Office Building Investing for Beginners

You’re about to learn what most investors will never know about investing in Office Buildings and hopefully you are reading this before you have purchased your first office property. In this detailed training, you’ll discover 4 powerful reasons to invest in Office Buildings, the big difference between office and residential real estate, 3 Office Building basics, the different types of Office Buildings and which one you should avoid, 10 key Office Building investing terms that you must know, the ABCs of office leases, possible Office Building pitfalls to watch out for, the most important thing when choosing a Tenant and the top 3 trends affecting office buildings today.

 

Office Building Investing for Beginners PodCast

Here’s a summary of what you learned in the video above:

PART 1: 4 Reasons to Invest in Office Buildings (2:08)

• Long Term Income
• Triple Net Leases (NNN)
• Depreciation Tax Shelter
• Strategic Location

PART 2: Big Difference Between Office Buildings and Residential Real Estate (5:50)

• The value of Office Buildings are determined based on Income which can be improved by Tenant selection, Leases, Reduced Expenses, etc.
• The value of Residential Real Estate are determined based on comparable sales

PART 3: 3 Office Building Basics (8:18)

20% of all Commercial Real Estate in the United States are Office Buildings but it is the most volatile property type of all commercial properties.

(1) Economy

• White Collar Job Growth: To get job data, go to the United States Bureau of Labor Statistics
• Economic Growth: to get local economic data, go to the Local Chamber of Commerce Business Development Department

(2) Supply and Demand

• Vacancy Rate for the Area
• Absorption Rate for the Area
• Local Market Supply

(3) Real Estate Cycle

• Office cycle mirrors the economic cycle but lags by 4-5 months

PART 4: Different Types of Office Buildings (14:31)

3 Main Different Types

• High-Rise: Skyscrapers
• Mid-Rise: 3- 24 floors
• Low-Rise: 1 – 3 Floors

Types of Tenants/Properties

• Government
• Medical
• Business Park
• Research and Development
• Office Condo

Office Building Classes

• A Class: Trophy, High Rents (Not for us individual investors)
• B Class: Older, Good Quality Tenants (Ideal for individual investors like us)
• C Class: Oldest, Least Desirable (Not for Beginners, Ideal for Value Add Investors)

PART 5: 10 Key Office Building Investing Terms You Must Know (19:45)

• 1. Gross Area
• 2. Rentable Area / Gross Leasable Area (GLA)
• 3. Price Per Square Foot
• 4. Gross Rent
• 5. Lease Type (Gross Lease, Modified Gross Lease, Triple Net Lease)
• 6. Reimbursments
• 7. Common Area Maintenance (CAM) Charge: Repairs, Hallways, Cleanings, etc
• 8. Tenant Improvements (TI): Allowance landlord gives the Tenant
• 9. Operating Expenses: Insurance, Taxes, Repairs, Roof, etc.
• 10. Capitalization (CAP) Rate: Net Operating Income / Sales Price

PART 6: ABCs of Office Building Leases (24:14)

• Gross Lease: Benefits Tenant the most
• Triple Net Lease (NNN): Benefits Landlord the most
• Modified Gross Lease: Somewhere in between Gross Lease and NNN

3 Quick Tips

• Leases are the lifeblood of Office Buildings
• Hire a professional when negotiating a lease
• Everything in a lease is negotiable

PART 7: Possible Office Building Pitfalls (27:35)

• Rental rates go up and down significantly with the economy.
• Tenants with the Largest Square Footage
• Expiring Leases
• Obsolescence

PART 8: Most Important Thing when Choosing an Office Building (31:02)

Credit Worthiness

• DnB.com
• StandardandPoor.com

PART 9: Top 3 Trends in Office Buildings (34:37)

• Workplace Density: Today companies allot 185 sq ft per office worker, 10 years ago, it was 250 sq ft per office worker
• Untethering of Office Workers: 30-40% of dedicated workspace is vacant in a given day
• Telecommuting is OUT and Colloboration is IN: Yahoo! nearly stopped all telecommuting and wanted everyone not only in the office but in rooms together to give a start up small company feel