Commercial real estate is an important part of the global economy and it matters to everyone because it shapes the built world we all live, work, and play in. However, commercial real estate is also a broad topic that can be complicated to understand. In this guide we will give you a big picture overview of commercial real estate, discuss various resources that you will find helpful, and also answer several frequently asked questions about commercial real estate.
What is Commercial Real Estate?
First of all, what is commercial real estate? Commercial real estate can be broken down into four main categories:
- Office
- Retail
- Industrial
- Multifamily
Outside of these four main categories there are many other types of speciality commercial real estate types such as:
- Land
- Self-storage
- Hotel
- Marinas
- Car Washes
- And more
Here is a helpful resource that takes a deep dive into all of the different types and categories of commercial real estate:
Types of Commercial Real Estate
Where to Find Commercial Real Estate listings
If you want to buy or lease commercial real estate then browsing all available commercial real estate listings is usually a good place to start. However, it is important to note that the commercial real estate industry does not operate the same way as the residential real estate industry.
In residential real estate there is a single multiple listing service where all available property in a particular area is listed. Unfortunately, this is not true in commercial real estate. First of all, while there are several websites that list commercial property for sale, there is no one single MLS where they all must be listed. It is also common for commercial property to be “off market”, but still available for sale or lease. This means that the property is available, but only through private channels such as mailing lists or broker networks. This can make finding commercial property much more difficult than finding residential property.
How To Find Commercial Real Estate For Sale
Finding commercial real estate that is listed for sale can be challenging for the reasons discussed above. If you want to find commercial real estate for sale, then hiring a reputable commercial real estate broker is a great way to get access to the private marketing channels and email lists commonly used to market commercial properties. Usually commercial real estate for sale will go through these private channels first, before hitting any publicly available commercial real estate listing sites.
Here are some popular commercial real estate listing website where you can browse commercial real estate that is actively and publicly listed for sale:
How To Find Commercial Real Estate For Lease
Finding commercial real estate for lease is also not always a straightforward process. Usually, starting with a good commercial real estate leasing broker in the area where you want to lease is a logical first step. For smaller commercial properties you may be able to drive around buildings and look for “for lease” signs as well. In addition to the for sale websites listed above, which also have for lease properties, there are also smaller listing websites that can be used to find commercial real estate for lease:
Commercial Real Estate Loans
If you are purchasing commercial real estate then you will most likely need to secure a commercial real estate loan since most commercial property is financed with debt. Unlike residential mortgages, getting a commercial real estate loan is a complicated and time consuming process.
First, it is important to understand the different providers of commercial real estate loans. Here are the most common:
- Local community banks
- Regional banks
- National banks
- Life insurance companies
- Commercial Mortgage Backed Securities (CMBS)
- Private debt funds
Which source you use for securing a loan will largely depend on which type of project you are trying to fund. There are many different types of commercial real estate projects and as such there are also many different types of commercial real estate loans. Here are some common commercial real estate loan types:
- Construction loans. Construction loans are used to finance the ground up construction of commercial real estate. Typically construction loans are interest only during construction and this interest expense is often funded by the loan itself. At the end of construction the loan will be “Taken out” by another longer term loan.
- Mini Perm Loans. Mini permanent loans are sometimes issued by construction loan providers and serve to replace the construction loan debt for a short period of time, until the borrower can secure permanent financing from another lender. For example, you might see a construction loan with an 18 month loan term that automatically converts to a mini perm loan amortized over 20 years with a 5 year loan term. This type of loan combination will allow a developer to build a new project and then lease it up to stabilization before securing permanent financing.
- Permanent Loan. A permanent loan is longer term debt that is issued on stabilized (or fully leased up) commercial properties. These longer term loans are usually issued by larger longer term lenders such as life insurance companies.
- Builder Lines Of Credit. Builder lines of credit are another type of commercial real estate loan that fund lot development and vertical construction for homebuilders and developers. These types of loans are almost always provided by local community or regional banks.
Here are some helpful resources to learn more about commercial real estate loans:
The Commercial Credit Approval Process Explained
How Commercial Loan Underwriting Works
What You Should Know About Credit Analysis
Commercial Real Estate News
Finding news about commercial real estate can also be somewhat difficult since most commercial real estate news is local. A great place to start looking for commercial real estate news is in local newspapers. Local business journals often have dedicated commercial real estate sections and cover news about new developments, recent transactions, company expansions or moves, etc. These local newspapers are also a great way to keep up with local banks, lenders, and capital markets news.
Besides local commercial real estate news, there are several national websites that provide great coverage of commercial real estate on a national level. Here are some of the more popular ones:
- GlobeSt
- National Real Estate Investor
- Commercial Property Executive
- The Real Deal
- WSJ Commercial Real Estate
Additionally, there are several periodicals or magazines that publish commercial real estate news on a regular basis. Here are some of the more popular ones:
Finally, there are several trade organizations in the commercial real estate industry and members usually receive a regular magazine with news as well as email or other communications with industry news. Some of the more popular organizations include:
Commercial Real Estate Market Data
Finding commercial real estate market data is an important step when evaluating a commercial property. Unfortunately, getting accurate property level market data is one of the hardest tasks in commercial real estate. The reason why market data is so hard to find is because there is no “zillow for commercial real estate” due to the fact that most market data is private. For example, although the sale price of a property is usually public record, the contractual leases data and property level expense data is not. With that said, there are some resources you can use to find market data for commercial real estate.
