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What Cannabis Can Do for South Florida CRE

What Cannabis Can Do for South Florida CRE on morrissegroup.com

A green revolution is on the horizon

In 2016, Florida voters passed a measure to legalize medical marijuana. Ever since that same measure has been locked in a sort of legal limbo at both the state and local levels. Back-and-forth lawsuits in Tallahassee have resulted in delays, go-ahead, and more delays, while some local communities have passed moratoriums and bans on the location of growing facilities and dispensaries.

Despite these growing pains, one thing is certain: medical marijuana is profitable. In 2016, legal cannabis sales reached $6.7 billion. This number is expected to jump to $20 billion by 2021. For commercial real estate, particularly in South Florida, those numbers are just too big to ignore.

Light industrial space is a natural location

At the moment, legally-grown cannabis cannot be transported across state lines. As a result, states with approved medical marijuana initiatives must grow their cannabis locally – and the real estate that is most suitable for doing so are warehouses zoned for light industrial.

Generally speaking, these spaces are large enough to be converted to meet various growing needs (growing and processing plants, producing edibles, and distilling oils), ventilation, moisture controls, and lighting.

While conversions can run in the millions of dollars, the result will be profitable. One only has to look at Denver and other areas where the medical marijuana industry is fully operational. There, lease prices for vacant warehouses that couldn’t be given away pre-pot have jumped more than 50% in just a few years.

Owning is more than a pipe dream

Investors looking to get into the medical marijuana business are just one part of the CRE equation. The other participants are the grower entrepreneurs looking to own their spaces. In Denver, for example, many growers soon learned that skyrocketing rents could quickly put them out of business. In fact, many growers seem to have taken a page from lessons learned from Wynwood artists and gallery operators who quickly learned that owning their own space put them in charge of their profits.

At the same time, legal cannabis markets have seen a sort of offshoot to the CRE boom: investors who also get a grower’s license. Once the warehouse conversion is complete and the business is up and growing, the investors then sell the entire operation.

Issues that are unique to the medical marijuana business

In addition to an inability to transport crops and products across state lines due to Federal regulations, there are other issues that are especially unique to the growing business.

At the moment, it’s impossible for those in the legal cannabis trade to receive bank loans. The result is that financial transactions – from rents to purchases – are cash only.

Similarly, cash earned through medical marijuana requires banks to do more compliance work, which means higher account fees. Investors and entrepreneurs, then, tend to look for other venues in which to invest their money – and the short answer is often more industrial, commercial, and residential real estate. In other regions of the country, for example, residential neighborhoods have seen home values skyrocket because of medical marijuana.

Catching the buzz in South Florida

Two years after Florida voters approved the medical marijuana measure, the state and various municipalities are still in a range of stages. Miami, for example, opened its first dispensary in April 2017, while it took until January 2018 for Broward County to approve dispensaries, which can only be located in unincorporated regions of the county. (Critics believe this relegates dispensaries to low-income, high-crime, predominantly black neighborhoods, while advocates maintain this measure will breathe new life into these communities.)

In the meantime, properties are readily available for investment, purchase, and conversion, and the entire CRE industry is waiting for a firmer understanding of local zoning restrictions and statewide regulations. The team at Morris Southeast Group is ready now to help connect clients with the facilities necessary for the coming boom.

For a free consultation or to learn more about our property investment opportunities and/or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Inventory Issues Impacting CRE In South Florida

Is there space left for great investments?

It’s easy to understand why some investors and tenants get discouraged about CRE space in South Florida. Gentrification projects are well underway, empty lots are fenced and prepped for new construction, and the tremendous amount of traffic creates a sense that prices are in the stratosphere because all of the good space is gone.

Nothing could be farther from the truth. Depending on the type of real estate owners, tenants, and investors are considering, there are millions of CRE square feet of 2nd- and 3rd-generation space available in South Florida. Finding the intersection of the right real estate at the right price in the right place can certainly still be done – though it’s not always easy.

Flexibility in the CRE landscape

No matter the market – Los Angeles, New York, Atlanta, or Miami – there are essential considerations when matching the unique needs of clients with the proper space.

