In The News

Site Selection: Key Elements in Finding the Right Commercial Space

Posted on 08/24/23

Brands include Church's Chicken, Costco, Bloomin' Brands, Jersey Mikes, Dillard's, Five Below, HomeGoods, TJ Maxx, and Marshalls.

You know the old saying: “Location. Location. Location.” In the commercial real estate game, well-designed business plans, solid funding, and meticulous execution are all necessary pieces of the puzzle, but without the right location, success can be elusive. Finding the right commercial space for your business plays a pivotal role in determining its fate. The perfect location can be the catalyst for exponential growth, while a poor choice can lead to stagnant sales and missed opportunities. When it comes to selecting the right site, making an informed decision is paramount.

The site selection process involves a thorough evaluation of numerous factors to identify the most optimal location for a particular commercial use, be it a retail store, restaurant, office building, or industrial facility. Engaging the services of a trusted commercial real estate firm that is familiar with the local market can prove to be a prudent choice, as it can streamline the process and will likely yield potential cost and time savings. To kickstart the site selection journey, the first crucial step involves defining the project’s unique requirements and clear-cut objectives. This encompasses determining the ideal property size, type, location, budget, and project timeline. Armed with this comprehensive information, a commercial real estate agent can get to work to find options that make the most sense for a client.

Factors to Consider in the Site Selection Process:

Suitability: A site’s prime suitability almost always revolves around its accessibility to customers, employees, and suppliers. A strategic location near major roads, highways, and public transportation can be crucial. Additionally, the availability of utilities to the site as well as environmental considerations can often play a vital role in evaluating suitability. And of course, understanding the site’s zoning is essential, as it determines the permissible uses in the area. If zoning adjustments are needed to align with the intended use, an experienced commercial real estate agent can help navigate municipal requirements for a smooth process.
Demographics: A comprehensive evaluation of the surrounding area’s demographic profile is also imperative to ensure it supports the intended use of the property and aligns with the needs of the community and workforce in the area.
Market Conditions: Thorough analysis of real estate market conditions helps gauge the demand for properties or businesses similar to the one under consideration. This information is vital for predicting the potential return on investment. An in-depth market analysis includes studying current trends, the availability of land or commercial spaces in the desired location, traffic counts, and property values.
Competition: The presence of similar businesses or developments in the area also should be evaluated to determine the expected level of competition and the potential for market saturation.

Once potential sites have been selected, a tour of each site usually follows to help investors determine the best possible option.

How Kelley Commercial Partners Can Help

Over the years, we’ve helped numerous major brands and businesses navigate the complexities of site selection, so if you’re looking to embark on a successful commercial venture, Kelley Commercial Partners’ team of knowledgeable agents possesses the expertise to guide you through every step of the process. We understand that “location” is the cornerstone of prosperity, and our thorough evaluation process ensures we find the most optimal site tailored to your unique business needs. With a keen eye on suitability, demographics, market conditions, and competition, we meticulously identify prime locations that can serve as catalysts for exponential growth. You can trust KCP to provide unwavering support in achieving all of your business goals.

Brooke Miller Agent | Partner

Kelley Commercial Partners has an award-winning team of real estate professionals with the experience and knowledge to ensure you maximize your potential and reach your financial goals. Let us help you create a clear plan and provide the guidance you need to confidently move forward. Contact us today or click here to explore available properties.

Cap Rates: Understanding Commercial Real Estate’s Key Metric

Posted on 07/14/23

By Daryl Peeples

If you’re considering investing in commercial real estate, you’ve probably heard the term “cap rate” thrown around. Cap rates, short for capitalization rates, are a key metric used in commercial real estate to determine the value of a property and its potential return on investment. It’s essential to understand what cap rates are, how they are calculated, and how they affect the value of a property before you buy.

WHAT ARE CAP RATES?

Cap rates are used to determine the value of a property by calculating the net operating income (NOI) divided by the property’s market value. The NOI is the income generated by the property after all operating expenses have been deducted but before debt service and taxes. Cap rates are expressed as a percentage, with a higher percentage indicating a higher rate of return.

HOW ARE CAP RATES CALCULATED?

Cap rates are calculated by dividing the NOI by the market value of the property. For example, if a property generates $100,000 in NOI and is valued at $1 million, the cap rate would be 10% ($100,000 divided by $1 million). Cap rates can also be used to estimate the value of a property by multiplying the NOI by the cap rate. Using the same example above, if an investor is looking for a 12% return on investment, they would be willing to pay $833,333 ($100,000 divided by 12%) for the property.

HOW DO CAP RATES AFFECT THE VALUE OF A PROPERTY?

