How to Navigate the Commercial Real Estate Buying Process

Investors often say that buying property is a win-win proposition, no matter your market. Even in times of recession or economic downturn, there’s always a promise that the property’s value can appreciate over time. In the commercial real estate world, this promise is almost always backed up by entrepreneurs looking for space or your own company taking over the property for business purposes. 

Whether you’re a fully-established business looking to expand and find a permanent home, a small business trying to get your feet beneath you, or an investor looking to capitalize on a growing market, an investment in commercial real estate can be a lucrative endeavor. 

Why Should You Invest in Commercial Real Estate?

Compared to leasing a commercial space, buying a property can afford you numerous advantages (both financial and logistical in nature) and can also serve as an investment in the future of your company. From adding manufacturing facilities to additional office space or support centers, having a physical location to expand your business and help your bottom line in the long-run can be hugely beneficial to companies of any size.

Additionally, there are other benefits to purchasing a commercial real estate property as opposed to leasing a space, including:

  • Complete Control. By purchasing a commercial real estate property, you’ll be provided a remarkable level of control over your company’s space. While you’ll be responsible for all utilities, insurance, and maintenance costs, you’ll also be free to make any improvements, expansions, or aesthetic changes you may want to make. 
  • Reliable Overhead Costs. You’ll never have to worry about rent increases when you own your own commercial real estate property. With a fixed-rate loan, you’ll have no exposure to detrimental changes in the commercial real estate market in your area. 
  • Tax Benefits. While your accountant can provide more details about your specific property’s potential for tax breaks and deductions, you’ll be able to write off your mortgage interest, property taxes, and other business expenses you wouldn’t otherwise be allowed to deduct on your annual tax filings if you were leasing a space. 

What to Ask Yourself (and the Previous Owner) Before Purchasing Commercial Real Estate

If you’ve never completed a commercial real estate purchase before, you probably still have many questions. It’s a complex endeavor and one that can flummox any first-timer, so before you make a decision on a property, ask yourself, your team, and the current ownership the following questions:

Why is the Property for Sale? 

There’s any number of reasons to sell a property, but knowing why the seller is motivated can help you understand the market situation and business realities in the area. If you can find out why a property is for sale, it can also help you in the negotiation process if the seller is eager to free themselves of the space.

What is the Property Currently Being Used for? 

Beyond the zoning requirements for the property, it’s useful to consider what the property was previously used for and whether or not it was successful in that space. For instance, if you’re buying a space to establish a coffee shop and the previous occupant was a bakery that failed, you might want to consider a different location.

What’s the Condition of the Property? 

Obviously, you’ll want a licensed property inspector to look into the details of the building’s condition, but it should be apparent from a simple eye test whether the concrete needs repair, drywall needs patching, or if the HVAC/heating systems are aged beyond efficiency. You should conduct a thorough walkthrough and take notes of any damage or potential improvements the space could use should you decide to make an offer. 

What’s Happening in the Surrounding Area? 

The value of a commercial property isn’t just defined by its condition, age, or appearance; it’s also influenced by its location and the neighborhood in which it resides. Take some time to walk around the area and look into any plans for development, upcoming construction projects that could impact your business, or improvements to public transit that could be beneficial to your company’s future?

Important Steps in the Commercial Real Estate Purchase Process

Any real estate transaction involves a lot of moving parts, but commercial real estate investment is a bigger fish. Whereas residential properties used for leasing purposes often garner lower returns on investment and shorter lease terms, commercial real estate requires longer leases (even exceeding 10-15 years) and monthly rent is calculated by square footage. 

If you’re interested in investing in commercial real estate or purchasing a property for your own company, consider these important steps before you begin your search in earnest:

1. Why Buy?

As with any major purchase, you need to seriously consider why you’re looking to invest in commercial real estate property. Is it simply for the promise of a return on your investment? Or perhaps you’ve located a space that better suits the future of your business? Is your current space not accommodating your needs for growth? Look at what you want to accomplish with a commercial real estate investment and then find a property that could provide what you need.

2. Consider the Different Commercial Real Estate Property Types

If you’re simply looking to invest in commercial real estate properties and generate income by leasing those spaces, you need to consider the different types of commercial real estate. Of course, if you’re a retailer, a space built for retail shops should be your primary focus in your search. But from restaurants, coffee shops, retail spaces, office space, professional buildings, large-scale industrial complexes, and mixed-use facilities, each type has its own potential for generating income over the long-term.

3. Ensure Your Financing is Secure

Not only will getting pre-approved for a commercial real estate mortgage help you better understand how far your credit and liquidity can take you, but it will show potential sellers that you’re motivated and ready to move forward on a property. 

4. Establish Your Criteria and Build Your Team

Aside from dedicating the energies of a new property search to a dedicated point person in your employ, it’s important to bring on an experienced commercial real estate agent specializing in your area of interest. In addition, you’ll want to seek out a commercial real estate attorney and a certified personal accountant to keep the numbers and terms on track. 

5. Begin Your Search – and Do Your Homework

Now that you know what you’re looking for, you and your team can begin narrowing down the potential list of properties to tour and consider. It’s important to avoid settling on the first available option if it has shortcomings that might stymie your growth. You should also look into the property’s history before making an offer. How many upgrades/repairs have been performed? Has the building taken any damage from water/mold/asbestos, etc.? Only once you’ve built a list of pros and cons for each potential space should you move forward. 

6. Make an Offer

Once you’ve found the right property for your needs, you’ll want to draft a Letter of Intent (LOI) showing that you’re pursuing interest in securing the space. In the case of a commercial real estate purchase, including a contingency clause in the offer letter can protect you in the event that the property doesn’t pass an independent property inspection. Once you’ve consulted with your real estate agent, accountant, and lawyer, you can move forward with the offer and begin the negotiation process. 

7. Do Your Due Diligence

This part can get messy if you don’t have your proverbial ducks in a row. Once you’ve gotten the offer on the property owner’s desk, it’s time to fine-tune the process. You’ll need to get an ALTA survey, bring on an escrow officer, and property inspector. There’s a ton that goes into finalizing a property sale, so making sure things like property boundary lines, easements, access rights, titles, bills of sale, assignments of contracts, warranties, etc. are all lined up to avoid legal action (upon both the buyer and seller) post-sale. 

