First Commercial Deal

[David Worker]

Hi I'm typically a long term residential investor but I came across a deal that is a mixture of commercial and residential space that I'm interested in. I have a few questions on the commercial side since I've never dealt with it. Here's a little info on the property. It's 4 ground floor commercial units (each about 500 sq ft) and the second floor is 2 studio apartments and a 2 bedroom apartment in my hometown, Springfield, IL.

1. What is the typical vacancy rate I can expect for commercial units?

2. What is a fair price point to charge for these units?

3. How long of a lease do you typically sign for a commercial tenant?

4. Is the eviction process similar to residential (30, 10, and 5 day notices depending on the situation)?

5. Where is the best place to advertise for a commercial vacancy?

Any or all answers would be very helpful, thank you!!

[Scott E.]

I don't know your market so I can't answer some of your questions, but in case you don't get any other responses I'll offer my thoughts..

1. Vacancy rate is going to vary a lot based on the property type and sub market. And for a small building like this, assuming say a 5% vacancy rate isn't going to do you much good. You should talk to a local commercial broker and ask them about how long they expect it to take to fill vacant space in this area, with units that are about 500 sq ft each. In my area, if those were office units, they would be leased up after 3-6 months of marketing.

2. Fair price point also will vary depending on property type and sub market. You didn't say what those lower units are, but I'm assuming office. According to google, rent rates for office are $13.93 PSF on average in your market. This means your 500 SF units would rent for around $6,965 per year. 

3. Around here office tenants often sign 3-5 year leases. But for smaller boutique space, you will be looking at shorter terms

4. I had to evict an office tenant last year. Yes it was similar to residential. Consult with a real estate attorney in the event you face an eviction.

5. A commercial broker will do this for you. They of course will take a cut of the lease (3-6% of the total lease agreement depending on if there are 1 or 2 brokers involved in the arrangement). It stings to pay them this commission, but in my experience it's worth it to leave the marketing to the brokers.