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Encyclopedia Topics
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The Encyclopedia of Commercial Real Estate Advice
Cover
Encyclopedia Topics
Foreword
Introduction
THIS BOOK WILL SAVE YOU TIME AND MONEY
HOW TO USE THIS BOOK
PART I: Smart Strategies for Buying
CHAPTER 1: Who Are You When Buying a Commercial Property?
SEVEN TOP CHARACTER TRAITS OF EXPERIENCED COMMERCIAL REAL ESTATE INVESTORS
FOUR PHASES OF THE COMMERCIAL REAL ESTATE MARKET CYCLE AND THE BEST TIME TO BUY
THE LOWEST-RISK PROPERTY TYPES TO CHOOSE
TEN RISK-LOWERING ACTION STEPS
FOUR LEVELS OF RISK BASED ON PROPERTY CONDITION, INCOME, LOCATION, AND OCCUPANCY
CHAPTER 2: Seven Smart Strategies for Adding Value When Buying
1. HAVE YOUR DOWN PAYMENT, PROFESSIONAL TEAM, AND FINANCING TOGETHER BEFORE YOU GO SHOPPING
2. USE LEVERAGE RESPONSIBLY
3. DEFINE YOUR PROPERTY SEARCH OBJECTIVES
4. FOUR 15-MINUTE METHODS OF DETERMINING PROPERTY VALUE
5. CHOOSE A PROPERTY THAT CAN BE RECESSION-PROOFED
6. CHOOSE THE BEST TEAM MEMBERS
7. WINNING THE NUMBERS GAME——MAKING AND NEGOTIATING OFFERS
ENCYCLOPEDIA TOPIC A: Buying
PART II: Smart Strategies for Buyer Due Diligence
CHAPTER 3: Outstanding Due Diligence for Buyers
TWELVE DUE DILIGENCE MISTAKES THAT BUYERS SHOULD AVOID
IS THIS PROPERTY “WHO” YOU THOUGHT IT WAS?
ENCYCLOPEDIA TOPIC B: Due Diligence
PART III: Smart Strategies for Raising Investors
CHAPTER 4: Raising Money and Creating Investor Partnerships
BUYING COMMERCIAL REAL ESTATE WITHOUT MONEY OR EXPERIENCE
EIGHT COUNTERMEASURES FOR NOT HAVING ENOUGH MONEY AND EXPERIENCE
USING OTHER PEOPLE'S MONEY TO GET RICH WHEN BUYING COMMERCIAL PROPERTY
HOW THE INEXPERIENCED DEAL MANAGER/SPONSOR CAN GET STARTED
WHAT PERCENTAGE OF OWNERSHIP SHOULD YOU GET FOR PUTTING THE DEAL TOGETHER?
WHY NON-RECOURSE FINANCING IS THE KEY TO RAISING INVESTORS
NINE PITFALLS TO AVOID IN INVESTOR PARTNERSHIPS
FORMING A REAL ESTATE SYNDICATION
ENCYCLOPEDIA TOPIC C: Raising Investor Partners
ENCYCLOPEDIA TOPIC D: Property Ownership Entity
PART IV: Smart Strategies for Sellers
CHAPTER 5: Hold, Cash-Out Refinance, Sale, or 1031 Exchange?
CASH-OUT REFINANCING TO PURCHASE MORE INVESTMENT PROPERTY
IS THIS A GOOD TIME TO SELL YOUR COMMERCIAL PROPERTY?
YOU'VE GOT TO LOVE THE 1031 TAX-DEFERRED EXCHANGE
PUTTING THE CART BEFORE THE HORSE: THE 1031 REVERSE EXCHANGE
CHAPTER 6: Adding Value in the Selling Process
DETERMINING THE MAXIMUM SALES PRICE
POWER BROKERS ARE HIGHLY SKILLED AT PUSHING UP THE SALES PRICE
TWELVE MISTAKES TO AVOID WHEN SELLING YOUR COMMERCIAL PROPERTY
VALUE-ADDING BEFORE SELLING
WHY YOU SHOULD DO A FOR SALE BY OWNER
WHY YOU SHOULDN'T DO A FOR SALE BY OWNER
BENEFITS OF WORKING WITH AN EXPERIENCED COMMERCIAL REAL ESTATE BROKER
SHOULD YOU OWNER-CARRY?