Key Terms to Keep in Mind as a First-Time Commercial Real Estate Owner

If you’ve previously invested in residential real estate or have simply leased your previous commercial real estate properties, there are numerous new terminologies you should be aware of before pursuing a commercial real estate transaction.

  • Ad Valorem – Ad Valorem is a tax calculated based on the current value of the property in question.
  • Debt Service Coverage Ratio – This is a metric that analyzes how much of your operating income goes toward paying down your debt each year. 
  • Capitalization Rate – Capitalization rate is measured by how much income the property in question takes in against the total market value of the property. 
  • Cash on CashThis shows how much income your organization has made versus how much you’ve invested in the property, including the amount of your initial downpayment. 
  • Loan to ValueHow much money you’re borrowing against the total value of the property you’re trying to purchase. 
  • Vacancy RateThis is hugely dependent on the market in your area. Vacancy rate shows the percentage of comparable, vacant properties during the same time period in your immediate area. 
  • Useable vs. Rentable Square Footage – Just because you’re offering a certain square footage doesn’t mean that’s usable by the tenant. “Rentable” square footage can include the usable square footage of the space plus a certain percentage (or pro-rata share) of the building’s common areas, including shared meeting rooms, lobbies, restrooms, utility closets, elevators, parking areas, etc.
  • Net Operating Income – NOI refers to any income you generate from the property after expenses are taken into account, but does not include load payments, value depreciation, or taxes. 

Successfully completing a commercial real estate deal is a monumental accomplishment that takes time, effort, and a lot of energy. But as rewarding as the endeavor can be in the long-term, entering a commercial property ownership role can be frustrating if done without a cohesive plan of action. With the information above, you’ll be better equipped to handle the ups and downs of the entire process.

The Best Questions to Ask During Your Virtual Office Space Tour

Whether in the middle of a global pandemic or short on time, having the ability to virtually visit a commercial real estate space without having to actually book an appointment is a convenience no matter the circumstances. Being able to visit a space without the time and commitment of an actual visit – let alone several during the course of a day or several weeks – is an immediate time-saver. Everyone’s time and attention are important, so brokers and listing agents should strive to provide an alternative to actually visiting a potential space. 

But there are some obvious differences and drawbacks between a virtual tour and actually visiting the space. Aside from being able to physically inspect certain details and ask the real estate agent questions during the walkthrough, it’s also possible that what’s displayed on the listing website isn’t 100% representative of how the space actually looks. In normal times, you shouldn’t rent any property – commercial or residential – sight unseen and leaving yourself exposed to bait-and-switch tactics and misleading photography or listing details. 

So, just as when preparing for an actual walkthrough, there’s wisdom in preparing your questions ahead of time and knowing what to ask during your virtual tour.

Questions to Ask During Your Virtual Tour

Besides the typical questions to ask during a property tour, the differences in a virtual tour should prompt more discussion. You’ll want to be prepared with a list of questions about the physical aspects of the space, any amenities you may require, and even details about the basics of each room. You can’t walk through and see locations for power outlets and network infrastructure, for example, so thinking ahead and imagining yourself during a physical tour will help you fill in the gaps during your virtual one.

You’ll also want to ask the realtor the following:

  • -Is this space a model property, or the actual vacancy in question?
  • -How recently have these photos and video tours been updated? 
  • -How many workspaces have been previously used in the property?
  • -Have previous tenants made any upgrades or changes to the property?
  • -Are there photos of any damage I can inspect?
  • -Will any tenant build out allowances cover improvements for social distancing requirements?
  • -Does the building have a demonstrated history of companies utilizing distributed working conditions?

These are just a few examples, but with the unpredictable times in which we live, it’s critical that a modern office space can provide flexibility for companies that need to shift gears in a hurry. 

Important Differences to Consider Between Virtual and In-Person Tours

First, it’s important to distinguish between staged photography and the real thing. While you can’t be there to physically verify the authenticity of what’s presented to you, there are a few easy ways to telling between the real thing and what’s on your screen.

  • -Be Wary of the Wide Angle: Despite the need for a “fish-eye” effect to film virtual reality tours and show every corner of a room, wide-angle lenses can misrepresent the actual size and scope of a space. When viewing the property from the comfort of your screen, be sure to get concrete details about the square footage and usable space of each room so you can make comparisons. 
  • -Look for Disclosure: Any images that have been digitally altered or virtually staged should have a disclosure of that fact below. Asking the tour guide what specifically is edited will help you get a more realistic sense of how things actually look inside the property. 
  • -Virtual Staging Tricks to Spot: Real estate professionals work meticulously to physically stage properties for expensive photo and video shoots, agonizing over the artwork, interior design, and even the color of items displayed in a photograph. Virtual staging is becoming more and more versatile, allowing realtors to change items on the fly. But being in a space makes it easier to assess the flow of a room and which objects should go where. If a couch looks like it’s in the wrong place or a table obstructs major walking paths, there’s a good chance the property has been virtually staged. 

Because realtors want to represent how a space “could” be compared to how it might be at the moment (that is, empty and without furniture, in most cases), it can actually be beneficial to ask for a few examples of layouts during your tour. If they don’t have them available, modern technology allows for quick adjustments, helping you imagine how your space could look once you move in.

Best Practices for Your Virtual Tour

  • -Find a reputable broker. Especially because you can’t always face-to-face with a commercial real estate broker, it’s important to ask for referrals, references, and check credentials. What’s this broker’s history and experience in the market? How long have they been working in commercial real estate? Do they specialize in certain types of properties, or is this listing a bonus to their portfolio? These are all fair questions to ask.
  • -Do your homework. Looking through public data on building history, contracts, and construction projects isn’t the most satisfying project on your to-do list, but investigating a potential space beforehand won’t just give you an idea of the space in question – it’ll arm you with more questions to ask during your virtual tour. And given the nature of the virtual tour, it’s important to keep records of written conversations if you decide to close on the property.
  • -Be polite, but inquisitive. You may find yourself spending even more time during a virtual tour than a physical one simply because you’ll need to ask a lot more questions of the realtor than what you can see and inspect in person. It’s easy to feel that you’re using up a lot of the realtor’s time and forcing them to dig deeper on the details than they may be used to. But in our current reality, both parties need to do their homework and get as much information as possible before moving forward. 
  • -Be prepared. Aside from your exhaustive list of questions, it wouldn’t be a bad time for a technology upgrade. Many property listings include an option for virtual reality tours. And while these don’t require a VR headset, the image will appear distorted without one. If you’re trying to make a substantial decision on how to invest in your company’s future, upgrading your hardware isn’t a bad idea. 
  • -Research virtual staging and digital listing techniques. Technology is a wonderful, ever-changing thing. And while photoshopping images isn’t a new technique, it’s a powerful one. Getting a sense of what’s been incorporated into the virtual tour to improve the appearance of the property will help you get an informed perspective – albeit a remote one. 