A key to making this link is flexibility. In South Florida, for example, there is an abundance of warehouse space that has the potential to be repurposed into something else. The low ceilings of many 2nd- and 3rd-generation warehouses are no longer suitable for today’s industrial/distribution center needs. They are, however, perfect for converting into office space or other uses.

Before embarking on such a project, it’s essential to understand the cost of the conversion. Parking, air conditioning, and roofing may need to be updated, and these costs could be very high.

Getting to know zoning

While conversion costs can certainly hamper development plans, another issue can be as much of a hindrance: zoning regulations. The last place any buyer, renter, or seller wants to be is at the table while the deal falls apart because no one thought to investigate zoning regulations and restrictions.

To prevent surprises, it’s essential to understand the zoning rules that are specific to the municipality where the property is located. What’s allowed in location A may not be permitted in location B, and that can make all the difference.

The zoning departments in all municipalities tend to not like surprises. Sooner or later, they will discover the work being done on a property and issue fines and/or work stoppage orders. To prevent these costly consequences, take the time to visit the zoning department in which the property is located. Ask questions and help to bring the municipality on board with the property’s new concept.

On the South Florida CRE horizon

Marijuana provides a great example of how a potential business trend can interface with flexible CRE space. In 2016, Florida voters overwhelmingly approved medical marijuana. Ever since, the proposal has been in a sort of limbo – tied up in hearings and court cases.

Soon after voters approved the measure, the Florida legislature passed a law preventing patients from using smokable marijuana. This then resulted in a circuit court judge ruling that patients have the right to use medical marijuana in any form – and this led to an appeal from the Florida Department of Health, which means an automatic stay so the judge’s ruling cannot go into effect.

This back-and-forth means many obsolete warehouses – many of which can be quickly converted into indoor grow spaces for medical marijuana – remain empty. Florida CRE investors are waiting – and looking at the example of Denver, CO, where marijuana has been legalized and it’s now nearly impossible to find available warehouse space.

Knowledge is the key

When investigating CRE possibilities, it’s important to work with an agency that knows the rules of the market and looming trends. Morris Southeast Group has a 40-plus year history, which translates into a team of professionals who are not only aware of opportunities but also know the ins and outs and changes in zoning regulations in the municipalities which we serve.

For a free consultation or to learn more about our property investment opportunities and other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

CRE Transactions vs. Residential Transactions

The complexities that make them different … and similar

In a market like South Florida, where cranes are a part of the skyline and neighborhoods are routinely undergoing transformations, it seems as if there’s an investment opportunity on and around every corner. Before signing on the dotted line, though, there’s a lot to think about – because not all investments are created equal.

When considering a commercial real estate investment or a multi-unit residential investment opportunity, it’s important to consider that each transaction has its own unique complexities, as well as some similarities.

Income stream vs. bricks and mortar

Taking a page from Real Estate Investment 101, the purpose of investing in any sort of property is to generate profit or income. It’s the income stream that’s essentially being purchased in a commercial real estate investment. The bricks and mortar of the property just happen to come along with it.

As a result, it’s important to underwrite the integrity of the current income stream or the potential income stream that could come from that investment. This in and of itself contributes to the complexity of a CRE investment. Two examples better illustrate this idea:

CRE Example 1

You’re interested in purchasing a triple-net investment; a free-standing building that’s currently home to a CVS Pharmacy. With the reputation of its brand, you generally have a sense that CVS is a very strong, credit-worthy company and the risk associated with the tenant is not that high. In other words, you’re likely to get your full income stream remaining on that lease.

CRE Example 2

Now, let’s up the complexity factor – and risk – with the purchase of an office building that has 27 tenants. As an investor, you have a responsibility to read and investigate every lease, as well as know the length of each of those leases, the average lease term on the rent roll, and see how creditworthy each of those 27 tenants are. The findings of this sort of research will help you establish the risk related to that investment. This same due diligence is required for retail and industrial investments, as well.