ALTERNATIVE TO OWNER-CARRY: THE MASTER LEASE PURCHASE
ENCYCLOPEDIA TOPIC E: Selling
PART V: Smart Strategies for Repositioning
CHAPTER 7: Unlocking Hidden Wealth with Repositioning
REPOSITIONING A 246-UNIT MULTIFAMILY PROPERTY IN OKLAHOMA CITY
REPOSITIONING A 38-UNIT MULTIFAMILY PROPERTY IN GARLAND, TEXAS
MANAGE YOUR REPOSITION PROJECT ACCORDING TO A PLAN
THREE TYPES OF REPOSITIONING
TIPS FOR CHOOSING THE BEST PROPERTY FOR REPOSITIONING
THE BIGGEST BANG FOR THE BUCK
ENCYCLOPEDIA TOPIC F: Repositioning
PART VI: Smart Strategies for Developing
CHAPTER 8: Why Developers Are at the Top of the Food Chain
WHAT ARE DEVELOPERS MADE OF?
HOW MUCH DO COMMERCIAL DEVELOPERS MAKE?
HOW DO COMMERCIAL BUILDING DEVELOPERS EARN MONEY?
HOW DO COMMERCIAL LAND DEVELOPERS MAKE MONEY?
TRAITS OF THE BEST COMMERCIAL REAL ESTATE DEVELOPERS
WHAT IS THE TYPICAL DAY LIKE FOR A COMMERCIAL DEVELOPER?
CAN YOU BECOME A DEVELOPER WITHOUT EXPERIENCE?
FOURTEEN MISTAKES TO AVOID WHEN DEVELOPING COMMERCIAL PROPERTY
CHAPTER 9: 50 Steps of Developing and That Isn't All of Them
THE 15 PROFESSIONALS COMMERCIAL DEVELOPERS TEAM UP WITH
THE COMMERCIAL DEVELOPMENT PROCESS—FIVE STAGES
ENCYCLOPEDIA TOPIC G: Development
PART VII: Smart Strategies for Financing
CHAPTER 10: Trade Secrets for Getting the Best Rate, Loan Fees, and Terms
THE TRUTH ABOUT HOW COMMERCIAL LENDERS SET RATES, TERMS, AND LOAN FEES
HOW MUCH CAN LENDERS BEND?
ADVICE FROM AN INSIDER ON NEGOTIATING WITH LENDERS
NINE INSIDER TIPS FOR GETTING THE BEST LOAN TERMS
A SEVEN-STEP, CUTTING-EDGE RECIPE FOR GETTING LENDERS TO COMPETE
WHY YOU SHOULD JOIN THE NON-RECOURSE LOAN CLUB
CHAPTER 11: Taking Charge of Your Commercial Loan
WHY YOU SHOULD TAKE A HANDS-ON APPROACH
THE TOP SIX RISKS COMMERCIAL LENDERS DREAD
THE SEVEN PREAPPROVALS IN COMMERCIAL LENDING
THE TRUTH ABOUT COMMERCIAL APPRAISALS AND WHY THEY SOMETIMES KILL DEALS
WHY YOU SHOULD USE A COMMERCIAL LOAN BROKER
TEN MITIGATIONS THAT CAN HELP YOU QUALIFY FOR YOUR COMMERCIAL LOAN
VETTING YOUR LENDER AND/OR COMMERCIAL LOAN BROKER
ENCYCLOPEDIA TOPIC H: Financing
ENCYCLOPEDIA TOPIC I: Commercial Loan Programs
PART VIII: Smart Strategies for Managing and Leasing
CHAPTER 12: Smart Strategies for Managing and Leasing
SELF-MANAGEMENT VERSUS PROFESSIONAL MANAGEMENT
IS A LARGER OR SMALLER MANAGEMENT COMPANY BETTER?