It’s difficult to predict the future and how things will change during times of crisis. As you move forward with your office space search, it’s more important than ever to be prepared to ask more detailed, specific questions during a virtual tour to ensure you’re making an informed decision for your company’s future – no matter how that looks today.

The Future of Commercial Real Estate: Going Digital

There’s no tried-and-true method in finding the perfect commercial real estate property. In the “good old days,” you’d look for advertisements in local newspapers, trade magazines, and call around to brokers to meet and discuss your options within their portfolio. But with the growth of the digital media market and diversification of technology, there’s no shortage of resources to help you find the right fit for you and your company. 

The benefits of adopting a digital-first approach for your commercial real estate research makes total sense. Without even leaving your computer (or smartphone), you can access and compare details, visuals, and even participate in virtual walkthroughs to save a lot of time and energy if the property just isn’t the right fit. 

Before we dive deeper, it’s important to know the resources available to brokers, how to identify misleading property listings, and where to look when you need advice in the ever-changing realm of commercial real estate. 

Here are a few ways taking a digital-first approach to commercial real estate shopping can save you time, energy, and money.

More Resources at Your Fingertips

From the perspectives of both buyers and sellers, utilizing the vast amounts of data, listing websites, and market research available via just a few clicks can help you sort and manage your “maybes,” “nice to haves,” and “that’s perfect” properties at any end of the equation. Whether its free services like Zillow, OfficeSpace.com, or even Craigslist, you can easily find and access information about potential properties without even contacting a broker. Of course, paid services exist and are available to get more information about the history of the space, so there’s virtually no limit to the number of avenues you can use to find the right property for you. 

Utilizing Virtual Walkthroughs

Especially now, more and more listing agents are utilizing digital tools to recreate virtual walkthroughs and digital media assets as part of their listing pages. As long as you’ve got access to a computer or a mobile phone, you’ll literally be able to walk through properties and get a sense of the space without having to leave your desk. 

While the use of virtual tours and other digital tools have historically been utilized in residential real estate, it’s not uncommon to have these digital assets available for commercial real estate listings nowadays. In fact, commercial real estate brokers now have plenty of options at their disposal, including virtual tours, staging, 3D floor plans, and drone videography that help give prospective clients a better understanding of how a space looks (and could look) without physically visiting the property. 

More Ways to Reach You

But with all of these advances in tenant-facing technologies and solutions, it’s easier than ever for brokers to see what people are looking for in the market based on keyword searches, key photography, and what’s popular on YouTube. Plus, Google Display Ads will ensure that the property you looked at yesterday will show up wherever you go online. As you go through your search, be wary of services that require you to sign up with an email address, Facebook account, or other restriction before you can view a property. You’ll likely be added to a marketing email campaign, so if you’re just doing preliminary searches or not  really interested in a property, it’s not a bad idea to put a little-used email address to avoid unwanted messages from brokers and listing agents. 

Brokers are also utilizing digital platforms to market their listings and are more accessible than ever before – from posting their listings across listing websites, posting on social media, publishing blog posts, white papers, and even webinars. That’s good for you, as the more information you can gather and share with your team, the more informed you’ll be when it comes to making a solid decision on a new commercial real estate space and the process behind leasing or buying it. 

Streamlining Your Search – and Using Technology to Help

Aside from the obvious benefits of using digital technology in the commercial real estate world, the tools available to help make your search easier and more streamlined are readily available than ever before. This may have been a different story even 5-10 years ago in commercial real estate, but new companies and online resources are making it easier for prospective tenants and buyers to research and complete their transactions online. 

While you’re now just a quick Google search away from finding what you need online, if you’re looking for resources to ease the commercial real estate leasing or buying process, there are notable resources like the National Environmental Title Research Online. NETR is a public directory of all public records platforms in the United States, providing an easy way to locate public records in your area in order to find ownership history, construction projects, and other publicly-available information about the property in question. Not only will this help you understand the history of the building, but it’ll allow you the opportunity to leverage this information during a lease agreement negotiation. 

There are also services like biproxi, a platform that specializes in helping commercial real estate brokers, sellers and buyers. For buyers specifically, biproxi provides an easy way to access data reports, including Phase 1 ESA reports, sales comps, property valuations, and appraisals to help you during due diligence and closing.

And then of course, there are free commercial real estate listing websites like OfficeSpace.com that offer tenants and buyers a comprehensive look at the available commercial listings in their area. And, should you approach a tenant representation broker and move forward with your search, you’ll be able to reference the spaces you’ve located on these platforms, giving them an idea of what you’re looking for and your price range right away, speeding up the process and getting you into your new space faster. 

Assessing the Technological Aspects of a Physical Space

Especially with the onset of COVID-19 and the shift to a more work-from-home tolerant business community, it’s important to look for the infrastructure, resources, and perks that a building itself can provide to its occupants – whether they’re working there full-time, remotely, or on a rotation. Whether it’s smart lighting, integrating charging ports at workstations, server space, modern air filtration systems, or dedicated fiber lines, a listing that shows the most information about a property will only help your efforts in picking the right space for your company’s future. 

Technology touches everything we do in our modern lives, but it’s especially true in commercial real estate. Even as you utilize some of these tips in your research, it’s important to do the due diligence in investigating beneath the surface. Contacting neighboring tenants to ask about the property owner, asking for references on previous tenants, and learning more about any recent improvements or upgrades the building has undergone won’t be found on every real estate listing page. 

Especially as more millennials become an increasingly larger demographic for commercial real estate, you can expect to see more virtual and digital ways to experience potential properties – and that’s a huge win for anyone looking for their next commercial real estate space. 

