How To Choose The Right Commercial Real Estate Broker

What is a Commercial Real Estate Broker?

A commercial real estate broker is a middleman between sellers and buyers of commercial real estate, who helps clients sell, Lease or purchase commercial real estate. A commercial real estate broker can work as an independent agent, an employer of commercial real estate agents, or as a member of a commercial real estate brokerage firm.

The primary difference between a commercial real estate broker and a commercial real estate agent is that the former can work independently while the latter does not. A commercial real estate agent must be employed by a licensed broker.

A property is classified as commercial Real Estate  when it is only used for the purpose of conducting business. Typically, commercial real estate is owned by an investor who collects rent from each business that operates from that property. Examples of commercial real estate include office space, strip malls, hotels, convenience stores, and restaurants. Sometimes, commercial real estate is also owner-occupied, meaning the business that operates at the site is also the owner.

Qualifications for Becoming a Commercial Real Estate Broker

Educational Requirements

The basic requirement for becoming a commercial real estate broker is a high school diploma (or an equivalent educational qualification). Most successful commercial real estate agents/brokers have an undergraduate or graduate degree in business, statistics, finance, economics, or real estate (with a special focus on the sale or lease of commercial property).

Legal Requirements

A commercial real estate broker is a real estate professional who has continued their education beyond the level of a commercial real estate agent. To be certified as a commercial real estate broker, an individual must obtain a state license in each state that they want to practice their profession in. An individual must pass the commercial real estate broker exam in order to obtain the certification and a state license. (Note: A commercial real estate license is separate from a real estate agent license).

The following steps must be undertaken for an individual to be eligible to take the commercial real estate broker exam:

• The individual must be employed with a firm for at least one to three years (varies by state)
• Next, they are required to take 60-90 hours of state-approved licensing courses.
• After the completion of the state-approved licensing courses, the individual is then eligible to take the exam. As part of the exam, applicants are often quizzed about prevailing federal and state laws in the commercial real estate industry.

Those who pass the exam are certified as commercial real estate brokers. To continue holding the license, a commercial real estate broker must take relevant continuing education courses every two to four years (again, the specific requirements vary from state to state – if you operate in multiple states, you should go by the requirements of the strictest state). Popular and helpful continuing education courses include mortgage loan brokering, real estate appraisal, and real estate law.

Compensation of a Commercial Real Estate Broker

The income of a commercial real estate broker is based on the commissions generated by sales. The listing agreement (a contract between the listing broker and the seller, specifying details of the listing) states the broker’s commission. The brokerage commission for commercial real estate is negotiable and, on average, is about 6% of the final sale price. If the property is being leased rather than sold, then the brokerage fee is decided on the basis of square footage and net rental income.

Usually, the commission is paid by the seller, from the sale proceeds, unless the seller and buyer negotiate a split (Note: the seller often factors the commission into the asking price). The commission is paid once the deal is closed. The commission is split between the buying broker and the selling/listing broker.

However, if the broker is not working independently, the commission is split four ways. First, the commission is split and credited with the buying broker and listing broker. Each broker then takes their broker fee/commission and, out of that, pays the appropriate agent their commission, which is typically a flat fee per deal executed.

The following expenses must be taken into account when setting the brokerage commission:

• Association fees
• Licensing fees
• Advertising and marketing costs
• Multiple Listing Service (MLS) fees

A credible reputation, repeat business, a strong local Economy, and high-priced sales result in higher commissions for commercial real estate brokers.