Residential Example

This doesn’t mean that residential investment opportunities are not concerned with risks or income streams, or that they are “easier” than a commercial investment. In fact, they are uniquely complex because of the nature of the residential tenant.

First and foremost, residential tenants move frequently. It’s generally safe to assume that one-third to one-half of your tenants will move out of your investment property. In a building with 30 rental units, that number translates into 10 – 15 vacant units at any time. As a result, you will have to figure out what your capital expenditure will be to replace those tenants, as well as how to maintain a profit while those units are vacant.

Additional complexities to investment opportunities

As different as residential and CRE investments may be, they also have several items in common — which can add more complexities to the mix:

  • The condition of the property – whether it’s commercial or residential – will have to be maintained or improved;
  • The integrity of the rental income must be fully explored and understood;
  • Leases can quickly become more complex, especially when it comes to delineating who is responsible for what, such as maintenance, security, and technology;
  • Federal and local laws are an additional layer of the equation, and it is the owner’s responsibility to be in compliance with existing laws or those that change. This can especially difficult when investing in properties in various locations. What works in one county may not be allowed in another.

One simple solution in one location

At the end of the day, it may be beneficial to consult with or hire a qualified professional who is adept at navigating investment waters. The professional team at Morris Southeast Group is skilled at property management services and investment due diligence. Our comprehensive services include owner and tenant representation, marketing, lease administration, collections, and financial reporting.

For a free consultation or to learn more about our property management services, current investment opportunities, and/or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Building a Successful CRE Investment Partnership

Building a Successful CRE Investment Partnership on morrissegroup.com

7 steps to make it work

It’s been said that a CRE investment partnership requires two types of people: someone with capital and someone with the knowledge to put that capital to work. It’s also been said that these investment partnerships can be more difficult to nurture and maintain than a marriage.

Forbes columnist Amanda Neville notes that all businesses partnerships have an 80 percent failure rate, a full 30 percent more than marriage. Another estimate reveals that roughly “70 percent of real estate partnerships fail because two equal partners cannot agree on anything.”

Nevertheless, a successful CRE investment partnership isn’t impossible. In fact, there are many successful examples. When comparing those that work and those that fail, a framework appears – one that will guide your next move.

Be a realist

CRE means big money, which can mean bigger risks, which in turn can mean greater excitement when an opportunity presents itself. While it’s perfectly okay to enjoy the adrenaline rush, don’t be overtaken by it. It’s important to stay grounded and firmly entrenched in reality to be able to make well-thought-out decisions – specifically as they pertain to the items outlined below:

Establishing a ratio, level of participation, and structure for the partnership

When people enter a partnership, it’s because it makes sense for two or more parties to pool resources for the mutual benefit of all involved. In CRE, though, risks and rewards are higher – each decision is not only important, it can potentially be contentious. In 50-50 partnerships, disagreements can lead to no decisions at all and, as a result, place the venture in jeopardy before it even had a chance.

An option for a 50-50 relationship is a real estate limited partnership (LP), as opposed to a general partnership. One individual is the general partner who is responsible for the day-to-day decisions, whereas the limited partner is a passive investor.

Limited liability companies (LLCs) are also an option. To avoid gridlock or conflict, individuals who comprise an LLC can be designated as “managers” or “members.”

Have common objectives

Before meeting with potential partners, understand your own objectives for wanting to invest in a commercial venture. What is your ideal rate of return and how much margin of error has been built into the investment from a break-even perspective? Is it a long-term investment that is intended to generate income for decades? Or is it a mid-term project that ends in a lucrative sale? Essentially, what is the exit strategy?

With your own answers to these questions, you can better assess potential partners and join with those who share your strategy.

Consider the end at the beginning

This is perhaps one of the most important things to consider, and the most difficult. It’s also one of the main reasons to remain grounded and not get carried away with the excitement of the partnership.

Simply stated, markets change and life happens – so it’s critical to have an exit strategy for yourself and/or your partner. Whatever is decided should be in writing so all parties are protected.