How Office Space Will Change After a Pandemic

Many countries and states within the U.S. are beginning to ease restrictions as a result of the COVID-19 global pandemic. While many aspects of life are expected to return to normal, the idea of returning to work – and occupying open-floor/shared workspaces – continues to trouble both employers and employees alike. 

For everyone, this crisis has been inconvenient, worrisome, and dangerous. But for companies seeking new office space, it’s been a complete game-changer. Not only do you have to consider the possibility that your company may never return to “normal,” you have to think about the potential for another outbreak. That means planning for adequate social distancing, contract tracing, and strict adherence to cleanliness and safety should you decide to bring your employees back into the workspace. 

Focus on Virtual

It’s not difficult to imagine a fully virtual office environment after COVID-19. As companies have been forced to move to more flexible, adaptable working environments, the reality of working from home has come to roost for companies across every industry.

For both employees and managers, the shift to working remotely has been swift and sudden. But with ever-changing circumstances and the uncertainty of future working situations, it’s important to be vigilant and progressive to keep your company’s continuity of business intact – no matter what happens day-by-day and week-by-week.

If you haven’t already invested in virtual technologies to keep your team connected, communicative, and performing at a high level, now is the time. 

Create Rotating Schedules

Should you decide to return your employees to a physical office environment, it’s important to take account of not only social distancing protocols, but the potential for spreading diseases and contagions within an isolated office.

Many companies take advantage of larger offices to place multiple workers at workstations. With a global pandemic, these seating arrangements become more problematic. Consider shifting your employees on a work-from-home to in-office schedule, rotating the number of days each employee spends in a shared office during each week. Not only will this help limit exposure, but it will provide an office environment in which your workers will feel safe, more comfortable, and less worried about their health and safety. 

Studies also show that, despite the common preconception that remote workers are less productive, there are plenty of benefits to switching to remote work compared to a mandatory in-office structure. According to a 2019 study, remote workers provide an average of 1.4 more working days per month than in-office counterparts and only sit idle for 27 minutes (besides lunch and breaks) compared to 37 minutes for in-office workers. 

Become More Flexible

It should go without saying, but companies who were already reliant (or capable) of providing remote working situations had a leg-up during the quarantine. That means, whether you’re looking for new office space or re-envisioning your working environment, you need to consider the fact that you may not be able to have all of your employees in-office every single day. Thankfully, there are sleek, modern office spaces available to provide reliable and adaptable working environments – in case you’re thinking about a move. 

It may be infrastructure, adding new and improved ways to keep everyone online and connected throughout the day, or simply improving spacing between workstations, but you need to be prepared to make a shift at a moment’s notice. 

No matter your solution, you are beholden to the safety and health of your employees. Unnecessarily exposing them to dangerous conditions in the workplace isn’t a good move for anyone at this point. Make sure your employees feel safe, contained, and protected in a physical working environment before you give the so-called “all clear.”

Safety First

From touchless hand sanitizer stations to readily available disinfectant wipes, the modern office needs to change in light of COVID-19. In addition to covering the basics, it’s important to limit the number of people per office, open floor space, and the entire office in general. There’s also another factor: housekeeping. Most offices have a contract through the property owner to have housekeeping service the building once or twice per week. Increasing the number of housekeeping visits won’t just help sanitize your office space, but help give your employees better peace of mind during the workday. Rather than having housekeeping come during the nights/weekends, try having basic surfaces like bathrooms, door handles, and shared spaces cleaned periodically during the workday. 

Furthermore, progressive companies should consider implementing more advanced cleaning solutions for employees to utilize. 

Electrostatic cleaning solutions provide sanitizing mists onto surfaces, objects, and shared spaces. It’s not cheap, but it’s a good method to defend against contagious particles and help employees feel safe at work.

And if you’re like most companies, your employees use their smartphones throughout the day for both business and personal affairs. Research has shown that most personal smartphones carry a level of bacteria higher than most public toilets, so investing in UV phone sanitizing stations in your company’s entryway will help protect visitors, employees, and housekeeping staff from unintentionally spreading infectious particles. There’s no proof that these devices prevent or offset the spread of COVID-19 specifically, but the more you can do to safeguard your workplace, the better. 

Lean into Technology

From VoIP solutions for routing calls to remote workers to video conferencing apps like Zoom and Microsoft Teams, providing your team with a vast, reliable set of tech solutions will help keep your team agile – whether they’re in the office or not. 

Outside of the virtual realm, you’ll also need to rethink how you’re using your technology in the workplace itself. As social distancing measures come and go, it’s important to consider some very basic elements of a workspace. Rotating shifts and shared workstations bring about questions of how many people are physically touching and using surfaces like desks, keyboards, mice, printers, etc. If you haven’t yet, it may be a good time to provide workers with a stipend to purchase their own equipment they can use at home and bring into the workplace to limit exposure to notoriously dirty office gear. 

No matter the measures you take in this new reality, it’s common knowledge that companies who try to return to “normal” before the pandemic will likely struggle to adapt. While companies throughout the world are quickly shifting to remote or flexible working environments, it’s important to consider the growing pains of that transition and acknowledging that your employees will always factor their happiness at work around their ability to feel safe going forward. Whether truly, 100% remote work will be a consideration in the modern and future workplace remains to be seen, the more your company can do to understand the new reality in which we live, work, and play will pay dividends moving into the future.

Commonly Missed Expenses for Building Owners

Sure, you have a budget or estimate of what you expect your occupancy cost to be, but what can you be missing that may impact your actual occupancy cost? The list of expenses included in calculating occupancy cost is long and can include many unexpected or unforeseen items. Having an in-depth understanding of what the lease language includes, and doesn’t include, will help you understand the potential exposure you have related to occupancy cost. Lease language will have a big impact on whether certain expenses are the responsibility of the tenant or landlord, and although the language is typically clear, there will still be grey areas where it’s not so black and white. A seasoned tenant rep will be able to help validate occupancy cost budgets and forewarn of risks involved with certain lease language. With the plethora of different expenses included in your overall occupancy cost, it can be easy to miss or overlook some of these expenses.

