What Is Commercial Real Estate?
Commercial Real Estate (CRE) is defined as any real property that is primarily used for business purposes. The “commercial,” as you probably guessed it, is derived from “commerce.”
Simply put: just about anywhere you personally wouldn’t rest your head at night as the investor. However, there is a slight exception with multifamily and hospitality real estate, since you could technically live there, but those assets are still a commercial use.
Commercial real estate may be owner-occupied, meaning you might own the real estate and operate your business at that location, or you may be lease the space to tenants who wish to live and / or work there.
What’s Included in Commercial real Estate
Commercial real estate covers a broad range of properties from smaller neighborhood cafes to massive regional distribution centers.
Included in the commercial real estate category are apartment buildings, office spaces, hospitality, shopping malls, restaurants, hospitals, convenience stores, and more.
Looking at commercial real estate from an investment perspective, it can encompass any kind of property, which includes land (though we won’t cover that here), which is income-producing, or has the potential to do so.
Now that you have a general idea of what commercial real estate is, let’s paint some broad brushstrokes on zoning and classifications, the different types of commercial real estate, and the benefits of being a commercial real estate investor.
Commercial Real Estate Zoning And Classifications
In many cities and townships across America, commercial real estate has its own zoning code.
This code is intended to keep property types of similar use clustered together, which creates commercial districts and residential districts.
Another intent of this zoning is to determine where heavy manufacturing - an often polluting and noisy industry - may locate.
It would certainly be difficult to sell a home next door to a distribution facility, but other warehousing uses wouldn’t mind it.
These five primary classifications may further be characterized as Class A, B, or C.
Class A Properties:
Class A properties are the highest quality buildings in their market and area. They are generally newer properties (built within the last 10 to 15 years) and offer first-rate amenities, are occupied by high-credit tenants, and have low vacancy rates.
Class B Properties:
A step below Class A, Class B properties and are generally older (about 10-20 years) and offer a solid amenity package, tend to have a mix of low to high-credit tenants, and can have slightly higher vacancy rates than Class A.
Class C Properties:
Class C properties are typically more than 20 years old and are often the least desirable product for both investors and tenants. They likely lack in terms of amenities, will be occupied by lower-credit tenants, and can have the highest vacancy rates of all the classes.
What are the different types of commercial real estate?
1. Multifamily
Duplex / Triplex / Quadplex
Garden Apartments
Mid-Rise Apartments
High-Rise Apartments
Student Housing
Senior / Assisted Living
2. Office
Central Business District (CBD)
Commercially Zoned Homes
Suburban Office Buildings
3. Industrial
Bulk Warehouse
Flex Warehouse
Heavy Manufacturing
Light Assembly
Refrigeration / Cold Storage
Showroom
Storage (Indoor / Outdoor)
4. Retail
Community Retail Center
Outparcel / Single-Tenant Net
Power Center
Regional Mall
5. Hospitality
Budget Hotels
Extended Stay Hotels
Full-Service Hotels
Limited Service Hotels
Short-Term Rentals
The Benefits of investing in commercial real estate
There are many reasons why you should in commercial real estate.
Here are only a few:
Ability to buy with Leverage
Risk Diversification
Forced Appreciation
Investing With Seasoned Professionals
Tangible Asset
Tax Write-offs
Passive Income
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About The Author:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors as a board member for the Real Estate Investors of Nashville. Learn more at www.TylerCauble.com
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