We have launched the Commercial Real Estate Hour with host Jesus Henao on KHTS FM 98.1 & AM 1220. The show will be geared towards commercial real estate in the Santa Clarita Valley and surrounding areas.
Host: Jesus Henoa
Topic: Office Buildings
Guest: Jim Medina, Vice President at Fidelity National Title
Host, Jesus Henao, Owner of Leola Commercial Inc., has specialized in commercial real estate and investments for the past 22 years. Jesus is an expert advisor in multi-family, triple net lease, shopping centers, business, gasoline stations, and office buildings. Jesus can help guide your next commercial investment property.
Most people think of real estate properties as homes or residential properties. However, there are other investments in real estate that extend beyond those assets. Properties such as office buildings, industrial centers, shopping plazas, land, industrial, or multi-family, are a great source of income and can be a great choice for a higher Return on Investment, ROI.
Jesus spoke out about a crucial component of commercial property, known as depreciation. The cash flow is a good incentive, but depreciation is also kept in consideration. There are two classes of depreciation. One of them is triple net properties, or known as NNN. Triple New properties, according to the IRS, can depreciate after 39 years. Additionally, building owners pay no taxes, electric, or water. When a lease pays you as a land and property owner, that is recognized as income to the property owner and the owner pays no taxes. However, after the 39 years is up, owners can no longer use that depreciation tax method.
Cap rates, capitalization rate, are another facet of commercial real estate to understand. “This is explained as ‘I’ll only buy a 6 cap or a 7 cap’. What does that mean …You have $5 million, place it in the Bank…the interest is almost nothing. Why would you keep your money there? You want to pull your money out and invest in commercial real estate…If I bought it all cash, a 6 cap means, I’ll make 6 percent on my money. That’s what a cap rate is,” Jesus said. Indicators for buying property investment which include, cap rate, price per square foot, and cash on cash indicators.
Previous Episode: The Commercial Real Estate Hour Debut Episode On KHTS FM 98.1 & AM 1220 – May 14, 2018
Risk factors are always something to consider. According to Jesus, your landlord style can become a contributing reason to your success or demise. Additionally, the market plays a big aspect in risks as well. If the economy is on a downturn, there is potential to lose money on your property. Businesses might leave for circumstantial reasons, which hinders you as an owner.
“The state of the market in Santa Clarita is very, very good,” Jesus said. A few deals have taken place recently, 154,000 square foot building was just sold, off of Valencia Road and Tourney recently near College of the Canyons and sold this year for $33,100,000 with a 6 cap (6% ROI) with 81% occupancy rate.
If you’ve ever been curious whether commercial real estate or residential real estate is better investment, Jesus explains that “buying a house is a liability…it is not an asset…because you don’t have money coming in…but the office building, I’m collecting money and paying the mortgage.”
Jim Medina of ICSC, the International Council of Shopping Centers, VP of Major Accounts for the Fidelty National Title joined the Commercial Real Estate Show. ICSC, found in 1956 in Chicago, is a title company focused on helping guide leasing up space in buildings, connecting retailers with developers. Developers are getting very specific about who they want in their buildings. He spoke of the market and how Brick and Mortar stores have been diminishing with the rise of the dot com and Amazon online stores.
There is a transition of multi-family property owners trying to move into commercial buildings because they would prefer to move into less tenants with more income. Additionally, Mr. Medina noted that owners are staying in the L.A. area, but some are moving out to invest in other areas to hopefully make it work.