CAM Expenses

Common area maintenance expenses, commonly referred to as CAM expenses, are typically paid for by the property owner or landlord and billed back to individual tenants through a monthly payment based on their pro-rata share of a CAM budget. These monthly payments are ultimately reconciled at the end of the year and if the CAM budget was underestimated or missing certain items, the actual expense can be quite higher than expected. Although CAM expenses are described in a lease document, it does not mean it’s clear on how much will be paid towards CAM. First-year CAM payments are usually an estimate based on a proposed estimated budget or actual expenses from the previous year. Neither one of these amounts may be an accurate representation of the actual CAM amount for any given year. Some leases may include a CAM cap where the tenant has a cap on the total amount they are required to pay, ultimately leaving any expenses above that amount the responsibility of the property owner or landlord. A CAM cap can be set at a fixed amount or based off a percentage increase over the actual CAM expense from the previous year. Monetary donations to political or charitable organizations are sometimes passed through as CAM expenses to tenants. This could be a grey area and may not actually be reimbursable items depending on the lease language. A tenant may also have the right to audit or protest CAM reconciliations and can withhold payment for any expenses they feel is not allowable per the lease agreement. This can result in unforeseen legal fees, not to mention lost time and the potential for non-payment.

Repairs

When it comes to repairs, it is usually pretty clear what falls on the property owner or landlord and what falls on the tenant, but again there can be a lot of room for dispute. If it is not specifically listed as a landlord responsibility it usually means it ends up having to be repaired at the expense of the tenant, but if the tenant objects or delays repair that ultimately creates additional damage, the costs can escalate for both the tenant and property owner or landlord and unforeseen legal fees may be incurred. A delay in a tenant making necessary repairs could also impact adjacent tenants to the extent they seek financial reimbursement and even a minor issue can snowball into a very costly scenario. 

Fees and Other Expenses

The payment of fees will affect overall occupancy cost. Property owners or landlords typically have the right, per the lease agreement, to charge certain fees to tenants. These fees may include management fees, administration fees, late fees, maintenance fees, amongst others. The property owner or landlord may incur direct fees itself including late fees, false (fire) alarm fees or non-compliance fees imposed by the city and these fees may not be reimbursable through CAM and will ultimately be an additional, unforeseen expense. Special assessments may be imposed from time to time and will also affect occupancy cost.

Other expenses that can be commonly overlooked include the cost of contracts or inspections required to keep the property operating legally and in compliance with the law. Depending on use, you may be required to have routine inspections done on equipment and be required to have certain monitoring or alarm contracts that can also add to your overall occupancy cost.

Utility

Utility expenses may vary especially if you have a water main break inside your property limits that results in very costly repairs and an unusually high water bill. These repairs may fall outside what tenants are required to pay for through CAM and can significantly increase occupancy cost.

Taxes and Insurance

Taxes and insurance can fluctuate from year to year and these expenses will also impact occupancy cost. There can be a lot of grey areas regarding both taxes and insurance and determining the actual legitimate reimbursable amount may be hard to determine if the lease language is vague. A smart tenant will want to make sure the landlord is not including expenses related to items that are not specific to the general operation of the property and that insurance premiums are not influenced by their negligence at any other properties the landlord may control. 

It can be challenging to accurately predict actual occupancy cost, even with a fixed rent and fixed CAM many unforeseen expenses can arise. It’s best to play the ‘worst-case scenario’ game so you know the financial risks involved in what could be unforeseen expenses that affect actual occupancy cost. It’s wise to account for the time and resources that may be needed to resolve certain unforeseen issues that may arise at any given property. There will always be something that gets overlooked or is unexpected, but the more you can take a step back and look at the big picture and role-play any scenario the better off you will be in predicting what could be your actual occupancy cost.

Small Business Financing in the Time of Coronavirus

Small businesses need a financial safety net now more than maybe ever. As large swaths of the US economy remain closed, small business owners across America have had to shutter their businesses. These closures—or transitions to online-only or takeout business—-have put a strain on many small businesses’ working capital. 

So what can small businesses do? Thanks to swift work from the US government, small businesses can apply for financing through the SBA. Paycheck Protection Program (PPP) loans and Economic Injury and Disaster Loans (EIDLs) provide low-interest loans for impacted small businesses, but they’re not the only option. 

Lenders are still funding small business loans, and the products borrowers are most likely to qualify for right now are also the loans that provide the fastest funding and most flexibility. 

Paycheck Protection Program (PPP) Loans

If you’ve heard talk of one coronavirus financing option, it’s probably PPP loans. Created under the CARES Act, PPP loans are low-interest, potentially forgivable loans. Designed to help small businesses keep employees on their payroll, the maximum loan amount for each business is 2.5 times its average monthly payroll cost. That number includes items like wages, as well as paid vacation days, separation or dismissal allowances, and group healthcare costs. 

Funds used for approved purposes, which are all payroll related, over the course of the first 8 weeks of the loan (starting at the date of funding) are eligible for forgiveness. To have your PPP loan forgiven, you’ll have to provide documentation to prove that the funds were used for allowed purposes and apply with your lender. We don’t know the full extent of what the forgiveness process will look like because PPP loans have only just started funding and no borrower has yet reached the point where they can apply for loan forgiveness. 

Economic Injury and Disaster Loans (EIDLs)

EIDLs previously existed as a form of disaster financing through the SBA before coronavirus. Small businesses in designated disaster areas are eligible to apply, and the good and bad news is that all US states and territories qualify as a result of coronavirus. To qualify for the loan, small businesses need to prove that they’ve suffered “serious economic injury” as a result of coronavirus. Borrowers should be prepared for more documentation and a longer time until funding—approximately 60 to 90 days. 

To apply for an EIDL, you must apply through the SBA’s website. The application takes an estimated 2 hours and 10 minutes to complete. 

Emergency Economic Injury Grant (EEIG) 

60 to 90 days is a long time to wait for an EIDL, and on top of that, the SBA had trouble with elements of the rollout. To make it up to small businesses, the government agency has offered Emergency Economic Injury Grants (EEIGs). 

To be considered for an EEIG, your small business must complete the EIDL application. On the fourth page of the EIDL application, you can click a box that says “I would like to be considered for a loan advance of up to $10,000.” Click it. That’s all you have to do to apply for an EEIG

While the SBA uses the language “loan advance” on their EIDL page, it is a loan advance that doesn’t have to be repaid. Confusing? Yes. But essentially, the “loan advance” is used interchangeably with EEIG. If your business applies for an EIDL, you should ask to be considered for an EEIG to potentially receive up to $10,000. Importantly, the SBA also notes that you don’t need to qualify for an EIDL to receive an EEIG. 