First, brokerage companies usually provide periodic market reports for the sub-markets they operate in. These market reports do not always provide data on individual properties, but they do give a good picture of overall trends and averages for an area. Here are some places you can find these brokerage reports:
- CBRE Market Reports
- Colliers Arnold Market Reports
- Smaller local brokerage firms in your area
Aside from brokerage companies that provide reports on the main types of commercial real estate, there are also some more specialized reports that can be found by niche consulting companies. You may want to ask around in your area to see if there are any reports like this you should know about. Here are some examples:
One other common practice in the industry is to trade property level market data with other professionals. In other words, if you notice a building recently sold and you would like to find out more about it then you can simply call the people involved. For example, you might want to call the brokers involved in the transaction and ask them for some more information. Appraisers, lenders, owners, etc. are usually open to sharing this information, especially if the favor can be returned. Over time this will allow you to build up your own internal database of market data.
Finally, CoStar is a company that aggregates transactional market data all over the U.S. and also in other parts of the world. They attempt to combine publicly available data as well as cold call everyone involved in a transaction to collect private market data and then make it available to all of their subscribers. While this is helpful, it should be noted that CoStar is both loved and hated inside of the industry. Because of their extremely high pricing, many small to medium sized businesses are simply priced out and can’t afford to access the data.
Commercial Real Estate Analysis
Commercial real estate analysis is a broad topic that encompasses many different activities and disciplines. These activities include financial analysis, market and competitive analysis, legal and political analysis, and physical and design analysis.
Here are some resources to get you started:
Financial Analysis:
What is a Real Estate Proforma?
Understanding Replacement Reserves
How Market Leasing Assumptions Work
Discounted Cash Flow For Real Estate
Market Analysis:
Why is Real Estate Market Analysis so Important?
Getting Started with Real Estate Market Analysis
How to Analyze Supply and Demand for Apartment Buildings
Physical and Environmental Factors in Real Estate
How Shift Share Analysis Works
How the Location Quotient Works
How Economic Base Analysis Works
Legal and Political Analysis:
A Practical Guide to Understanding Zoning Laws
Rezoning, Variance, or Conditional Use Permit: Which One Can Solve Your Zoning Problem?
Commercial Real Estate Education
Commercial real estate has traditionally not been a focus of higher education. MBA programs have historically overlooked real estate and a specific discipline and therefore did not offer concentrations in real estate. Over the past few decades this has changed and now there are many top undergraduate and graduate programs that focus specifically on real estate.
Here are some of the programs that offer a specialized master’s degree in real estate:
- Cornell Master of Professional Studies in Real Estate
- MIT Master of Science in Real Estate Development
- Columbia Master of Science in Real Estate Development
- USC Master of Science in Real Estate Development
- NYU Master of Science in Real Estate
Here are some of the top MBA programs that offer a real estate concentration:
- University of Texas Real Estate MBA
- Columbia University Real Estate MBA
- University of Pennsylvania Wharton Real Estate MBA
- University of Wisconsin Madison Real Estate MBA
- UNC Chapel Hill Real Estate MBA
Besides pursuing formal higher education, there are many other ways to gain the skillset required for a successful career in commercial real estate. Many organizations provide in-person and online courses that teach commercial real estate finance, market analysis valuation, and more. Here are a few organizations that offer these courses:
- CCIM
- SIOR
- ULI
- NAOIP
- PropertyMetrics
Because commercial real estate has traditionally been learned in a less formal way, this is still very much a viable path to getting started in commercial real estate. With the proliferation of online courses available from top universities, as well as organizations that offer specialized courses in commercial real estate, this is a popular way to not only learn commercial real estate, but also to keep skills sharp for existing professionals.
Finally it should be noted that commercial real estate is interdisciplinary and therefore difficult to master. Real estate involves economics, finance, valuation, construction, design, architecture, environmental issues, political and legal issues, and more. This is why learning commercial real estate is a lifelong process, and also why many people find commercial real estate so interesting and fun.
Commercial Real Estate FAQ (Frequently Asked Questions)
What are some popular commercial real estate websites?
We’ve mentioned many popular commercial real estate websites above and this will mostly be driven by what you are looking for. For example, if you need to find commercial real estate listings, then you’ll probably want to check out Loopnet, 42floors, and the top commercial real estate listings websites. On the other hand, if you are looking for commercial real estate news, then you probably want to check out NREI, local business journals, as well as the other top commercial real estate news websites mentioned above.
How do I get into commercial real estate?
If you want to learn how to get into commercial real estate, then the best place to start is to get a broad overview of the different types of commercial real estate careers. Once you’ve settled on a particular career in the commercial real estate industry that looks interesting, then the next logical step is to find some people in that role and talk to them. Most people will be more than happy to discuss their job and what a typical day is like. This is a great way to build your network and figure out what skills are needed for you to get your dream job.
Sometimes this requires formal higher education. This is mostly true for jobs in private equity, banking, and larger corporations. However, there are also many jobs in the commercial real estate industry that do not require a formal education at all. In fact, it is quite common for commercial real estate brokers to have a former life in an industry completely unrelated to commercial real estate, finance, or even business. Many of the top brokerage firms also usually have training programs that teach the skills needed for the role.
How do I get a commercial real estate loan?
How to get a commercial real estate loan is a common question since most commercial real estate projects involve debt. The short answer is that getting a commercial real estate loan is not as easy as getting a residential mortgage. In fact, it is much more complicated and much more time consuming. However, the best place to start is to find a local bank and discuss your project with a relationship manager. The relationship manager is the sales person who is responsible for finding new commercial loan opportunities. They will usually be more than happy to discuss your project and give you an idea about current rates, terms, and conditions their bank is entertaining for projects like yours.
What is a cap rate?
The cap rate is commonly used metric in commercial real estate and it is also commonly misunderstood. The cap rate is simply the ratio of Net Operating Income to the value of a property. The cap rate is important because it is used by appraisers and other industry professionals when creating valuations. It is also a commonly tracked market statistic that is helpful for understanding trends for a particular market or asset class.