Advantages of Hiring a Commercial Real Estate Broker

A commercial real estate broker can help prospective clients save time and money by carrying out the following functions:

• Building a network in the target community: In each area that a commercial real estate broker intends to work in, they create a network with important members of the concerned community. This ensures that they have a first mover’s advantage every time a property is up for sale or when a prospective buyer emerges in the community.
• Understanding tax and zoning laws: Many individuals refrain from investing in commercial real estate because of the large number of complex rules and regulations governing the taxation and purchase of commercial property. This complexity is compounded by the fact that these rules and regulations vary across states, industries, and zones. A commercial real estate broker must have an excellent understanding of tax and zoning laws to complete the aforementioned formalities on their client’s behalf and, thus, remove a barrier to investment in commercial real estate.
• Evaluating business plans: A commercial real estate broker evaluates their clients’ business plans to determine their feasibility. They often use statistical analysis (such as break-even analysis) to determine the basic margin of safety on a client’s investment.
• Negotiating with clients: Commercial real estate brokers have to be excellent negotiators and mediators because, unlike residential real estate brokers, commercial real estate brokers often have to deal with more than two parties when arranging the sale or lease of a property. The various parties often have conflicting incentives, which a commercial real estate agent helps align through negotiations. A commercial real estate broker must have excellent communication and persuasion skills to successfully navigate negotiations.
• Conducting research: Often, the success of a client’s business depends on local conditions. A commercial real estate broker has to provide prospective buyers of commercial real estate with research regarding local demographics, businesses, environmental quality, property maintenance costs, and the desirability of the location of the property.
• Analyzing lease payments: A commercial real estate broker researches and analyzes trends in lease  payments for commercial real estate in the area in which she/he operates. There are four basic types of commercial real estate leases:
1. Single net lease: Under this lease, property tax is paid by the tenant.
2. Double-net (NN) lease: Under this lease, property tax and insurance are paid by the tenant.
3. Triple-net (NNN) lease: Under this lease, property tax, insurance, and maintenance are paid by the tenant.
4. Gross lease: Under this lease, property tax, insurance, and maintenance is paid by the landlord. The tenant only pays rent.

Larger tenants usually enter into longer leases, which provides security to the landlord as a steady stream of rental income is ensured. (For example, a company such as Amazon is unlikely to lease office or warehousing space that it plans to occupy for only one year.) However, lease rents can be adjusted in a more flexible manner under a shorter lease term.

To learn more about reading a Commercial lease,

Disadvantages of Hiring a Commercial Real Estate Broker

Under some circumstances, a commercial real estate broker may show a client only those properties where the commission is high, advise a client to make a deal paying rent higher than necessary, or rush the client through the process in order to maximize the number of deals that he/she can make. To counter such behavior, the client can enter a contract with the broker in which the latter is paid a flat fee as opposed to a commission.

Common Metrics Used by Commercial Real Estate Brokers

Gross Rental Yield: Gross rental yield expresses rental income as a percentage of the value of the property before taxes and other expenses are deducted. It is calculated as follows:

Gross Rental Yield = (Annual Rental Income/Cost of Property) x 100

Commercial real estate results in an average yield of 7%-7.5%, as opposed to residential real estate which results in an average yield of 4%–5%. This is a popular metric for comparing commercial real estate properties which are going to be rented/ leased out.

Capital Gain/Total Return on Investment: Capital gain refers to the profit made by selling a property. It is calculated as follows:

Total Return on Investment = {(Gain from Investment – Expense of Investment)/ Expense of Investment)} x 100

This is a popular metric for comparing commercial real estate properties which are going to be sold. Investment in commercial real estate which provides a wide scope for improvement and/or expansion is ideal for earning capital gains.

However, it is important to note that there exists an inverse relationship between gross rental yield and capital gain/total return on investment.

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Impact of China’s realty market on the Indian real estate

Investors in China are looking at the Indian market as it is emerging rapidly. This will in turn have a positive impact on the Indian real estate market. It is bound to have further growth as well. Increased consumer spending largely assists urbanisation with more focus on infrastructure. This paves way for demand for both residential and commercial properties. 

The Indian realty market is comparatively going strong. This is corroborated by facts. According to reliable reports, India is the second largest country for steel production after China. The collapse in the Chinese property market will also reduce commodity prices which will eventually benefit India. The Indian real estate market has a great opportunity at its doorstep since it has grown rapidly and has proven resilient in the last two years despite the global crisis. 

Ever since the pandemic, work-from-home opportunities have become a norm, the need for a roof over the head became more evident. Add to that the income levels are on the rise consistently. This will lead to an increase in domestic demand. Also, huge investments in infrastructure and rapid urbanisation are all leading to an increase in demand for buying homes. 