MANAGING YOUR PROPERTY MANAGER
ELEVEN WAYS PROPERTY MANAGERS CAN RIP YOU OFF (AND I'M SURE THERE ARE MORE)
TWELVE SCREENING QUESTIONS TO ASK WHEN CHOOSING A PROPERTY MANAGEMENT COMPANY
LEASING BASICS
ENCYCLOPEDIA TOPIC J: Managing and Leasing
Appendix A
Acknowledgments
About the Author
Index
End User License Agreement
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Foreword
Encyclopedia Topics
ENCYCLOPEDIA TOPIC A
Buying
Actual Versus Potential/Pro Forma Numbers
Affordable and Subsidized Housing
Auctions, Buying At
Break-Even Ratio
Building Class
Buyer's List of Property Objectives
Buyer's Pro Forma
Cap/Capitalization Rate (Buyer's Perspective)
Cash on Cash Return (CCR)
Commercial Properties' Four Income Streams
Contingency Clauses in the Sales Contract (Buyer's Perspective)
Cost per Unit Analysis
Deferred Maintenance (Buyer's Perspective)
Double Closing
Earnest Money: How Much and Is It Refundable? (Buyer's Perspective)
Effective Gross Income
Gross Rent Multiplier (GRM)
Healthcare Property
Industrial Property
Internal Rate of Return (IRR)
Letter of Intent/Interest (LOI) to Purchase
Master-Metered Property
Mixed-Use Property
Mobile Home Park
Multifamily Property
Nondisclosure Agreement (NDA)
Office Property
Preapproval Letter/Letter of Interest for Financing
Proof of Funds Letter
Purchase and Sale Agreement (PSA) (Buyer's Perspective)
Real Estate Owned (REO) Properties for Sale
Rent Concessions (Buyer's Perspective)
Rent Control
Replacement Cost
Retail Property
Return on Investment (ROI) after Value-Adding
Self-Storage Property
Senior Housing
Single-Purpose/Single-Tenant Property
Student Housing
ENCYCLOPEDIA TOPIC B
Due Diligence
Buyer's or Seller's Market
Cap/Capitalization Rate
Capital Improvement/Replacement Reserves/Cap-X
Collections Verification Report
Commercial Property Purchase or Finance Evaluator
Commercial Property Quick Analysis Calculator
Crime Rate Analysis
Due Diligence Checklist
Environmental Concerns
Estoppel Certificate or Letter
Estoppel and Lease Review Checklists
Expense Checklist
Expenses, Variable and Fixed
Historical Financials
Loss to Lease Ratio
Market and Competition Analysis
Millage Property Tax Rate
Mold Assessment Report
Net Operating Income (NOI)
Parking Ratio
Preliminary Title Report
Property Condition Checklist
Radon Gas Report
Rent Comparable Report
Seismic Report/Seismic Risk Assessment
Stabilized Occupancy
Survey, ALTA
Tenant Rollover Risk
Title and Survey Objection Letter
Trailing 12-Month Report (T-12)
Transfer Tax
Vacancy Rate: Physical, Economic, and Market
Wood-Destroying Insect Report
ENCYCLOPEDIA TOPIC C
Raising Investor Partners
Accredited Investor
Cash Calls
Crowdfunding for Raising Equity
Equity Multiple
Executive Summary for Raising Investors
Exit Strategy
Expenses Incurred by the Sponsor
Joint Venture Institutional Capital Partner
Investor Qualification Form
Letter of Intent to Invest
Pari Passu (in Commercial Real Estate Partnerships)
Peer-to-Peer Funding for Gap Equity Raising
Preferred Equity
Preferred Return
Private Investors
Private Placement Memorandum (PPM)
Real Estate Investment Company and Branding
Securities Attorney
Self-Directed IRA Investment in Commercial Property
Sophisticated Investor
Sponsor, of a Commercial Real Estate Investment
Sponsor Promote
Syndication
Tax Shelter for Investors
