As Captain Kirk proclaimed, “Space, the final frontier!” Today, my mission is to explore a different kind of space – that which folks use to make, store and ship things.
In the commercial real estate realm, regardless of genre, industrial, office, or retail space is measured by the square foot. Simply, if the floor-plan of a building is 100 feet long by 100 feet wide, the square footage is the product — 10,000 square feet. This measurement is then used to compute rental amounts, sales prices and percentages of operating expenses.
Rental amounts: In California, our rental or lease rates are quoted in monthly terms, for example, $1 per square foot. Places outside California may annualize the rates to $12 per square foot. So, using our 10,000-square-foot building and the lease rate of $1 per square foot, the quoted monthly rental amount is $10,000 per month. Easy.
Sales price: A parcel’s sale price takes into account one of a couple of metrics. First, if a lease of $10,000 monthly is in place and an owner decides to sell, the annualized rent forms a return to an investor, say 4%. Therefore $10,000 over the year amounts to $120,000. That $120,000 divided by our return of 4% yields a price of $3 million. On a square foot basis: $300 ($3 million for a 10,000 square foot building.
Should our example be vacant and our potential buyer desiring a company address, the resulting value will be the comparable market per square foot number multiplied by the square footage. Lately, we’ve not seen a great variance between what an investor will pay vs an occupant. The “occupant premium,” a scenario in which someone housing a business would pay more, is a galaxy away.
Operating expenses: Leases have an additional component worth mentioning: the way in which operating expenses are reimbursed. You see, in addition to rent, other costs abound such as property taxes, building insurance, roof maintenance, parking lot sweeping, elevator repairs, mowing the lawn and trimming the trees.
If you’re under a gross lease, these expenses are baked into the monthly check you write. With a net lease, you pay as you go. As you can gather, regardless of the form, the expenses are yours. Square footage is based on the percentage of the premises you occupy.
Say your 10,000 square foot home is standalone. Yep, all those operating expenses are yours. Conversely, if the 10,000-square-foot space is a suite on the 10th floor of a 100,000-square-foot office tower, your portion would be 10%.
Uses of space: Generally, occupants – whether they lease or own – put people, machinery or products in their space.
When you visit your CPA this spring to gauge the amount of your refund, you’ll visit an office. Within the confines are people. A trip to your local mechanic’s shop will evidence lifts, tire rotation equipment and diagnostic machinery behind the front desk. Products abound in a T-Mobile store.
But wait, don’t all these different types of commercial space have people, you may wonder? Sure. But the way operations employ folks is the difference — computing your marginal tax rate, changing your oil, or convincing you to upgrade to an iPhone 13.
Next week, I’ll delve into the acute shortage of industrial space and some suggestions on creating new space. So, stay tuned. Kirk, out!
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.
As you prepare to film your very first commercial, you must choose if it is about soap or cars. Statistics show that ninety-eight per cent of American commercials are about soap or cars. The other two per cent are about a yearning for self-actualization that will never be realized.
The most important thing to remember is that soap plus cars equals U.S.A.
The commercial should include a man and likely a woman. The woman should remind us of our mothers. We should immediately think “soap” when we look into her eyes. She should wear a cardigan that looks the way Valium feels.
The man should remind us of the concept of men. When he looks into the woman’s eyes, we should be able to tell that he is thinking “soap.” When he isn’t looking into her eyes, we should be able to tell that he is thinking “cars.” The man should wear a button-down shirt that conveys the same gravitas as the Lincoln Memorial.
It is possible that a son will be required for your commercial. If he is a Good Son he should wear a soccer jersey. If he is a Bad Son he should wear a soccer jersey with mud on it and be holding something dangerous—like a drone. He should have some semblance of what we in the business like to call a “personality.” If your commercial requires a daughter, please refer to index B.
For commercials about soap, we recommend that you show the woman washing a pile of dishes. If your soap has traditional values, the woman should be smiling and the dishes should have Campbell’s tomato soup on them. If your soap is more progressive, the woman can be frowning; a copy of “The Bell Jar” may be visible in the vicinity of the sink.
Remember, soap is fun for the whole family! Try to depict them having a wholesome and soap-adjacent good time. Studies show that fajita night is considered the best time a family can have. The fajitas should make a big mess that requires everyone to clean up, which highlights the significant impact soap has on maintaining the tenuous bonds of the nuclear-family unit.
Be sure to include a final shot of some gleaming bubbles catching the light. The bubbles should be friendly, hard-working, and patriotic. Soap without bubbles is like a son with a drone: untrustworthy and frightening. If your soap consists of less than fifty per cent bubbles, you will be tried in front of a jury of your peers.
For commercials about cars, we recommend that you show the car driving on a long, winding road. For reference, the road in your commercial should be the exact opposite of any given road in Cleveland, Ohio, where sixty-seven per cent of American citizens live. The winding road represents the unknowable economic future of a once great nation.
The person driving the car will probably be the man. If the woman is also in the car, she can be sitting in the passenger seat and smiling at the man or looking out the window, admiring how much the landscape does not look like Cleveland, Ohio. She can also be at home washing the dishes with soap (offscreen). If the woman is driving the car, she should either be picking up her Good Son from soccer practice or her Bad Son from drone practice.
Be sure to include a final shot of the trunk of the car, which should be spacious enough to hold a whole host of items, including but not limited to a cooler full of cold ones, a kayak, and another car. The trunk represents security and limitless abundance in the face of the unknowable economic future of a once great nation.
