farmland or undeveloped land – may require getting your hands dirty. When you sell land, outdoor aesthetics are critical. Instead of focusing on setting the stage inside a building, the following tips offer ideas on how to invest in manicuring the land or farm before a sale.
Be keen on first impressions. Spruce up the basics, such as a broken, rusty, or faulty gate, as well as brown or overgrown grass. You can tackle these tasks at reasonable costs that will pay off in the long run. For instance, consider what a land buyer might see at first glance, such as the entryway into the property. Allow them to have a good first impression.
Prepare the route. When showing the route of the land for sale, you must ensure the paving is smooth. Eliminating rough patches requires an initial cost, but that investment will surely generate a positive ROI. Manage any invasive brush and noxious weeds that exist, especially on the route or around any other attractions that may be present on the property. Putting in this work ahead of time ensures that the highlights of the land will be evident and appealing.
Consider adding highlights. Add appealing accents like new fencing, trees, and human-made ponds on rural land to improve its attractiveness. Add additions to include an option for utilities; running water lines and testing the ground for septic system allowance can undoubtedly boost your profits when selling land.
Don’t skip the barn. If there is already a barn or building on the property, it should not appear shabby or run down. Clean the interior and exterior, and remove any junk lying around (e.g., trash, machines, wood, and pipes). Additionally, ensure any electrical items on the property, such as lights and water troughs, are in working condition.
Final Takeaways: What To Know About Selling Commercial Real Estate
Fortunately, when preparing your commercial property for sale, there are several professional outlets to help in your endeavor. Professional cleaning crews, staging companies, furniture rental shops, and commercial real estate appraisal firms are all available to help turn your investment into a profitable sale.
Additionally, as a rule of thumb, when implementing improvements to your property, you must take the time to document each step of the process. Any construction, upkeep or upgrades, and structural enhancements should have receipts and before and after photos. Create a spreadsheet and note each item as meticulously as possible. Trust us; when it comes time for a CRE appraisal by a commercial real estate firm, you’ll be glad you secured these documents in a safe location. You may also be interested in better understanding what a commercial real estate consulting firm does. A CRE consultant can help guide you through the process.
Got Questions? We Have The Answers When Selling Commercial Real Estate
In addition to all the fantastic tips in this article, choosing a knowledgeable commercial real estate brokerage firm will almost guarantee profitability when selling commercial real estate. Speak with one of the experienced commercial brokers at The Robert Weiler Company by calling 614-221-4286; we’re committed to helping you generate a maximum ROI!