Frequently Asked Questions About Commercial Real Estate

French Commercial Realty works with organizations throughout Chicago and the surrounding suburbs. For a complete list of municipalities and market areas served, click on any of the following categories: Chicago, Northwest Suburbs/Cook County, North Suburbs/Cook County, O'Hare Area, North Suburban Lake County, McHenry County, North and Central DuPage County, East-West Corridor/DuPage County, South Suburbs Cook County, Will County, Kane County, Kendall County.

French Commercial Realty has experience with all types of commercial real estate properties including office, industrial, medical and retail.

Hiring a commercial real estate broker can save time and money in your search because a good broker knows the properties, landlords, buyers and sellers. You are involved in these transactions every now and then, while a broker does this every day. A good commercial real estate broker understands the total cost of the transaction and can help negotiate a deal that best suits your needs.

One exception might be for a small space or a very short lease. In this case a commercial real estate broker might not be very motivated to work with you, because it will not be worth his time. In this case, you might want to work directly with a landlord.

One of the most common mistakes among businesses is to tour potential properties without having decided on a commercial real estate brokerage relationship. If you plan on hiring a commercial real estate broker or advisor to represent you, do so before you begin touring properties. For example, if you plan on trying to find office or medical space on your own, make sure that any properties you have an interest in are shown to you by the listing agent (or owner, if the property is not listed). In most cases all an agent has to do is to bring the tenant to a property and he or she is legally entitled to a portion of the leasing commission as the "procuring" broker. A tenant may never see the real estate agent again, but since that agent showed them the property, that agent will be paid a commission. These situations can get messy. For example, if a tenant later hires a real estate broker to represent them, a commission dispute will likely occur if the tenant enters into a lease on a property that was shown to them by another agent.

Typically, a tenant should evaluate their options 12 months prior to the lease expiration. However, given the aggressive posture of most landlords today, there may be an opportunity to save money if your lease is addressed 12-36 months prior to expiration. Here's why:

• Landlords need longer term leases on the books to renew their financing, and may cut the rent in exchange for a longer term.
• Many landlords want their buildings leased at any cost. Landlords are providing free rent and low face rates to lure prospects into their buildings. In addition, subleases are available at rates that are often 50 percent of comparable transactions.

As a general rule, commercial real estate brokerage fees are paid by landlords in a leasing situation and sellers in a sale situation. For investment transactions, the seller always pays a fee. However, investment brokers often do not cooperate with a procuring broker. As a result, the procuring broker may need to be compensated by the buyer.

There is a growing trend in commercial real estate whereby the commercial real estate broker is paid for the time spent on the transaction. Then when the property closes (or at lease signing) the fees are applied to offset the prior fees paid. The advantage of this arrangement is that the real estate broker shares a better understanding of the client's needs and the incentive is to provide the best service possible vs. just trying to close a deal to get paid.

A commercial real estate broker needs to understand the client's motivations and needs, so honesty is important. Shopping a deal through a number of real estate brokers reduces the effectiveness of the broker. FCR will take complete responsibility for the transaction when we are part of your team and empowered to seek the very best transaction to suit your requirements.

The best way to get started is to invite the commercial real estate broker to an on-site visit of your current business location. There is a lot of information that needs to be gathered such as:

• Geographic parameters (proximity, existing location, labor force, county preference (Taxes)
• Number of employees now and in the future
• Space size
• Economics
• Class building preference
• Type of transaction: buy or lease or investment?
• Special Requirements – power, clear height, Internet, etc.
• Building amenities
• Community amenities

Yes. FCR has access to comparable building sale databases and appraisers that track building sales in the Chicagoland area for user and investment buildings.

The answer will largely depend on your company's ability to borrow, and whether or not you choose to invest in property vs. other areas of your business. Leasing frees up capital for business operations. Buying the property gives the company control of its operating facilities and more control over costs. The company's cash flow, cash requirements, management resources and flexibility for needing the particular facility will determine the answer.

Both Chicagoland market lease rates and sale prices on buildings are very attractive right now due to the depressed state of the Chicago real estate market. Solid credit clients are in the driver's seat. Many building owners are distressed with 5-year notes now becoming due. Banks are requiring more equity in the commercial building to refinance and cash-strapped investors or businesses are in a bind. Many banks and third parties are willing to write down for a qualified buyer.

Buildings are being leasing at record low rates with free rent concessions. Building owners are trying to keep the building leased "at any cost" to be able to refinance the building when their existing "balloon" financing becomes due.