Be fair

This is common sense, but it bears emphasis: If you are the person in charge of making decisions, you will be the one spending other people’s money. It’s imperative to be more frugal with your partner’s money than you are with your own. If you are making operational decisions or advocating a certain strategy, this strict fiduciary duty must guide everything you do.

Be transparent

Part of being fair is transparency. It means consulting with partners – even the silent kind – on really big decisions, as well as informing them of what’s happening with the project. Is a tenant moving out? Is there a fantastic tenant on the horizon? Is a renovation or repair work in the wings?

If there are questions from partners, respond immediately. Greater care in selecting partners with the same CRE objectives helps to minimize criticisms.

Get it in writing

At Morris Southeast Group, we cannot stress enough the importance the getting everything in writing. This is, after all, business. While CRE certainly has its share of risks and rewards, a written, highly-detailed contract between you and your partner(s) is a necessary tool to help offset risks and disagreements while increasing rewards.

For a free consultation or to learn more about our CRE investment opportunities or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

South Florida Parking in the 21st Century

South Florida Parking in the 21st Century on morrissegroup.com

Parking garages undergo a makeover thanks to technology

One of the greatest thrills for South Florida city drivers these days is to find available parking, whether it’s in front of a specific destination or in a convenient garage.

That gift, though, is becoming fewer and farther between, which is why so many commercial and corporate locations provide valet services. Drivers and passengers get to walk a short distance, while valets run all over the city to park and retrieve automobiles.

A headache, yes, but it’s a way of life that many urban dwellers have come to begrudgingly accept. Parking is a pain – but parking as we’ve always known it is in the throes of an evolution that’s connected to technology.

The future of parking is now

Parking first became an issue in 1908, when Ford’s Model-T was introduced. Ten years later, the first multi-story parking garage was built at the La Salle Hotel in Chicago. Ever since American drivers in many urban areas have been driving around in circles to find an available space.

Changing attitudes toward cars, technology, start-ups, and competition are coming together to move the parking industry into the 21st century. For the first time, ideas once considered fantastical are becoming a reality.

The perfect parking storm

When it comes to car ownership, Millennials and Generation Z-ers have mixed feelings. Many workers in this age bracket tend to work from locations outside of a traditional office, and fewer of them own cars.

Rather than owning, they would much rather use public transportation or walk. At the same time, driverless cars and driving services such as Lyft and Uber are cutting into garage usage.

Nevertheless, car ownership overall is on the rise– particularly in South Florida, where development is surging, walkable downtown areas are still catching up to the times, and public transportation is sparse compared to other urban areas.

It was only a matter of time before driverless car technology would lead to driverless parking opportunities. As automakers continue to move forward with automated technologies, they are already testing smart garage capabilities in markets around the country, with cars dropping passengers off and then driving and communicating with a nearby garage.

Parking plusses and the connected garage

As with just about all things related to technology, the parking garage is moving toward a data-driven environment that is also sustainable:

With improved and more commonplace car and garage technologies, parking garage footprints will become smaller. Cars will be parked more efficiently. With driverless capabilities and stacking, parking spaces will be narrower.

As parking becomes more efficient, there will be less carbon emission. Through the use of embedded hardware in parking spaces, drivers will be alerted (either through apps or signage) of available spaces to curb driving in circles.

To see such a system in action, visit the parking garage at Fort Lauderdale-Hollywood International Airport. Carbon emissions are further reduced as some garages move cars via automated platforms.

Because of driverless parking capability, there is enhanced security for vehicles. There will be no way for pedestrians or thieves to get near parked cars.

The parking garage evolution is not without setbacks

No one ever said that evolution was easy. Sometimes, there are setbacks and unforeseen issues.

Such is the case with BrickellHouse in Miami, where the promise of the city’s first fully-automated garage fell victim to the human glitch. There, developers and the technology failed to realize rush hour surge in car retrieval – resulting in residents reportedly waiting up to 45 minutes for their vehicles. The end result has been litigation and years of parking headaches.

At Morris Southeast Group, we believe it’s imperative for parking garages to continually evolve to meet the challenges and changes in our rapidly changing South Florida landscape. To step away from the future would be detrimental to residents, commuters, and tourists – all of whom make our cities come to life.

