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Industrial Property Agents – Facts that You Need to Know About Industrial Property

Many property investors are attracted to investing in industrial property because it is easy to understand.  The tenant, the lease, and the property are quite straight forward from an investment perspective.

It is also worth noting that many commercial real estate agents ‘cut their teeth’ in the industry by working firstly on industrial property sales and leasing.  The basic nature of the property is easy for them to grasp and negotiate on.

Some commercial agents will like the industrial property type so much that they may stay with the segment of the market and become true ‘specialists’ in an area.  If that is the case they will usually rise to the higher end of industrial property sales and leasing in both size and value.  There are plenty of large companies and industries looking for specialised assets for the business growth of their company.

So here are a few more observations about industrial property today:

  1. Take care when it comes to industrial properties that are created for a specific industrial use and tenant.  They will generally have a high liquidity factor and be hard to move when the property is to be sold.
  2. Special purpose or single purpose industrial properties will be difficult to lease (or sell).  As a case or example in point, large cold storage industrial properties are so specialised that an investor would (or should) want a high yield and long lease with a ‘blue chip’ tenant before the property was considered a wise purchase.
  3. This property type is usually the first to be impacted when the national economy and business sentiment is under pressure.  That being said, industrial property is usually the first to respond when the economy is improving.
  4. The premises and buildings are easy to manage.  The leases are basic and straight forward in most circumstances.
  5. The rental structures in industrial premises are usually a type of net rent.  The tenant will usually pay most if not all outgoings.
  6. Capital expenditure in an industrial property will be impacted by property use.  The property owner should get a depreciation schedule of all capital items so they can plan the larger expenditure of capital items that may arise in the future.
  7. The zoning of the property and premises will have direct impact on use and therefore tenant occupation.  Ensure that the zoning offers sufficient flexibility for property occupancy and returns.
  8. Industrial premises are frequently a single tenant and single occupancy issue.  The facts are easy to understand and tenant mix is not a problem as it would be by comparison in a retail property.

When you look at overall property performance, consider the growth potential in rental as well as the growth in capital appreciation.  The two factors are not always linked and may be impacted by locational factors.

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Commercial Property Managers – Check Out All Your Leases and Default Provisions in New Managements

When a commercial property manager takes on a new lease and property to manage, I usually tell them to spend a good deal of time reading the leases before they form an opinion about the property and the tenant mix.

The fact of the matter is that any and all leases in the one property will be different from each other.  Critical dates, definitions, and terms and conditions will all have an impact on the way things are done.  If there is to be a lease default by the tenant, the first place to go for information is the lease.

Here are some of the main factors to look for when it comes to handling a dispute and default with a tenant.

  • The definition of lease default will be in the lease and it will go on to say exactly when and how you (as the landlord’s property manager) can take action to remedy the breach or default.
  • As to when you can take action will be important, as it will have bearing on legal relationships between the parties.
  • Look out for the relative legislation or laws that can also impact the lease, the tenant, or the landlord.  Sometimes laws will interact with the lease documentation and the default event.
  • Who can take action and how will vary depending on the lease.  Read it to know what can occur.
  • Time for the default notices to be served will be set out in the lease clauses.  There may also be factors of ‘time is of the essence’ when it comes to notices between the parties.  When in doubt get a good solicitor to advise you based on the existing lease between the parties.
  • In most cases the tenant should be given a reasonable chance to remedy the breach.  Legal precedents may have an impact on what time frame is acceptable for the remedy to occur.

So all of these are very good reasons to read the lease comprehensively when you first take on a new commercial property or property management client.

When something goes wrong in a property, the first place to go is the lease.  Read what it has to say; invariably the answer needed will likely be in the lease.

You can get more tips for commercial real estate managers and agents in our Newsletter right here.