Cook County property taxes are approximately twice that of surrounding counties. However, Cook County offers 6B tax relief for qualified buildings. 6B tax relief offers 50 percent off on taxes for a period of 10 years. Qualified buildings are often vacant for two years, however FCR recently secured 6B tax relief for buildings with vacancy well under two years.

Property tax rates for Cook County http://www.cookcountyassessor.com/index.aspx

Property tax rates for DuPage County http://www.dupageco.org/propertyinfo.cfm

Property tax rates for Lake County http://www.lakecountyil.gov/CountyClerk/TaxAndRealEstate/TaxRates.htm

Property tax rates for McHenry County http://www.co.mchenry.il.us/departments/countyclerk/Pages/PropertyTax.aspx

Subleasing (or subletting) commercial real estate is the act of a third-party partaking in the lease transaction; the sublessee takes over a tenant's rights and obligations for a certain space until the master lease expires. Though the third-party becomes a new lessee, the primary tenant is still liable for any damages caused by the sublessee. In order to pursue a sublease, the original lease must have provisions which allow it. Situations that might call for a sublease might be when a business needs to move quickly, or, if the long-term lease is no longer beneficial, perhaps because it cannot accommodate your growing organization. As a renter, subleasing space is usually available below market rate, and the shorter the sublease terms, the lower the rate. Lessors should keep in mind that once the term expires, you may not be able to stay in the space, or could incur a large rate increase.

Before you look at commercial real estate, the best thing to do is to determine what size space you need. A general rule of thumb is to lease 200 to 250 square feet per person. However, this amount can vary greatly, and it is important to prepare a space plan. Smart space planning can result in greater operational efficiencies as well a reduced footprint. FCR provides professional space planning services and can coordinate the build-out of a space.

Many office and retail buildings are nothing more than a box with four walls and a door. The space needs to be finished to suit the demands of the tenant. The finishing of the space is called "build-out." Negotiations can include the improvements that will be made, who will pay for the improvements and who will get the work done.

Don't choose a commercial real estate broker without first checking client references and qualifications. If you need additional services beyond representation, such as space planning or build out, you might ask the broker about their ability to help you in these areas. Also ask the real estate broker if he has any listings that might present a conflict of interest. If so, what is the broker's plan to handle it?

There are a number of questions you should ask yourself when deciding on the length of a commercial property lease. First and foremost, do you expect the future space needs to change? If so, you might consider a shorter lease. Are you making a substantial investment in tenant improvements? If so, you might consider a longer lease. Is relocating difficult and is location important to the success of the business? If yes, you should consider a longer lease term. Can I lock in a significantly lower rent for a longer term? Do I expect rents to increase significantly? Positive answers to these questions provide reasons to consider a longer term lease.

While some brokers specialize, most brokers work as both listing agents and tenant reps. A commercial real estate broker who is a property listing agent is working for the property owner. If you hire a tenant rep that also has listings, you need to know what listings they have and what conflicts that might create.

There are three general classifications for commercial office properties, based on criteria such as age, location, maintenance, and length of leases. However, there are no real standards for the grading system.

Office buildings within the Grade A bracket are usually brand new or have been recently redeveloped or renovated. They are usually in prime locations and major cities. Interior space also comes into play. Grade A offices will feature high quality furnishings and state-of-the-art facilities.

Grade B office space refers to properties that fall below the Grade A remit, typically in terms of location, facilities and maintenance. Grade B offices are usually maintained and finished to a good or fair standard, with adequate facilities. Materials used in the construction or fit-out of the building are functional but are not considered to be the highest quality. Grade B spaces are often found in the suburbs or slightly cheaper areas, as opposed to Grade A offices which typically occupy the most sought-after locations.

Grade C office space is functional and available for low rent. Internal furnishings and décor are usually not maintained regularly, or to a high standard. These buildings are typically 15 to 25 years old, with steady occupancy.

The City of Chicago is one of the greenest cities in the U.S. The city has an aggressive green development agenda which encourages professionals to design, construct and renovate buildings in ways that promote a healthier environment, reduce operating costs and conserve energy and natural resources. In addition, many building owners have undergone renovations to become more sustainable.

Many times the best sales people in large firms are most effective procuring clients. In contrast, FCR is best at solving its client's real estate needs. FCR prides itself in the commitment made to clients, honesty, trust and results. Prospective clients must understand who will and will not be taking the lead on the project.