Waterfall
ENCYCLOPEDIA TOPIC D
Property Ownership Entity
C Corporation
Delaware LLC
Delaware Statutory Trust (DST)
General Partnership (GP)
Individual Ownership/Sole Proprietorship
Joint Venture Agreement
Limited Liability Company (LLC)
Limited Partnership (LP)
Multiple or Layered Ownership Structure
S Corporation
Single Asset Ownership Entity
Tenants in Common (TIC)
ENCYCLOPEDIA TOPIC E
Selling
1031 Exchange Checklist
As-Is Clause
Broker Cooperation Agreement
Cap/Capitalization Rate (Seller's Perspective)
Commercial Real Estate Buyer Types
Commissions, Commercial Real Estate Brokers
Confidentiality/Nondisclosure Agreement (NDA), Sellers
Contingency Clauses in Sales Contract (Seller's Perspective)
Depreciation Recapture
Letter of Intent/Interest (LOI) (Seller's Perspective)
Listing Agreements/Contracts
Loan Assumption
Negotiating Repairs with the Buyer
Online and Multiple Listing System (MLS) Marketing
Owner's Title Insurance Policy
Private Sale
Property Condition Inspection Report
Realized Gain
Time Is of the Essence Clause
ENCYCLOPEDIA TOPIC F
Repositioning
Absorption
Adaptive Reuse (Repurposing)
Appreciation, Forced
Ballpark Quotes
Building Codes and Permits
Competition Analysis
Constructional Repositioning Checklist
Cosmetic Repositioning Checklist
Design Drawings Versus Architectural Drawings
Distressed Property
Economic Obsolescence
Energy Management System (EMS)
Functional Obsolescence
Master Lease Agreement
Nonperforming Mortgage Note Purchasing
Operating Budget Pro Forma
Operational Repositioning Checklist
Raising Rents
Ratio Utility Billing System (RUBS)
Rebranding
Rehab Construction Contract
Repositioning Pro Forma
Re-Tenanting Plan for Retail Repositioning
Revitalization Zones/Urban Revitalization
Tenant Profile
Variance Analysis
Water Management/Conservation Program
ENCYCLOPEDIA TOPIC G
Development
Absorption Schedule
Bid and Award Process
Bike Score
Brownfield
Buildout
Build-to-Core Strategy
Car Stack Parking
Certificate of Occupancy (C of O)
Conceptual Design
Construction Contract Pitfalls to Avoid
Construction Monitoring
Cost per Square Foot
Cost-Plus Construction Contract
Density
Development Fee
Developer's Responsibilities
Elevation Drawings
Energy Star Rating
Entitlement Process
Furniture, Fixtures, and Equipment (FF&E)
Hard Costs
Hydrologists
Impact Fees
Land Assemblage
Land Use Attorney
LEED Certification
Lump Sum Construction Contract
Modular Construction
New Urbanism
Off-Street-Parking Requirements
Opportunity Zones
Performance Bond
Planned Unit Development (PUD)
Predevelopment—20 Steps
Preliminary Drawings
Pro Forma Rent Roll
Punch List, End of Construction
Raw Land Development
Schematic Design
Setbacks
Single Room Occupancy (SRO)
Site Plan
Soft Costs
Specifications/Specs
Stabilized Value, Newly Constructed Properties
Subterranean Parking
Transit-Oriented Development (TOD)
Urban Infill
Value Engineering
Walk Score
Zoning Variance
ENCYCLOPEDIA TOPIC H
Financing
Adjustable/Floating Rate Commercial Mortgage
Appraisal (Three Approaches to Commercial Appraisals)
Bad-Boy Carve-Outs
Blanket Mortgage
Bridge Loan
Capital Improvement Reserves/Cap-X
Capital Stack
Cash-Out Refinancing
Closing Cost Checklist (Commercial Loan)
Commercial Construction and Bridge Loan Programs
Commercial Loan Submission Checklist
Completion Guarantee (Construction Loans)
