Colorado Commercial Real Estate - Frequently Asked Questions (FAQs)

What is commercial real estate?
Why Northern Colorado?
What are the advantages of being a commercial real estate investor?
What are some of the drawbacks of commercial real estate?
I’m opening a new business in Northern Colorado. Should I rent or buy?
What is title insurance?
What should be in a commercial real estate purchase contract?
What is the difference between a leasing agent and a tenant rep?
What is a “triple net” lease?
What is a “gross” lease?
How can I get into the commercial real estate game in Fort Collins, Loveland, Windsor or other locations in Northern Colorado?

What is commercial real estate?
In the big picture, commercial real estate is all real estate dealing with the potential to bring in outside money for the owner of the property. It could involve leasing out office space, owning an apartment complex, or selling real property as part of the sale of a business. Office buildings, retail properties, apartment units, condominiums, and raw land all fall under the category of commercial real estate. If the property is not a residence where the homeowner is living, you are probably dealing with commercial real estate.

Why Northern Colorado?
Fort Collins and all of northern Colorado present a unique opportunity to potential commercial real estate investors. Colorado State University currently enrolls approximately 25,000 students each year with 1,400 faculty and 55 academic departments. Not to mention the Institute of Business and Medical Careers (Fort Collins) and the University of Northern Colorado (Greeley). As a result, there is a plethora of new and returning students each year that are looking for housing rentals. Each year brings in more fresh renters. They say that real estate is about three things: location, location, and location. We have them all in northern Colorado.

What are some of the advantages of being a commercial real estate investor?
If you own commercial real estate and can find good tenants who are willing to sign a long-term lease, you can receive residual income from your properties every month. If the property is leveraged properly, your tenants will be paying the mortgage for you while the property appreciates. This may allow you to purchase other commercial real estate properties and build your wealth even more. Also, if you are a business owner looking to buy a commercial property in northern Colorado, you have the opportunity to sublet part of the space to help defray costs.

What are some of the drawbacks of commercial real estate?
Regardless of whether you’re buying a home or a piece of commercial real estate, there will always be an element of risk involved. Minimizing the risk is the biggest hurdle when it comes to commercial real estate. Other common examples of potential problems that can lead to legal disputes include defects in title, debt service and lender requirements, mechanics liens, zoning and land use problems, market fluctuations, and hazardous waste and environmental contamination. Again, due to the influx of students moving to northern Colorado each year to attend our universities, the risk of not being able to find a tenant for your rental property is greatly diminished.

I’m opening a new business. Should I rent or buy commercial real estate?
The simple answer is that it varies on a case by case basis. The first question you need to ask yourself is whether you can make it cashflow. If your total costs are less than your total income on the property, it is cashflowing.

Another big consideration is where you are with your business? Is it brand spanking new or have you been incorporated for a while? Most new businesses choose to lease rather than buy until they have passed their break-even point and are actually making money.

What is title insurance?
Title insurance is, in its simplest form, a means of protecting an owner’s or a lender’s financial interest in the property against losses such as title defects and liens. If there is litigation and the title comes under attack, the title insurance company will reimburse the insured for the actual monetary loss. Title insurance guarantees that the buyer will receive full legal ownership of the commercial real estate.

What should be in a commercial real estate purchase contract?
At a bare minimum, a commercial real estate purchase contract should include the purchase price, earnest money, financing, title, prorations, and closing dates.

What’s the difference between a leasing agent and a tenant rep?
A leasing agent holds the listing of the property and looks out for the interests of the building owner; a tenant representative or “rep” represents the interest of the tenant in a lease transaction.

Where do I start looking for leasing space for my new business?
Before you start to search for your property, you need to know what you are looking for. How much space do we need? How much rent can you afford to pay? What is your target market and what areas do they patronize? How quickly do you need to take possession of the property? Once you have those questions answered, you are ready to talk to an agent.

What is a “triple net” lease?
Triple net is a term used in the leasing of commercial real estate whereby the leaser of the property is responsible for property tax, utilities, and maintenance of the property. It is referred to as “triple net” because the cost of the lease is net of these three expenses. It means that the contract is going to cost the leaser more, however this is the standard type of lease in modern commercial real estate.

What is a “gross” lease?
A gross lease is one in which the leaser is responsible only for a predefined amount and not any other expenses. This puts more responsibility on the part of the owner. Often times, if a commercial property owner is looking to lease a property quickly, prospective tenants may be able to negotiate a gross lease in lieu of a triple net lease.

How can I get into the commercial real estate game in Fort Collins, Loveland, Windsor or other locations in Northern Colorado?
As you begin to build your commercial real estate portfolio, you should look for properties within your geographic region – in this case the northern Colorado area. That way you can really understand the local market and scoop up properties as they come on the market. By being in close proximity of your properties, you can also minimize your maintenance costs and maximize your profit margin.

Successful commercial real estate investors are very diligent and will inventory every property in the marketplace that meets their profile. Often times you can subscribe to lists compiled from the county courthouse records. Some of the juiciest properties may not be advertised to the general public, which is why it is best to consult with a broker. Purchasing and maintaining multifamily and commercial real estate takes more effort than single family homes, but the rewards can be much greater. The best rule of thumb is to start slowly and build your portfolio. But start now!