Business Line of Credit

Ultimate flexibility for when you need it the most, a business line of credit allows small businesses to borrow against a predetermined sum. You can borrow as much as you need, repay it, and repeat as many times as you need or want to over the course of the loan term. 

A business line of credit is an ace form of financing in the time of coronavirus because it provides a financial safety net without the same obligations of a standard business loan. 

Accounts Receivable Financing

Are you waiting on unpaid invoices? Accounts receivable financing, also referred to as factoring, might be the solution for your business. This loan type allows you to leverage the money you are owed for working capital today. 

Short Term Loan

A short term loan is designed for when you need quick access to capital that you can also repay quickly. Short term loans are often funded in as little as 24 hours and can be an essential lifeline for small businesses that need fast cash. Short term loans are designed to be repaid quickly, so this loan is best used for when you have a clear sense of how you can repay the loan quickly to avoid rising costs associated with longer repayment terms for short term loans. 

ACH Loans

An ACH loan, often referred to as a “cash flow loan,” is another quick financing option, and it comes with looser requirements. ACH loans are based on a borrower’s daily bank balances rather than on credit score, making the loan type accessible to a broader swath of borrowers. Loan repayments are automatically deducted directly from your checking account, so you won’t have to worry about scheduling reminders for payments.

5 Ways to Retain Your Employees in 2020

With very few exceptions, running a successful business means having employees. Employees are the backbone of any business, no matter the industry and no matter the size. Once you’ve gone to the trouble of finding the right employees for your business, how do you keep them?

1. Ask

How do you know what your employees need in order to keep them showing up every day, ready to work? There’s one very simple way to find out—ask them.

Foster an attitude of open communication between you and your employees. If you have managers, make sure that they are encouraging communication with those they supervise. Conduct “stay” interviews with employees, and find out the things that keep your employees coming back every day. Ask things like, Why do you like working here? What can we improve for you? Both new and established employees can help you pinpoint problems. 

If you’re worried about not getting truthful answers or employees telling you what they think you want to hear, ask them to fill out an anonymous survey, which allows them to share their suggestions without fear of repercussions. 

2. Listen

The second part of asking your employees for feedback is to show that you’ve heard them. Take action to prove that you’ve heard and understood the challenges facing your employees. According to the Wrike Employee Engagement Survey, only 59% of the 5000+ survey participants said their company conducted regular engagement surveys. Of that 59%, only half felt that their company acted on employee feedback. 

Did your employees ask for more flexible work schedules? See if there are ways to allow employees to work from home. Are your hourly employees struggling to juggle their schedules? Work to keep their hours more consistent.

Is there a manager who is hurting your employees’ ability to do their best work? Have a difficult conversation, and find ways to solve the problem. Are there repetitive tasks in your employees’ days that could be automated? Are they struggling to work with outdated software or tools? Time spent struggling with outdated tools is time that isn’t being spent building your business. 

3. Recognize

Find ways to recognize the hard work of your employees. Take time during staff meetings to recognize successes both big and small on your team. If you don’t already, train yourself and your managers to verbally thank and congratulate employees for the success of the company.

Don’t forget the power of peer-to-peer recognition. For example, JetBlue has implemented a peer-recognition program allowing employees to nominate one another for either everyday excellence or for an extraordinary case of going above and beyond. Nominated employees receive recognition in an internal newsfeed and earn credits that can be redeemed for rewards of their choice ranging from dinner to cruises. While that program may be beyond the reach of most small businesses, the idea of peer nomination, internal recognition, and employee-chosen rewards is not. 

4. Develop

If you want employees to invest in your company, lead by example and invest in them first. Promote from within whenever possible. At the very least, offer employees the chance at advancement before turning to outside sources. Take a look at who you promote and why—imagine you are accountable to someone outside your business and make sure you can justify your decision. 

Prove to your employees that you see their hard work and are willing to invest in their long-term growth by offering career development opportunities. Whether you hold these in-house, pay for an employee to attend a conference in your industry, or offer tuition help for those pursuing a degree, showing that your business is invested financially fosters employee loyalty and retention. 

5. Celebrate

Look at any calendar—you’ll notice that almost every month has a reason to celebrate. It’s human nature to look for reasons to celebrate, and the business world is no different. Find ways to celebrate both big and small milestones. Celebrate anniversaries, birthdays, making it to the end of a hard week, the first day of spring, Earth Day, the leaves changing in the fall, landing a new account. Whatever the reason to celebrate, include every employee possible and lead by example.

Celebrations give employees something to look forward to, whether it is a company-wide celebration or an individual accomplishment. Anniversaries are a perfect time to celebrate the loyalty of your employees, so mark the occasion in a way that fits your business’s personality and budget. A gift card to a local coffee shop or restaurant, a bottle of wine, or an additional paid day off are low-cost ways to celebrate your employees. Even if it’s just a hand-written card, a little appreciation can go a long way.

Office Trends That Are Taking Off in 2020

The modern workplace is constantly evolving, and unforeseen circumstances can perpetuate change faster. 

For example, many organizations were already using messaging and video apps like Slack and Zoom before the COVID-19 pandemic, and now that most businesses are working remotely, the adoption of these virtual communication tools is growing exponentially.  

Even before the coronavirus outbreak, companies were embracing flexible work schedules with remote opportunities as part of a larger employee-centric movement. Businesses were prioritizing employee satisfaction and company culture to mitigate turnover and increase productivity.

While there’s no way to predict what will happen in the coming months, here’s a closer look at 5 trends taking off in the workplace and how they’ll impact businesses in 2020.

More Companies Will Offer Flexible Work Schedules

No employee is the same—we all have personal priorities and preferences. Maybe you’re an early bird who enjoys working before the sun rises, or maybe you focus best in the evening after you put the kids to bed.

Employees have their own schedules, and it’s unrealistic to expect everyone to conform their lives to the traditional, outdated 9-to-5 mentality. In fact, many studies have concluded that the average person is only productive for three hours of an eight-hour workday. 

The desire for flexibility has reached management’s ears, with many companies offering flexible work schedules to their team members. While businesses might not be ready to embrace the drastic four-hour workweek movement, they are offering flex-schedules.