Cap rates play a crucial role in determining the value of a property. A higher cap rate means that investors are willing to pay less for the property, which can be an indication of higher risk, lower cash flow, or both. Conversely, a lower cap rate means that investors are willing to pay more for the property, which can be an indication of lower risk, higher cash flow, or both. Cap rates can also be used to compare the value of similar properties in the same market. For example, if two properties generate the same NOI but have different market values, the property with the lower market value and higher cap rate may be a better investment opportunity.

WHAT FACTORS AFFECT CAP RATES?

Several factors can affect cap rates, including the property’s location, condition, tenant mix, lease terms, and market conditions. Properties located in high-demand areas with strong economic growth and low vacancy rates typically have lower cap rates. Properties with long-term leases to creditworthy tenants and low operating expenses may also have lower cap rates. Conversely, properties located in areas with weaker economic growth, higher vacancy rates, and higher operating expenses may have higher cap rates.

HOW TO USE CAP RATES IN COMMERCIAL REAL ESTATE INVESTING

Cap rates can be a useful tool for investors looking to get involved in commercial real estate. By understanding cap rates and the factors that affect them, investors can make informed decisions about which properties to invest in and at what price. Here are some actionable tips for using cap rates in commercial real estate investing:

Research the market: Before investing in a property, research the local market to understand the demand for commercial real estate in the area, vacancy rates, and economic growth.
Evaluate the property: Evaluate the property’s condition, tenant mix, lease terms, and operating expenses to determine its NOI and market value.
Compare cap rates: Compare the property’s cap rate to similar properties in the same market to determine if it is a good investment opportunity.
Consider the risks: Consider the risks associated with the property, such as changes in market conditions, tenant turnover, and maintenance costs.

Our team of trusted commercial real estate professionals has the knowledge and experience in the local market to guide you through all the above and provide valuable insights into the investment potential of a property. For more information, please contact us.

Daryl Peeples
President | Principal Broker | Partner

Daryl joined the firm in 1985 and currently serves as president and principal broker, and partner. As principal broker, he ensures that all business conducted by the firm and its real estate activities adhere to the rules and regulations set by the Arkansas Real Estate Commission. Daryl provides strategic direction and leadership to advance the company’s mission and increase revenue, profitability, and growth as an organization.

The Shoppes at Colonel Glenn

Dollar General in Rose Bud, AR

The Benefits of Investing in Office Buildings

Posted on 04/27/23

By Bill Puddephatt, CCIM

Investing in the CRE-Office sector can offer an excellent opportunity to diversify one’s investment portfolio. A CRE office property is a hard, tangible asset which has historically performed well over time. When the opportunity presents itself and if the time is right for you, it is wise to engage the services of an experienced CRE agent who can help evaluate and develop an investment strategy that is suited specifically for your needs and goals. It is also advisable to engage your CPA and attorney for their expertise at some point in time as well.

There are two types of investors: owner/users who intend to occupy the purchased property and those who strategically invest for the income stream and future appreciation value.

OWNERS/USERS

If you are an owner/user, you have better control over occupancy costs as you can manage levelized mortgage loan payments and have more control over operating costs such as real estate taxes, building insurance costs, property management fees, and grounds and building maintenance expenses. This provides an advantage tenants cannot have as they are often subject to annual rent increases, escalating operating costs, and a fair rate of return added for the landlord.

INCOME-GENERATING INVESTORS

Others chose to invest in CRE office property assets as an alternative way to diversify their portfolio while at the same time building a steady reliable cash flow. This type of investment also provides tax-favored treatment such as depreciation and capital gains treatment when you sell. You may also defer your gains via a 1031 tax-deferred exchange by rolling your gains into a like-kind property when you sell. The 1031 tax-deferred exchange has specific rules which one’s CPA can assist in analyzing for you. Read more about 1031 Exchanges by clicking here.

Both scenarios are considered excellent diversification strategies that may allow investors to achieve an attractive rate of return that can continue to grow over time, as well as the opportunity to sell and realize a gain resulting in a more favorable capital gains tax rate treatment than that of an ordinary income tax rate. And one doesn’t need to start with a large investment. You may decide to invest as a sole owner of a small property or as a partner/member of a larger entity. The latter provides the advantage of spreading out your risks, as a larger property likely has more tenants, which means if a tenant vacates a space, it is less impactful than losing a tenant in a smaller building with a single or very few tenants.

And last but certainly not least, investing in the CRE office sector provides another incalculable benefit: the pride of ownership!

