How to succeed in ’07

Outlook for commercial real state investment strong

Ron Frederiksen
RSV Construction Services

While interest in commercial real estate has always been strong, the substantial weakening in the residential real estate investment market has intensified that interest. For serious commercial real estate investors, there is no shortage of good news.

For starters, it is extremely difficult to make the jump from residential real estate investments into commercial. The commercial real estate investment market is a very tough, complicated business. Because of this, I don’t believe former residential investors will seriously affect the competition for commercial properties.

When interest rates were at historic lows, commercial investors were making quick decisions. They felt that with so much competition, they needed to act immediately. This often resulted in transactions failing to close, purchasers paying too much for existing buildings and deals that simply were not able to get financing. Sellers jumped into the fray, demanding high prices and quick closings.

That frenzy has cooled. Slightly higher interest rates demand a much more strategic process. Plus, business owners, who are probably the most active commercial real estate investors, couldn’t continue to spend time away from running their businesses to compete with investors making rapid-fire decisions.

So, for 2007, here are a few tips to help you make profitable investments in commercial real estate:

Have a financial plan. Your financial plan must be based on your goals. Do you want to lease the space to your company? Are you looking for immediate cash flow, or long-term retirement income? Make sure you have a good understanding of commercial real estate basics, and an exit strategy, before you take the plunge.

Don’t think location only. Commercial real estate is not location, location, location. It’s location, access, use and approvals. Research must be done into current zoning as well as future comprehensive plan designations, transportation plans, building codes and allowable uses. Most available parcels of land pose a real challenge. Access from adjoining streets is usually among the most difficult, sometimes impossible, issues to solve.

Carefully calculate costs. When constructing new buildings, it is common for "soft" costs to be a substantial part of a project. Design, engineering, permits and fees are very expensive and are often overlooked by first-time investors. If not identified early on, these costs could turn your investment into a nightmare.

Don’t do it all yourself. Sophisticated and experienced real estate investors build a relationship with a successful team, led by a proven design/build general contractor, plus an architect, engineers, commercial real estate broker and a banker. With the proper team, you have the resources you need to educate and guide you, and to bring you all the information you need to make good decisions.

Don’t delay. While making investments in commercial real estate is challenging, if you do it right, your efforts will be rewarded. By owning a facility personally, and leasing it to your company, your business will pay off the loan over time, allowing you and your family to own a wonderful, top quality, commercial building free and clear. Make it your goal in 2007 to investigate all the opportunities available in commercial real estate. Play it smart. There has never been a better time to secure your personal financial future.

Ron Frederiksen is president of RSV Construction Services Inc., one of the Vancouver/Portland metro area’s top 25 commercial contractors performing the majority of its work on a design/build basis. He can be reached at 360-693-8830.

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