For a free consultation or to learn more about our property investment opportunities and/or other commercial real estate services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Investing Outside Of The Box

Investing Outside Of The Box on morrissegroup.com

A look at South Florida’s emerging neighborhoods

For anyone who has sat in South Florida traffic, it may seem there is no more land left to develop. Even from the air, the limitations are clearly defined by the expanse of the Everglades to the west and the Atlantic Ocean to the east. South Florida, it might seem, has been fully developed from sea of grass to shining sea.

Not so fast, say many developers, investors, and municipalities. There are, in fact, many South Florida locations jockeying to take their rightful place on the list of the region’s emerging neighborhoods.

Miami-Dade: Allapattah

Allapattah, one of Miami’s oldest and most industrial neighborhoods, is coming into its own as prices and buildings rise in neighboring Wynwood. Full of existing warehouses, the area is reminiscent of New York’s Meatpacking District or Chicago’s West Loop.

While some developers have already seized on affordable opportunities there and the Rubell Family Art Collection Museum has announced its move from Wynwood to Allapattah, there are still deals to be found.

Spurring further development is the fact that Allapattah is adjacent to some of Miami’s biggest employers who will be able to enjoy new retail and dining opportunities as they commute between work and home. In addition, the neighborhood sits on higher ground – and that is a big deal for developers and investors concerned about sea level rise.

Broward County: Pompano Beach

With Miami the perpetual jewel of South Florida, Hollywood in the throes of a renaissance, and Fort Lauderdale moving up, it seems only natural for Pompano Beach to make its mark on the real estate market.

The centerpiece of the city’s aspirations is the Innovation District, an idea that has been decades in the making. The location, underused acreage along Atlantic Boulevard, will be home to 750,000 square feet of office space, 16,500 square feet of retail space, 35,000 square feet of restaurants, 1,500 residential units, two hotels with a combined 420 rooms, and cultural arts venues. Tying it all together will be a system of self-contained, self-circulating waterways – a sort of Amsterdam with palms.

Along the beachfront, the city also plans to develop the pier with the Pompano Beach Fishing Village, featuring two restaurants, retail space, and a Hilton hotel.

Palm Beach County: Boynton Beach

If South Florida neighborhoods want to revitalize, it seems a good first step is to invite artists. Such is the case with Boynton Beach. Located between the high-end homes and retail centers of Boca and the entertainment and dining mecca that is Delray’s Atlantic Avenue, Boynton Beach needed to do something to make itself unique from its neighbors. The city needed to look no further than artists who had been priced out of Miami.

As a result, the Boynton Beach Art District was born and now features studios, galleries, murals, monthly events, and breweries. With this success, investors have noticed the area’s eastside, where there is a wealth of developable real estate along Federal Highway.

Honorable Mentions

  • South Middle River: This pocket neighborhood, just north of downtown Fort Lauderdale, is one of many small residential areas that suffered during the recession and are making a comeback.
  • A stone’s throw from booming Wilton Manors and Flagler Village, South Middle River provides residents with the same entertainment, shopping, and nightlife opportunities as people living in those more expensive locations – but without the bank-breaking cost. It also helps that it’s within walking distance to pedestrian-popular NE 13th Street.
  • East Edgewater: Once upon a time, this neighborhood north of downtown Miami was a shining star on Biscayne Bay. As other Miami neighborhoods developed, though, East Edgewater faded with neglect. That’s all changing, as more and more buyers are searching for luxury waterfront accommodations that do not carry the hefty price tags found in Miami and Miami Beach.
  • Little Havana: For this iconic South Florida neighborhood, the draw is location, location, location. Close to downtown Miami and Miami Beach, Little Havana in a perfect spot for those wanting to enjoy city life without the high rents in neighboring Brickell. The trick, though, will be for new growth and planned projects to not erase the cultural flavor that defines the Calle Ocho vibe.