With flexible schedules, employees can dictate their workdays around their lives or preferences, as long as they meet their hourly or quota requirements. This approach could include working four 10-hour days and taking Friday off, working from home on Monday and Friday, or any other combination of hours and days.

If you decide to offer flex-schedules within your company, consider setting up an infrastructure for your team members. Ask employees to stick to the schedule of their choice—that way, employees can coordinate their communications accordingly. 

Companies Will Invest in Employee Well-Being

In recent years, businesses were moving into dangerous territories as technology made it possible for companies to push the boundaries between work and personal. 

Side-hustling, digital entrepreneurship, and the “startup lifestyle” were glorifying employee burnout. Employees were encouraged to check and respond to work emails while off the clock. Managers expected staff to work late into the night, even at home, to complete deadlines. 

While there is still pressure in the workplace, more employers are focusing on employee well-being. This shift includes emphasizing work-life balance and considering the environment that teams work in. 

This focus on well-being follows the simple belief that happy, healthy employees are more productive. You make fewer mistakes if you aren’t exhausted. You are willing to take on more if you don’t feel overworked. 

Consider the work-life balance and overall well-being of your team to improve their productivity and increase their loyalty to your organization. 

Human Resource Managers Will Focus on Hiring Equity

Human resource teams are working to eliminate bias in hiring—particularly when it comes to unconscious bias. Names, universities, graduation years, and experience can all contribute to bias, even on a subtle level.

This bias means that resumes get ignored, and certain candidates have a harder time landing interviews. To make the workplace more diverse, companies are moving toward blind hiring

This process includes looking at the experience without the name or sending out skills tests to find the most qualified candidates. While it can’t remove all prejudice, it’s a positive step toward creating a more equal hiring environment.

Consider updating your hiring process to eliminate bias and increase your qualified candidate pool. 

Companies Will Train and Promote Internal Talent

Upskilling will be a significant trend in 2020 as companies work to identify valuable workers and improve their knowledge of the industry. Upskilling involves training and mentoring. 

In short, it is investing in team members. By upskilling your workforce, you can improve employee loyalty. Your team members are less likely to quit if you invest in their potential and if they see growth opportunities within your organization.

Upskilling also allows you to mitigate knowledge gaps within and across departments. This additional training will make your company more resilient and flexible—allowing it to adapt and survive when it faces challenges like we are currently.

Automation Will Increase Efficiencies

Automation is nothing new for businesses, and it’s a trend that will continue well beyond 2020. Most businesses are aware of the value of automation—with many seeking automated solutions to mundane and repetitive tasks. 

Instead of downloading and uploading reports, businesses are using APIs to connect datasets. Rather than hiring dedicated customer service representatives, companies are automating their help desks with FAQs and chatbots. 

As you might imagine, automation can make your business more efficient, but it can also leave your employees feeling obsolete. A recent study from Forrester suggests that more than 1 million knowledge-work jobs will be replaced by robotics, machine learning, or other automated technologies this year.

While certain jobs might be lost because of new technology, it will create new, strategic-level positions. Automation shouldn’t be viewed negatively by employees—it should be a tool that helps mitigate their time spent on redundant tasks so they can focus their energy on more complex problems.

Keep Your Business Moving Forward This Year

Progressive organizations will monitor business trends and make strategic decisions to increase productivity and success. Within our current economic landscape, it’s never been more important to have a pulse on the global workforce. 

As you can see above, several business trends currently affect how organizations operate. While no one can predict the future, you can take heed of these insights and modify your organization as needed to keep your employees happy, your company culture positive, and your business moving forward.

Should Remote Work Become the New Norm?

Technology has made it exponentially easier to connect and communicate online. People can video call, send emails, share documents, and manage tasks anywhere they have an internet connection. 

This flexibility has led many employees to request working from home—but organizations are less excited about this laissez-faire approach. 

How can you know your employees are actually working all day? Will the quality of work suffer without regular face-to-face interaction? It’s much easier for businesses to monitor employees and hold them accountable in the office—can they really trust employees to work from home?

In the wake of the COVID-19 pandemic, businesses no longer have the luxury of testing remote work—employees around the globe are being forced to work from home. So ready or not, we are going to stress-test remote work globally.

As we come out on the other side of the coronavirus outbreak, you’re going to know a lot more about how effective working remotely is for your business. With that in mind, let’s take a quick look at remote work and whether it’s something you should consider long-term.

Employees Already Waste Time at Work

Companies that try to limit remote work often want to cut down on employee distractions. If an employee is in the office, then management can walk by and make sure they aren’t wasting time or doing non-work-related tasks. However, managers might not be as good as they think at catching employees. 

Employees admit that they waste three hours on average during an eight-hour workday. This time is spent surfing the web, socializing with coworkers, and generally spacing out. Furthermore, 77% of employees with a Facebook account say they use it at work.

Your employees will find a way to waste time at work—they just won’t do it in front of you. 

Remote Work Doesn’t Mean Lower Productivity

When you look at the productivity numbers, remote workers are statistically more productive. A 2019 study of more than 1,000 employees found that remote workers work an average of 1.4 more days every month than their in-office counterparts. 

Remote workers only reported being idle for 27 minutes each day (outside of lunch and breaks) compared to 37 minutes for in-office staff.  

This evidence suggests that if your employees are happy to work for your company and value their jobs, they will work just as hard remotely as they would in a face-to-face setting. If they aren’t engaged in their jobs, then it doesn’t matter where they work—these team members won’t give it their all.  

Remote Work Has Multiple Human Resource Benefits

While most managers focus on productivity when they consider letting employees work remotely, there are other benefits to consider. For example, remote workers save an average of $4,500 on fuel each year and clock an extra 25 minutes of physical exercise each week. These benefits mean that remote work options can serve as a cash bonus for your team members while making them healthier and happier

Along with helping employees, the benefits that come from remote work can also help employers. For example:

  • -Happier employees are less likely to quit, reducing turnover and lost profits because of it. 
  • -More employees will apply to a job that offers remote work options, increasing your talent pool so you find qualified candidates. 
  • -Hiring workers for full-time remote positions allows you to increase your talent pool across the country, helping you find the perfect fit for your brand. 

Ask yourself: is a reliable employee working from home better than a handful of average employees in the office? Most would probably say yes. 