This is happening due to the reforms in the real estate sector. Post the pandemic, it was observed that the rates have been raised on high-end and luxury properties from individuals and Non-Resident Indians (NRI) having a much higher net-worth. Their purchasing power is probably connected to the nosedive of rupee value.

The urbanisation factor

While the Real Estate Market in India seems confident, it is significant to find the right balance between growth and sustainability, and know the difference between the two. The government has also taken note and are taking necessary measures to maintain equilibrium. The government’s focus on building highways and other infrastructure is leading to urbanisation. The increase in consumer spending has created a demand for both housing and commercial real estate in India. The government is also boosting the affordable housing segment that will give a fillip to the market sentiments and at the same time appeal to the affordable home category which has been in high demand for a while now. This will help in improving the market condition within a few years. To put it in a nutshell, as of now, the Indian realty sector appears to have a solid foothold. With these results, it seems unlikely that the industry is in, or headed for, a crisis. Having said that, a lot depends on the continuous upward progression of the Indian economy. The basic takeaway from the Chinese crisis is that Indian developers should reconsider business strategies to make the industry stronger by taking all the financial risks into consideration so that Indian realty markets can avoid China-like situations.

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Bangalore Real Estate

Nilekani family trust buys property in Bengaluru’s ‘Billionaire Street’ for Rs 59 crore.

NRJN Family Trust established by Nandan M Nilekani, co-founder and chairman of Infosys has bought a property in Bengaluru’s Billionaire Street Koramangala area for Rs 59 crore, documents accessed by Zapkey showed.

The property has a total built-up area of 4,200 sq ft and is situated on the 3rd Block of Koramangala Extension. The plot area is around 9,600 sq ft, the sale deed showed.

The NRJN Family Trust was represented by its corporate trustee Entrust Family Office Legal and Trusteeship Services Pvt Ltd. The deal was registered on September 26, 2022.

Nilekani and Rajmohan Krishnan, the authorised signatory on the sale deed, did not respond to queries sent by Moneycontrol.

In April this year, the NRJN Family Trust had bought a property for Rs 58 crore in the same area. The property was spread over 9,600 square feet and has a built-up area of 3,082 sq. ft.

Real estate brokers said that this is perhaps the most expensive deal in the area and that it is the prime location and the gentry residing in that area that makes it popular.

In May this year, the owner of Shankara Building Products Ltd,  Sukumar Srinivasan, bought two properties in Bengaluru’s posh Koramangala area for Rs 44.60 crore. Srinivas on March 21, 2022, offloaded over 10 lakh shares of the company for Rs 75 crore through an open market transaction. According to the block deal data on NSE, he had sold 10 lakh shares at an average price of Rs 755 apiece. This took the total deal value to Rs 75.50 crore.

Given the limited supply of plots and independent houses in this block in Koramangala, it has high demand from ultra-high net worth individuals, said real estate experts.

The trust is owned by Nilekani and his family. Nilekani was estimated by Forbes to have a net worth of $3 billion.

Koramangala’s 3rd Block is considered to be one of the richest enclaves in India’s IT capital, which is home to tech giants such as Infosys and Wipro, apart from startups.

Some of the country’s most successful entrepreneurs have homes in Koramangala 3rd Block, according to local brokers. Among them are Devi Prasad Shetty of Narayana Health and Flipkart founders Sachin Bansal and Binny Bansal.

Of the six blocks in the area, the 3rd Block is the most expensive because of the larger plot sizes and the fact that it is inhabited by billionaires, brokers said. Bungalows that are spread across 4,000 sq. ft. command a price of just about Rs 25,000 per sq. ft., they said.

In January,  Sriram Nadathur, son of Infosys co-founder NS Raghavan, sold a residential property in Koramangala 3rd Block for Rs 11.6 crore.

In August last year, Infosys co-founder Kris Gopalakrishnan bought two properties worth Rs 76 crore in the area.