Finding South Florida’s best opportunities

At Morris Southeast Group, we believe that South Florida’s opportunities cannot be limited by the region’s Atlantic and Everglades boundaries. In our view, there are gems around every corner – and our team of professionals can help you find the match that’s perfect for you.

For a free consultation or to learn more about our property investment opportunities and/or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Is Industrial Real Estate Investment Right for You?

The answer is probably “Yes!”

When it comes to real estate investment, industrial properties may well be the most out-in-the-open secret there is. Very often, investors overlook these locations. They’re not as sexy, say, as a beautifully appointed residential property or a commercial property with a fashionable address.

No, industrial properties are working properties. They’re all about docking and loading, storage and distribution, manufacturing and shipping. Nevertheless, they are an excellent option for the more entrepreneurial investor.

What makes industrial properties appealing?

When it comes to properties, those in the industrial sector are the least management intensive, depending on the size of the property. For the investor looking to be more hands-on and not requiring the services of a third-party property management firm, most industrial properties only require one or two visits per month in order to check on tenants.

While many office complexes and even residential properties require the investor to renovate properties several times over the course of ownership years, industrial properties tend to need very little cosmetic upkeep. Industrial tenants, in fact, tend to be willing to pay for a few key assets:

  • Wide loading areas;
  • High dock doors;
  • 28’ to 30’ ceiling heights;
  • A state-of-the-art fire sprinkler system and security.

Why industrial and why now?

Looking at numbers from 2017, commercial sales were either flat or down in many markets. Industrial properties, on the other hand, saw an uptick. That upward trend is expected to continue, particularly in South Florida. In a review of ports with year-over-year growth, Miami was in the top 10.

Helping to drive this is the explosion in e-commerce. As more and more consumers shop online, there is a greater need for localized distribution centers to meet delivery guarantees. In addition, many retail upstarts find it more cost effective to store merchandise in a warehouse and to sell online than to afford the rent in a traditional brick-and-mortar retail building.

At the same time, rents in class-A industrial properties – usually newer construction and located on the outer fringes of urban areas – are skyrocketing. Many potential tenants need more affordable places; in other words, class-B buildings, of which there is an abundance. Many of these are centrally located in urban areas that are close to potential consumers, and only need simple upgrades to make them palatable for today’s tenants.

Why is Miami a rising industrial star?

In a comparison with three other industrial markets – Seattle, Northern New Jersey, and Oakland, CA – Miami has made major gains for a few key reasons:

  • That old real estate cliché – location, location, location – holds true. Because of South Florida’s close proximity to the Caribbean, it serves as a gateway for trade with Central and South America, as well as the islands.
  • Miami and the surrounding region are predicted to see a continuing rise in population. By 2020, the number of residents is expected to surpass 6.2 million. This population surge, along with e-commerce, is credited with the 4% increase in retail sales in the area.
  • All of this has translated into positive growth in the industrial real estate sector. When compared to the other markets, Miami has seen 35% industrial rent growth since 2010. At the same time, current and planned construction projects are expected to add 1.2 million square feet of leasable industrial space per year. Speaking of leases, Miami often leads the pack for signed smaller industrial leases. That has since changed – 40,000 to 70,000 square feet is not the typical signed lease.

Morris Southeast Group and the industrial market

As South Floridians, the professionals at Morris Southeast Group live, work, and play in a market that’s leading the way for the rest of the nation. We have access to an assortment of industrial, retail, and office properties to add to your investment portfolio, as well as matching tenants for the right property plus property management services.

For a free consultation, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

How To Keep Your Commercial Tenants Happy

Maximizing the value of your property

When entering the commercial real estate market, owning a property is as much about the people as it is about the building. Tenants, just like the property itself, have needs. The two have a direct relationship: Ignore the property, and tenants leave. Ignore the tenants, and the property suffers.

The combination of a well-managed property and strong people skills not only strengthens the tenant/owner relationship, it also raises the value of the asset. In other words, a happy building is a happy tenant, and a happy tenant is a profitable investment.