You Don’t Have to Approve Full-Time Remote Work 

One of the biggest misconceptions that employers have is that their remote workers are never in the office. In fact, 60% of workers actually prefer being able to work in the office and don’t believe that having flexible work options would interfere or disconnect them from their office. Despite the majority preferring to work onsite, more than 80% of workers still like the idea of being given the option to work remotely – even if it’s on occasion. 

In fact, when employees are able to work from home at least once a month, they are 24% more likely to be happy and productive. In other words, giving employees the flexible work options, even on occasion, plays a factor in their well-being and overall productivity. 

Consider the needs of your employees and why they want to work from home. This information can guide your remote work policy. A few examples include:

  • -Letting employees work remotely on Fridays as a perk of the job. 
  • -Allowing parents to work remotely in the afternoon once they pick the kids up from school. 
  • -Permitting employees to work remotely to greet repairmen or other home service providers. 
  • -Letting employees work overtime remotely over a weekend to complete a project on a tight deadline. 

Even if you do let employees work remotely whenever they want, you can still ask them to come to the office for certain meetings or on specific days to meet with clients. This approach creates a fair amount of remote and office time. 

Furthermore, setting up remote work policies when everything is fine can prepare your company in the event that your team members need to stay home during a natural disaster or emergency—as we’re seeing now. 

The Future of Remote Work

Organizations around the world are being forced to work remotely—even if they were ill-prepared. As a result, businesses will have growing pains and hurdles to overcome with working from home. However, there’s no denying that there will be lessons learned. 

Will we discover the remote office to be the next frontier of the workplace? Will working from home prove to be a complete failure? 

Likely, we’re going to land somewhere in the middle. Remote work will have its flaws, but it will also have benefits for the employees and employers. Once we get back to business as usual, companies should evaluate their experiences and consider adapting their businesses for remote work opportunities. 

Remote work isn’t the right choice for every company, but that doesn’t mean you should completely write it off. With the right system, your employees might appreciate the flexibility and reward you with increased productivity.

Understanding and Building Your Business Credit Score

If you’re a small business owner seeking financing, lenders will consider multiple factors before approving a loan. They’ll be interested in your tenure, experience, and industry—among other things. Nearly all of these factors can be boiled down to one crucial question: How likely are you to repay the money you borrow?

While there are no simple answers to this question, your business credit score is a user-friendly number that gives them a quick idea of your reliability. This score accounts for your business debt usage, personal debt usage, business debt coverage, personal debt coverage, business revenue trend, and personal credit.

“Just as the bank reviews your personal credit score and credit history when you apply for a car loan or mortgage, creditors review your business credit score and history when your business applies for a credit product,” explains credit expert Kimberly Rotter. “Your business score tells them how much of a credit risk your business poses based on past financial behavior.”

Given the importance of your score, it’s important to know how to build and sustain it. Inaction is always an option, but this is a situation where you ignore your meal ticket at your peril.

How Do I Find Out Where My Score Stands?

Lenders can access a handful of business credit score sources while considering your application. They include:

While you may be unfamiliar with these credit reporting agencies, that doesn’t mean you should let them manage your credit in the shadows. It’s always wise to take a proactive approach and regularly monitor your score.

There are plenty of ways to check your score with a fee, but here are 5 ways you can get an update at no cost:

Nav: This convenient service lets you check both your personal and business credit history. Nav can access the reports from Experian and Dun & Bradstreet, giving you a rounded view of your finances. As a bonus, Nav provides resources like a goal-setting tool to help you stay on an upward trajectory.

CreditSignal: Although this service only gives you access to your Dun & Bradstreet report, it offers a wide range of perks that make it a great option. One of the best things about it is that you can sign up to get alerts anytime your score experiences changes.

Credit.net: This more upgraded option includes a week-long trial that’ll provide free credit reports, but then you’ll be prompted to pay for the services if you wish to continue. A key advantage of the Credit.net paid packages is that they connect you with an expert who can alert you of issues and provide strategies for boosting your score.

CreditSafe.com: Here’s another try-before-you-buy option. You’ll get free access to your credit report, as well as CreditSafe’s suite of monitoring tools. The website’s dashboard is loaded with resources to educate you on best practices for managing your credit.

Apply for a small business loan: This approach is the most indirect method of checking your business credit score, as it’s merely a final step that many people neglect in the loan application process. If your loan application has been rejected, you’ll receive correspondence directly from the credit bureau that the lender used to verify your credit. You can respond to this letter within 90 days to receive a free business credit report.

What If My Score Isn’t What It Needs to Be?

Entrepreneurship is a volatile pursuit, so it’s common for small business owners to have blemishes on their financial track records. There are also track record issues for new businesses, as they haven’t had an opportunity to amass the data points necessary for a solid score.

In these scenarios, your personal credit score takes an oversized role. As mentioned above, it’s already 1 of the factors included in your business credit score. So whenever a business credit score is inadequate, your personal credit score can be used by lenders as they make their decisions.

The good news is that there are small business financing products that are particularly relevant for borrowers who lack a convincing business credit score. Due to their unique structures, lenders can look at other factors as they make their approval decisions, such as:

Business line of credit: This versatile type of financing provides revolving credit for a variety of business-related expenses.

ACH loan: Instead of focusing on credit scores, lenders base ACH loan decisions largely on the performance of your business.

Merchant cash advance: Your future earnings take center stage with a merchant cash advance, making your financial history less relevant.

Any of these 3 financing options can be helpful in the short term, but you’ll still want to focus on building your business credit score and getting access to a wider array of financing in the future.

While there are many strategies you can use to improve your business credit score, the most important element is awareness. Many entrepreneurs never check their scores, essentially throwing their hands in the air and saying whatever happens will happen.

This strategy is problematic because you’ll never know which aspects of your finances you should focus on improving without the insights available in your credit report. Additionally, up to 20% of credit reports contain errors. Your report may fall into this camp, so be sure to monitor your credit carefully.

If you find errors with any of the major bureaus, you need to take prompt action to get them corrected. You can follow the directions contained at the bottom of all credit reports regarding how to dispute incomplete or inaccurate information. You can also review this resource from the Consumer Financial Protection Bureau for additional information.

As you take an active role in your business credit, you’ll become a more powerful advocate for your small business. Building credit is a long and dynamic process, but every step forward, no matter how small, yields positive results for your business.