Construction Loan Submission Checklist
Construction Rollover to Permanent Loan
Coterminous Loan
Cumulative Loan to Value (CLTV)
Debt Service Coverage Ratio (DSCR)
Debt Yield
Declining Prepayment Penalty
Defeasance Prepayment Penalty
Earn-Out Provision
Environmental Report (Required by Lenders)
Equity Participation Loan
Estoppel Certificate (Required by Lenders)
Executive Loan Summary
Fixed-Rate Commercial Mortgages
Forbearance Agreement
Foreign National Loan
Global Ratio
Index
Interest-Only Mortgage
Key Principal
Land Acquisition Financing
Letter of Interest/Intent (LOI) (Lender)
LIBOR (London Inter-Bank Offered Rate)
Loan Extension
Lockout Prepayment Penalty
Market Size
Mezzanine Debt
Mini-Perm Loan
Multiple Residential Investment Property Loan
No Money Down Commercial Loan
Non-Recourse Loan
Operating Budget Pro Forma
Owner-Occupied Commercial Mortgage
PACE Financing
Poor-Credit Commercial Mortgages
Portfolio Loan
Private Debt Fund Lender
Rate Lock and Rate-Lock Deposit
Rehab Loan (Best Programs)
Replacement Reserves
Second Mortgage/Subordinate Loan
Secondary Market
Self-Directed IRA Commercial Loan
Springing Lock Box
Stated Income Commercial Loan
Supplemental Financing
Swap Rate
Tax and Insurance Escrow/Impound
Third-Party Report
Underwriting Interest Rate
Upfront Fee
Wraparound Mortgage
Yield Maintenance Prepayment Penalty
ENCYCLOPEDIA TOPIC I
Commercial Loan Programs
Commercial Mortgage-Backed Security (CMBS) Loans
Community Banks
Credit Unions
Crowdfunding Loans
Fannie Mae Multifamily Loans
Freddie Mac Multifamily Loans
Hard Money Bridge and Construction Loans
HUD/FHA Multifamily and Healthcare
Large Commercial Banks
Life Companies
National Bank Capital Divisions
Poor-Credit Secondary Market Loans
Private Debt Funds
Regional Bank Income Property Divisions
SBA for Hospitality, Self-Storage, and Owner-User
ENCYCLOPEDIA TOPIC J
Managing and Leasing
Absolute Triple Net Lease
Americans with Disabilities Act (ADA) Compliance
Assignment of Lease Clause
Audit Rights for Landlords
Audit Rights for Tenants
Base Rent
Buildout
Common Area Maintenance (CAM) Fees
Credit/Investment Grade Tenant
Creditworthy Tenant
Double Net Lease
Effective Rent
Escalation Clause (Rent)
Estoppel Letter (Lease Clause)
Eviction Process
Expense Stop and Fully Serviced Leases
First Right of Refusal
Furniture, Fixtures, and Equipment (FF&E) (Commercial Lease)
General Vacancy and Credit Loss
Go Dark Clause (Lease)
Gross/Full Service Lease
Lease-Up Fee (Leasing Commission)
Letter of Intent (LOI) to Lease
Management Duties for Commercial Property Managers
Modified Net Lease
Net Lease
Off-Site Management Fees
On-Site Management Cost
Operating Expense Caps
Option Clauses (Leases)
Percentage Lease
Property Management Contract (Protections for the Property Owner)
Property Management Software
Rent Abatement
Rent Concessions
Rent per Square Foot
Request for Proposal (RFP) (Leases)
Security Deposits
Single Net Lease
Sublease Clause (Leases)
Subordination, Non-Disturbance, and Attornment Agreement (SNDA)
Tenant Allowance (TA)/Tenant Improvement Allowance (TIA)
Tenant Improvements (TI)/Leasehold Improvements (LI)
Tenant Mix
Tenant Relocation Clause
Term of Lease
Triple Net Lease
Turnkey
Useable Square Footage Versus Rentable Square Footage
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