Maranatha Commercial
 
Office Buildings
 
   
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Office Buildings
Office buildings are single or multi-story buildings. These properties are differentiated from retail buildings in that they are considered a destination business and are not reliant upon outside foot traffic to be profitable.

Newer office buildings or well-maintained office buildings get significantly more favorable commercial-financing terms than older buildings. The older two-story office buildings without elevators tend to have trouble finding tenants on the upper floor as many service businesses may have physically-challenged customers who cannot walk up the stairs.

Additionally, whether or not an office building relies on just one key tenant or several tenants also plays a role in the financing terms offered. If a building relies on a single tenant for its profitability, it will be important to determine the financial strength of that single tenant in order to determine the financing options available. Think of it as a putting all your eggs into one basket type of approach. Whereas, if there are several long-term tenants in the office building, then the potential for significant income interruption is lessened in the event a tenant or two were to leave the building.

 

The different categories of offices include:

  1. Single-tenant Buildings - the properties are used as corporate headquarters of big corporations like Cisco. These big buildings tend to be more sensitive to the economy. Once vacant, it's hard to find a replacement tenant. Top

  2. Multi-tenant Buildings - these properties are leased by small businesses, e.g. real estate, tax accountants. Investors who purchase these properties want to spread out the investment risks. When one tenant vacates a unit, you lose just a small percentage of rental income.

  3. High Quality Tenants - most of them have good credits, lot of assets and promptly pay the rent when due.

  4. Leases - the leases for office buildings vary from full service (landlords pay property tax, insurance, maintenance and utilities) to Triple Net (NNN) Lease (tenants pay property tax, insurance, maintenance and utilities). The NNN Lease is a litmus test on whether the office building is in high demand by tenants or not.

  5. Medical Buildings - these properties are leased primarily by doctors and dentists. A good medical building should be in front of or across the street from a hospital. This makes it convenient for doctors to go back and forth between hospital and their offices. Some investors prefer medical buildings as medical tenants are very recession proof.

Potential office buildings should have a minimum of 85% occupancy and is located on or near a main thoroughfare and easily accessible. Properties that have more than 20% of total revenue from owner occupied or owner affiliated tenants, will usually have a higher interest rate on any loans.

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