Keeping the property happy

First and foremost, it’s important to take stock of the property itself with regular inspections. Be aware of any property needs that may need attention, such as air conditioning, plumbing, pest control, and safety issues. If there is any work that needs to be done, know the contractors who will be doing the work. While they’re working in and around the property, they are a direct reflection on you.

At the same time, it’s important to not take the building’s appearance for granted. Consider the curb appeal of the property, as well as what’s on the inside. Adding or improving landscaping in addition to offering amenities like high-speed Internet service or Wi-Fi can go a long way in not only attracting the right tenants, but also convincing good tenants to stay rather than relocate.

Keeping the tenants happy

When it comes to keeping tenants happy, communication is key. The biggest complaints from unhappy tenants are usually poor communication and any misunderstanding of terms. To address this, it’s important to:

  • Create an email or text alert for maintenance work that’s to be done.
  • Keep tenants aware of changes being made to the property through regular communication, such as a newsletter.
  • Respond to complaints, questions, or concerns promptly. Twenty-four hours is a reasonable amount of time.
  • Take the time to meet the tenants and to listen to their concerns and suggestions. Thank them for their suggestions in writing. Treat them like investments.
  • Make it easy to be your tenant. Establish a system of online rent payment, or an option for monthly, semi-annual, or yearly automatic withdrawals.
  • Create documentation of all contact between yourself and a tenant. It’s always a good idea to follow-up a casual or planned meeting with notes so that all parties are on the same page.

Keeping yourself happy

While it’s impossible to prepare for every issue, it’s always a good idea to address problems before they become a crisis. Being proactive will alleviate many of the headaches associated with owning a commercial property.

If the management of your property is too large of a task, surround yourself with good people who can represent you and your vision professionally. Anything you can do to add value to your asset is a win for you and your investment. The property management team at Morris Southeast Group has a history of adding value to office, industrial, flex/warehouse, and retail properties.

For a free consultation or to learn more about our property management services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

So You Want To Get Into CRE …

Advice for the residential owner/investor

When the housing market collapsed, investors of all sizes swooped in to buy up residential properties to grow wealth and expand portfolios. What is often overlooked, though, is another real estate investment opportunity that often stays comparatively stable during swings in the economy: commercial real estate (CRE).

Diversifying into the CRE market is vastly different than investing in residential, and investors new to CRE should dip their toes in slowly and cautiously.

Questions the new CRE investor should ask

Most residential investors are familiar with the ins and outs of single-family homes, duplexes and triplexes, and even small apartment buildings. CRE investments operate on a whole new set of metrics and complexities – and a new investor needs to answer a few key questions before jumping in:

  • What are their return requirements going to be?
  • What level of complexity are they willing to live with for that investment?
  • Are they professional investors, or will the CRE opportunity be a side investment vehicle?
  • What is the bandwidth in terms of time and resources they have to handle the complexities of CRE?

The positives of CRE investment

There are a host of unique benefits from commercial opportunities. Topping nearly every list is the reason why so many turn to the CRE market: higher yields. Generally speaking, commercial tenants assume many more costs (such as insurance and maintenance) than landlords do for residential properties.

Additional positives include:

  • The relationship with commercial tenants, most of whom sign long-term leases, tends to be on more professional footing. Calls and issues usually arise during the business hours, rather than at all hours of the night, as with residential tenants.
  • In most cases, commercial properties tend to increase in value over time, especially as surrounding development improves and/or the commercial tenant attracts more customers. Profits not only increase in the short-term, but also increase for a future resale.
  • The building and the quality and location of the commercial land all play a role in providing greater security, shielding the investment from many economic swings.

The complexities of CRE investment

Despite the positives, there are complexities woven throughout CRE investment – and failing to deal with each one usually comes down to a single mistake: the investor not doing his or her homework.

