Maximizing rent potential in commercial real estate

by Ryan Rose22 Jul 2019

You’ve bought a commercial property and are now looking to use it as a rental. But how will you maximize the rent potential on your investment, especially when working with a flexible space?

Tim Rose, executive vice president of DPC Development Companies in Colorado, has a lot of experience when it comes to commercial rentals. He and his team have succeeded in leasing buildings at an average occupancy rate of 92%, where competitors in the same area are struggling to lease at an occupancy rate of just 50-60%.

DPC Companies is a Colorado-based, privately held commercial real estate firm specializing in the acquisition and development of commercial real estate in Colorado and the West. They take a “patient and disciplined” approach for new turn-around and development opportunities for commercial buildings. As a value-added investment group, Rose and DPC strive to add value to buildings, specifically the interior of aged or distressed properties. By focusing on well-valued commercial properties with development and new construction in growing markets, DPC has prospered during up and down economic cycles. With a three- to five-year flip process, DPC creates appealing spaces for potential tenants by investing in new and innovative amenities that many competitors have yet to embrace.

“You’ll see properties that were not properly presented and they don’t have the contemporary colors and finishes that are important to people,” said Rose. “Those finishes are constantly changing and you have to be on the front edge of what is selling to people. It can be hardwood floors now, stone floors, concrete countertops - everyone is looking for something different.”

Rose recommends the best way to find out what is working in commercial design and development is to tour competing properties, just like a homeowner or someone in the fix and flip business would tour homes or properties to purchase—even if they’re not currently in the market. It’s a great way to see the expectations for buyers and renters, and it’s also an opportunity to see what the competition will be before committing to a property.

“That’s why it makes me nervous anytime I hear someone goes and buys a property anywhere sight unseen,” said Rose. “I would want to make sure I’ve walked as many comps in that area as possible. And then, with technology, it’s so easy to see the photos of competing properties.”

There’s always going to be a common denominator between properties that are selling at or above their list price. Staging is also important. Many owners are hesitant to put forth the extra money to stage a property, but it can up the sale or rental price significantly. Even though people think they can see beyond an empty space or someone else’s furnishings, they often find it harder to do so than they thought, and they get caught on décor more than they’d like.

“We stage on a commercial basis, as residential people should do too. Generally, it’s important to keep in mind people can’t visualize what you’re talking about,” said Rose. Having good marketing materials and virtual images will also help people in buying decision.

Reinventing older buildings means that there’s an increasing competition between any number of different property types. Rose has played a big part in cultivating this shift in perspective for real estate developers. Where many investors and developers would shy away from unfamiliar changes, DPC has adopted the motto “live, work, play,” creating properties where individuals of any age group want to be because the spaces are fun and inviting. In 2017, DPC won the Commercial Real Estate Development Association’s Innovative Project of the Year award for a property that includes a world-class fitness facility, innovative meeting rooms, captivating social gathering spaces, and a high-quality in-house cafe. These types of additions are what has made DPC so successful, and can do the same for any commercial property owner who can think creatively about how people live, work, and play.

Commercial properties are just buildings until you develop it into a commodity. Understanding the competition, recognizing the needs and wants of potential and existing renters, and creating spaces that are welcoming while keeping up with local market and industry trends will allow you to get the most out of your commercial investment.