When your commercial is almost complete, it’s time to choose a slogan. A good slogan washes over the viewer’s brain, much like soap washes over a car to clean it after it’s been on a long, winding road. Your slogan can be whatever you wish, but it must contain at least one of the following words: “power,” “now,” “innovative,” “strong,” “America,” or “crisp.”
If you follow these guidelines, the end result will be a commercial that excites and inspires the modern American consumer. It’s like we always say: The power of your commercial now makes the America of tomorrow innovative, strong, and, most importantly, crisp.
With a huge mortgage and strapped for cash, 59-year-old Rhonda is considering selling her house and retiring in six years
Article content
By Julie Cazzin with Janet Gray
Advertisement 2
Article content
Q: I am 59 years old and have a mortgage of $300,000 on my townhouse, which is worth about $450,000. My net income is $3,800 monthly and I plan to keep working six more years. At that time, I will be eligible for full Canada Pension Plan (CPP) benefits. Right now, I feel financially strapped and I’m considering selling my home as I will never be able to pay down the mortgage. I am just breaking even month to month. Should I seriously consider selling my home, renting and perhaps investing the rest to get more income in retirement? If so, how would I invest this money? — Thank you, Rhonda P.
Article content
Article content
FP Answers: Your question is one that many soon-to-be retirees are also asking. There is a saying — and you may have heard it — about being “house rich but cash poor,” and this applies to many (if not most) people who reach retirement with the majority of their assets held in their home.
Advertisement 3
Article content
You didn’t specify the amount of your expected retirement income, but it is often lower than what people received in their working years. There are several things to consider before deciding to sell.
First, can you further reduce expenses? Sometimes, merely cutting back on eating out, new clothes and haircuts, transportation and expensive vacations, as well as shopping around for more affordable car and house insurance can save you thousands of dollars.
Can you work past age 65? Perhaps not in your current job, but somewhere you can earn a little extra income. For example, some people take in boarders or rent out the basement or garage to help offset mortgage costs. Others will do a bit of tutoring or take on part-time jobs such as dog walking to help pay the bills.
Advertisement 4
Article content
And, yes, some will sell their home in order to free up the equity of their largest asset. Of course, selling your house can provide more choices after real estate costs and the mortgage itself are paid off. Doing so could make it possible to buy a more affordable home in a more affordable location. Or you could simply decide to move to a rental where your expenses (taxes, maintenance, utilities and other costs) are minimal.
The first thing you need to do is to get total clarity on your situation. Prioritizing your goals and values is the place to start. Staying in their home is often an important goal for many retirees. If you find, upon further reflection, that’s what you want to do, then look at ways you can stay where you are. As mentioned earlier, maybe you can share home costs with someone. Maybe you can create a self-employed business where you can deduct some of your home costs as business expenses. You’ll pay less tax and have more money in your pocket.
Advertisement 5
Article content
These are all viable options to help you keep your home. After all, renting or buying/staying in a home is a lifestyle choice. You may find that a less costly home where maintenance is taken care of for you is a good option. In that case, a modest condo could help you maintain homeownership, but minimize your costs going forward into retirement. It could be an option worth considering in your case and, after running the numbers on such a scenario (versus selling your home and renting), it may provide the middle ground that would suit your lifestyle and retirement goals.
Other options are also worth looking at. For instance, maybe you can delay receiving your CPP benefits past age 65. You could receive an additional 0.7 per cent for each month delayed up to age 70. In the case where you put off receiving it until age 70, your CPP benefit is increased by 42 per cent.
Advertisement 6
Article content
-
FP Answers: How do I shelter investment income through a corporation?
-
FP Answers: How should I invest the extra $2,000 a month now that my mortgage is paid off?
-
FP Answers: What’s the difference between a financial plan and an investment plan?
Similarly, you can also delay receiving Old Age Security (OAS) past age 65. You could receive an additional 0.6 per cent per month up to age 70 for a total additional benefit of 36 per cent. Of course, you are forgoing those benefits during the five-year time frame between ages 65 and 70, so you want to be sure to continue working or use your savings in the interim.
You mentioned going into retirement with a mortgage. It’s not an ideal situation for many, but your budget may be able to accommodate the payments pretty easily given mortgage rates are at record lows. Make an appointment with your mortgage lender to see if there are other borrowing terms that will suit your current and retirement incomes. They may be able to offer you a lower interest rate or extend the amortization period so the payments fit your budget. This would allow you to stay in your home for a few more years, so you can live in your home in a neighborhood you may feel quite at home in.
Advertisement 7
Article content
Finally, calculate what your retirement expenses will be before you sell your home, buy a smaller place or choose to rent. If you plan to rent and you invest the profits from the sale of your home at a reasonable 4.5 per cent, what income will that provide annually to age 95? That will give you an idea of what you can afford to rent and whether you should consider working longer.
Ultimately, if you decide to sell your home, you may want to consult a financial planner who can run the numbers and draw up a financial plan to guide your finances through the years. You may also want to get some basic investment advice from a fee-for-service adviser so any money you save in future for investment purposes will be invested in a simple, low-cost, balanced portfolio of equities and fixed-income securities.
Advertisement 8
Article content
Remember, if you decide to sell, whatever money you net from the sale will have to last you 30 years. A good adviser will ensure the money is invested as tax efficiently and conservatively as possible while still giving you the extra income you need throughout retirement to live a comfortable and worry-free life.
Financial Post
Janet Gray, is a fee-for-service certified financial planner and money coach in Ottawa.
_____________________________________________________________
For more stories like this one, sign up for the FP Investor newsletter.
______________________________________________________________