Many new-to-CRE investors falsely believe that commercial properties won’t go into foreclosure, and failure to do proper research can lead many investors down that path. Consider the following before taking the leap:

  • What are local market conditions? Many new investors can easily be swept up by a great property in a bad area and, at the same time, overlook a lesser property in a good area. Do a thorough investigation of demographics in the region: population, income, employment, and other economic factors.
  • What’s happening under the skin of the building? Many commercial properties have more complex structural components and systems than residential properties. The investor will have to rely on knowledgeable professionals to peel back the layers and truly understand what’s happening or not happening – and the associated costs – within the building.
  • Don’t casually assume income and expenses. Risks increase with projections. Numbers should be verified and confirmed.
  • What is the break-even ratio of the investment? Operating Expenses + Debt Service divided by Gross Potential Income = Break-Even. If the ratio tops 80%, the investor is on thin ice, and runs the risk of borrowing too much money to get into the game.

The number one solution in CRE investment

Of course, the best way to face many of these issues is to talk to someone who is well-versed in CRE and the area you’ve chosen. The professionals at Morris Southeast Group have decades of experience in helping commercial investors in South Florida and beyond, and we help match a new investor with the best opportunities.

For a free consultation on CRE or to learn more about our property management services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Explaining Gross, Modified Gross, & Triple Net Lease Agreements in CRE

Know the differences before you sign

Entering into an industrial, retail, or commercial lease agreement can be a little bit exciting, a little bit nail biting, and a lot confusing. That last item is often a result of some head-spinning terminology that is key to understanding and budgeting for the price per square foot.

Typically, this amount is displayed as gross, modified gross, or triple net – three approaches in how costs are allocated between tenant and landlord. The kind of lease is shaped by the type of building or the location of the property. Knowing the difference before signing on the dotted line can mean the difference between the start of a grand adventure or breaking the bank.

Gross Lease

Gross is the most basic square-footage term, and it is often used in residential leases and class “A” office leases around the country. It indicates that the lessee has agreed to pay the gross price per square footage and the landlord has agreed that the additional expenses that come with ownership (repairs, insurance, utilities, and sometimes taxes) are included in the total rent. Most leases have an escalation clause on either the gross or net rent amount.

If the gross lease calls for $20 per square foot, the tenant agrees to pay that amount for a specific period of time. The landlord will have also included (factored in) various expenses when quoting that amount and accepting the fixed monthly payment.

Pros and cons of the gross lease

  • Because this is essentially one-stop-shopping, it’s easy for the tenant to budget lease costs.
  • The Tenant pays a rent increase on both the base rent and operating expenses – which themselves are subject to change and could create the framework for a “double dip” on increases that the Tenant would have to pay.

Modified Gross Lease

The name says it all : a gross lease with modifications. In this agreement, both parties agree to pick up various costs. A modified gross lease is most often used for office-complex suites.

Each modified gross lease is different, depending on the building or the business that is hoping to become a tenant. Modifications can require the tenant to pay for cleaning services and contribute to common area maintenance (CAM), while the landlord pays real estate taxes and property and building maintenance. A modified gross lease usually has the Tenant paying for cleaning and utilities.

Some modified gross leases also come with an expense stop, which means the cost of the building operating expenses is stable for the initial year of the lease and any increase above that is passed along to the Tenant.

Pros and cons of the modified gross lease

  • It remains a simpler lease structure with no additional pass-through for expenses.
  • Most tenants have the right to audit the lease expenses and most landlords are required to refund the over-collection of operating expenses if the lease is fairly structured.

Triple Net Lease

The bigger or more complex the structure (such as a strip mall or chain-store spaces), the more intricate the lease arrangement becomes. In this case, the tenant agrees to pay rent as well as all operating costs, which are broken down into three (net-net-net) areas: real estate taxes, insurance, and maintenance … and/or utilities, depending on the type of building and unit the tenant is occupying.

Pros and cons of the triple net lease

  • The tenant assumes the risk of increases in property taxes and insurance.
  • For some NNN leases, the Tenant is responsible for maintenance of the interior and exterior structural components of the building and their premises.

The importance of using a firm that knows the difference

Whether you’re a tenant looking for space or a landlord looking to fill a space, it’s imperative to work with professionals who can negotiate the best arrangement for you. At Morris Southeast Group, our team is skilled at tenant and owner representation, as well as property management.

For a free consultation or to learn more about our services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.


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