As with any investment opportunity, risks are involved. This is why it is important to work with a professional commercial real estate broker who understands the market and can help you identify and carefully evaluate any potential investment opportunity to ensure that it aligns with your goals and risk tolerance. With the right approach, investing in office buildings can be a great way to build long-term wealth and generate passive income.

Bill Puddephatt, CCIM

Bill Puddephatt, a distinguished veteran of the Central Arkansas banking industry, made a seamless transition into the real estate brokerage field with Kelley Commercial Partners. With a remarkable career that included originating over $1 billion in loans without a single loss, Bill’s expertise in financing encompasses a wide range of real estate ventures, from office buildings to multi-family projects, hotels to subdivision developments. Renowned as a trusted advisor, he offers clients tailored solutions in the ever-changing realm of real estate.

Office Building Investment Opportunities

1900 Malvern Ave, Hot Springs

212 Center St, Little Rock

720 W 3rd St, Little Rock

4 Shackleford Plaza, Little Rock

5414 Landers Rd, Sherwood

Vivaldi Music Academy Plans First Location in Arkansas

Posted on 03/30/23

The Renowned Vivaldi Music Academy is opening in Little Rock – celebrating 10 years and seven locations.

Kelley Commercial Partners is proud to announce the imminent arrival of the largest music school in the United States, Vivaldi Music Academy, to the Bowman Curve Shopping Center in Little Rock, Ark. Vivaldi Music Academy, a renowned music school that offers personalized music education for children and adults, will open its newest school later this fall.

This is a big win not only for music enthusiasts but also significant for the Bowman Curve Shopping Center and the surrounding businesses. The retail center is already a hub of activity in the area, with a range of shops, restaurants, and services. The addition of Vivaldi Music Academy to the mix adds a new dimension to the center, attracting new, affluent customers and creating more foot traffic. As students attend their music lessons, their parents and guardians may spend time in the shopping center, shopping, dining, or running errands.

Vivaldi Music Academy Coming to Bowman Curve Shopping Center This Fall

Founded in 2013, Vivaldi Music Academy has quickly become recognized as the fast growing music schools in the country, with five locations in Houston, Tex., and San Antonio, Tex.,. The academy offers private and group music lessons in a range of instruments, including piano, guitar, violin, cello, drums, and voice, among others. The school prides itself on its personalized approach to music education, tailoring lessons to the individual needs and goals of each student.

Kelley Commercial Partners is thrilled to have been a part of the team that brought this new tenant to Bowman Curve Shopping Center. We are committed to supporting and fostering growth in Central Arkansas, and the arrival of Vivaldi Music Academy is an excellent step towards that goal. We look forward to seeing the positive impact the academy will make in the community and are excited to see what the future holds for Bowman Curve.

Tenant Improvement Allowances

Posted on 03/03/23

Tenant improvement allowances, or TIAs, are a common aspect of commercial leases. They refer to the amount of money that a landlord is willing to contribute towards the cost of renovations or customizations made to a leased property by the tenant. These allowances can play a critical role in determining whether a tenant can afford to take on a lease, and they can also be a point of negotiation between the landlord and tenant.

The first step in determining the amount of a tenant improvement allowance is to establish the scope of the project. This typically involves creating a detailed list of all the renovations or customizations that the tenant would like to make to the property, including the materials and labor required. The list should also include any necessary permits or approvals that will be required for the project.

Once the scope of the project is determined, the next step is to estimate the cost of the project by obtaining quotes from contractors or suppliers for the materials and labor required. The landlord can then decide on an allowance amount they are willing to contribute, which is generally a percentage of the total project cost. The percentage will vary depending on the landlord and the specific circumstances of the lease.

It’s important to note that the tenant improvement allowance is typically applied to the rent. This means that the tenant will pay a higher rent to the landlord to compensate for the allowance. Tenants should carefully consider the total cost of the lease, rent plus allowance, when deciding about whether to take on a lease.

From the landlord’s perspective, offering a tenant improvement allowance can be a way to attract and retain tenants in a commercial space. It can also be used to incentivize tenants to improve or upgrade a space in a way that benefits the overall property. A tenant improvement allowance can also benefit a tenant as it can reduce the costs associated with outfitting a space to meet their specific needs. Additionally, the tenant may be able to negotiate a higher allowance from the landlord if the tenant improvements benefit the property overall.

Tenant improvement allowances can play a key role in commercial lease negotiations and greatly benefit both tenants and landlords. When discussing tenant improvements, it’s crucial to have a defined goal and a well-thought-out strategy. At Kelley Commercial, our experienced professionals are ready to assist you in creating a clear plan and provide the guidance you need to confidently negotiate the best possible outcome as a tenant or landlord. Contact us today to learn more about how we can help you make an informed decision.