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Looking to invest in commercial real estate, but don’t know what type of property to consider? Here is a comprehensive guide on the five most common types of commercial property.

1) Multifamily (Apartment Buildings) – Multifamily refers to apartment buildings of all sizes. It is classified into garden apartments, walk-up apartments, mid-rise apartments, high-rise apartments, and special-purpose housing.

Garden apartments are low-rise apartments, usually less than 3 stories, built in a garden-like setting. The apartments without elevator are apartments with 4 to 6 floors without elevator. Mid-rise apartments are 4-8 story apartments with a lift. Skyscrapers are over 9 stories with at least one elevator. Special purpose housing is a multi-family property that targets a segment of the population, including student housing, senior housing, affordable housing, etc.

Advantages of multi-family properties:

• Easy access with smaller properties and slow transition to larger properties

• Fiscal benefits

• Use current income for financing

Cons of multi-family properties:

• Tenant management 24 hours a day, 7 days a week

• Pro-tenant legislation

• Rent control

two) Industrial – Industrial is typically used to produce, manufacture, or store products. Includes warehouses, garages, distribution centers, etc. It is often divided into heavy manufacturing, light assembly, flexible warehouse, and bulk warehouse, depending on the size and use of the property.

Heavy manufacturing often uses a lot of machinery and typically requires a substantial amount of renovation before it is rented out to another tenant. Light assembly includes storage, product assembly, and office space, which is easier to reconfigure than heavy manufacturing. The flexible warehouse typically includes office and industrial space, making it an easily convertible space. Bulk warehouses are massive properties, typically 50,000 to 1,000,000 square feet of space, typically used for regional distribution of products.

Pros of Industrial Properties:

• Dealing with a single tenant

• Long-term and stable leases

• Relatively small initial investments

Cons of Industrial Properties:

• Specialization of the area, which makes it difficult to find new occupants

• Large and extensive reconfiguration expenses

• Higher tax rates, depending on the area

3) Office buildings – This category includes single-tenant properties, small professional office buildings, downtown skyscrapers, and everything in between.

Office buildings are from the Central Business District (CBD), which is in the middle of a city, or suburban office buildings. There are three categories: Class A, Class B, or Class C, which is determined by the quality of the construction and the convenience of the office location.

Advantages of office buildings:

• Less turnover

• Longer lease terms

Cons of office buildings:

• Less often to raise rents

• Emphasis on parking

• Expensive financing options

4) Retail/Restaurant – Retail includes shopping malls, community retail centers, energy centers, regional malls, and parcels.

Strip centers are small commercial properties that may have a primary tenant, which is a larger, more well-known tenant that will attract smaller retail tenants. Community retail centers are between 150,000 and 350,000 square feet with multiple anchors, usually grocery stores and drug stores. The energy centers have several smaller retail stores with some retail stores like Wal-Mart, Lowes, Staples, Best Buy, etc. occupying between 30,000 and 200,000 square feet, containing various parcels. Regional malls are between 400,000 and 2,000,000 square feet with many anchor tenants. Our parcel is land reserved for individual tenants, such as fast food restaurants or banks.

Advantages of commercial/restaurant properties:

• Security and profitability of an Absolute Triple Net lease (NNN)

• Less turnover

• Less tenant management

Cons of commercial/restaurant properties:

• Less often to raise rents

• Depends on tenant performance

• Location and foot traffic are extremely important

• Emphasis on parking

• Visual maintenance

5) Land – Land is pretty self-explanatory. It is often classified as Greenfield land, fill land, and Brownfield land.

Greenfield lands are undeveloped lands, such as farms and pastures. Infill land is vacant land located in cities that have already been developed. Vacant land is typically environmentally degraded land that was previously used for other industrial or commercial uses. The land is available for reuse.

Land Pros:

• Fiscal benefits

• Less expensive

• More rental possibilities (depends on location)

Land Cons:

• No immediate income from tenants

• Few financing options

• Requires development from scratch

The above are the most common types of commercial property types. There are several others that have not been discussed above, such as hotels, funeral homes, nursing homes, theaters, etc., that are special purpose type properties.

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