Whether they own hundreds of different properties, or just one single location commercial real estate developers are all looking for the same thing when they go hunting for a new project; a place they can turn a profit from. There are of course many factors that go into the selection of potentially profitable commercial real estate, but perhaps none more so than the following selections. Every successful real estate developer will especially analyze these three factors when deciding to buy.
1.) Location: Location, location, location. The “Golden Rule” when it comes to real estate of any kind. The exact same building, structure, or naked piece of land could vary drastically in value depending on where it’s located and what’s around it. For example, water front property is virtually guaranteed to increase the value, and asking price of any commercial real estate. Depending on what kind of businesses you plan to rent, lease to, or operate yourself out of can influence where you’ll want to look to buy. Professional businesses like financial, recruiting, or legal services might be better off in the downtown business district of a city, whereas restaurants and bars can have great success on the outskirts or in niche corners of an area.
2.) Tax Benefits: Generally speaking, the federal, state, and local governments have an interest in promoting business and economic growth. One of the more technical aspects real estate developers are very keen to is tax breaks and other incentives to invest in particular buildings or sections of a city. If you’re new to the industry speaking with a tax expert can be very beneficial in recognizing and understanding the tax write-offs you might be entitled to by owning commercial real estate.
3.) Potential: The most difficult factor to predict in most cases. Every piece of property has value, but determining the ceiling of specific locations is what real estate developers do best. They rely on the consistent stream on rent/lease money to eventually make a profit on their real estate investment, so the greater potential there is in attracting multiple companies that will fight for the space will only drive the cost up. There was over $12 trillion worth of commercial real estate in the U.S. in 2012, but a lot of it was probably bought as run-down eyesores. The top real estate developers can identify these diamonds and restore them from the rough to make significant gains in profit margin.
