Commercial real estate, also called CRE, is any non-residential property that serves to generate income for its owner. This includes shopping malls, hotels, office spaces and more. Understanding what is commercial real estate can help you understand why it might be a good investment alternative to residential real estate, and how to get started with this type of investing.

What Is Commercial Real Estate?

When people think of commercial real estate, they usually picture a big office tower or a shopping center. But there are many different types of commercial properties, and there are also a variety of leasing options for investors who purchase them.

Office Space: The most common form of commercial property is office buildings. These can range from single-tenant offices to skyscrapers. The class of these properties is defined by their age and quality, and is typically divided into either Class A (newer and better-constructed buildings), Class B or Class C. Click here https://www.sellmyphillyhouse.com/we-buy-houses-phoenixville-pennsylvania/

 

Retail Buildings: Another popular commercial property is retail buildings, which include everything from strip malls and community retail centers to banks and restaurants. The lease rates on these spaces can vary, but are generally charged as a base rent and then a percentage of the tenant’s gross income. These types of leases are helpful for tenants who want to keep their rent low in slower months, and they can also be a good way to diversify your portfolio.

Industrial Buildings: Finally, the industrial sector of commercial real estate includes large warehouses and other manufacturing or distribution facilities. These are one of the most regulated sectors of real estate, as they must adhere to zoning regulations and must be located in specific areas.

Multifamily Properties: Some multifamily buildings are considered commercial real estate as well, such as apartment complexes or high-rise condominium units. These properties are a popular entry point for people who want to invest in the commercial market.

Direct or Active Investment: The most common form of commercial real estate investment is direct, where an individual purchases and manages the property. This requires a significant amount of capital and may require working with a lender specializing in commercial real estate loans.

Syndication: An investor can also structure a syndication around a particular commercial property to raise funds from an entire group of investors. This can be an effective way to diversify your investment portfolio, and it can give you access to properties that might not otherwise be available.

 

Loan To Value Ratio: The loan-to-value ratio is an important metric lenders use to determine the viability of a commercial property. It calculates the value of a commercial property by dividing the loan amount by the property’s appraisal value or purchase price. LTVs are typically 65 to 80 percent, but can be lower in some cases.

Despite the massive growth of online retail, there is still a strong demand for physical brick-and-mortar locations that are easy to visit and that offer a high degree of customer service. This is why many commercial real estate investors look to acquire properties with a strong local presence and a reputation for excellence.