The promoter of Bengaluru -based Quees Corp ought a bungalow spread across 9,507 sq. ft. in the Koramangala area for Rs 52 crore last year. Ajit Abraham Isaac bought the property from Brijesh R Wahi, a Singapore-based NRI. The cost of the property located in Koramangala Extension worked out to about Rs 58,000 per sq. ft.

Flipkart founder Sachin Bansal utilised the proceeds from the sale of his stake in the company to buy a 10,000 sq. ft. property in this area at the rate of Rs 45,000 per sq. ft. He had bought a property in the area for Rs 25,000 per sq. ft. in 2016.

Anesh Shetty, son of Narayana Health chairman Shetty, purchased an independent house worth Rs 18.57 crore in Koramangala in January last year.

Other high-profile deals in Koramangala in the past couple of years, as per documents accessed by Zapkey include those by NRJN Family Trust (Rs 39.8 crore in December 2019), Raja Bagmane (Rs 43.2 crore in November 2019), and Nilekani’s daughter Jhanavi (Rs 30 crore in December 2019).

Prestige Kingfisher Towers in Ashok Nagar witnessed some of the priciest property deals in Bengaluru, brokers in the area said.

In June 2020, Sudha Murthy, Sudha Murthy wife of Infosys founder NR Narayana Murthy, bought a property in this project for Rs 28 crore, according to documents shared by Zapkey.

Wait for basic amenities gets longer for Nada Prabhu Kempe Gowda Layout site allottees

Six years after securing site allotment at the Nada Prabhu KempeGowda Layout (NPKL), buyers are still waiting for basic amenities to begin constructing houses.

The month-on-month progress report given by the Bangalore Development Authority (BDA) has revealed that works at the layout has been stalling for months together.

Data accessed by DH revealed that not even a two-kilometre road has been constructed since May, while drains are built over a three-kilometre stretch in a layout sprawling over 2,650 acres.

“We hardly see any progress, and this has been the case for the last one-and-a-half years. This is a direct impact of the BDA’s inability to accurately assess and release funds to the contractors, according to the works taken up,” said A S Suryakiran from the Nadaprabhu Kempegowda Layout (NPKL) Open Forum.

Problems began two years ago following estimations by the contractor and the BDA engineers that the layout needs more funds to complete infrastructure works. A variation quantity of Rs 650 crore was estimated and a proposal was placed before the BDA board for approval.

“The works will not gather momentum without the approval of the variation quantity. Though the BDA’s internal technical review committee approved the variation, the assessment was further passed to a third-party company, which is yet to submit a final report even after seven months of survey,” Suryakiran added.

BDA officials, on the other hand, said the project was stalled due to Heavy Rains and continuous festivals.

“Though the variation quantity is still under discussion, contractors have been asked to proceed with the work planned according to the initial estimation,” said a senior BDA official.

“We have received initial report from the third party on the assessment. Once we receive the final report, the variation quantity will be released accordingly,” the official added.

Though the site allottees have approached the Real Estate Regulatory Authority (RERA) and the petition committee of the Assembly, work on the ground is yet to gather pace..

1Lakhs housing units remain unsold in Hyderabad Houseliv

HYDERABAD: With the realty sector turning expensive, many housing units are left unsold in Hyderabad.

The State capital has nearly one lakh unsold housing stock, which is the highest in south India.
According to a report by PropTiger, REA India-owned digital real estate transaction and advisory services platform, the unsold stock as of Q3 2022 stand at 99,090.

The city has an unsold inventory of 40 months and this is the second highest overhang among all cities after Delhi (62 months overhang). During Q2, the unsold stock was 82,000, which has now inched closer to one lakh in Q3.

Across the country, the overall unsold inventory in Q3 2022 stood at 7.85 lakh units, with Mumbai on top with 2.72 lakh units. There has been a decline in the inventory overhang in a few cities as the builders in a particular market are likely to take to sell off their unsold stock at the existing sales velocity.

 The realtors attributed the increase in unsold inventory to the rising cost of construction, registration charges and land rates to have gone up. This increased the cost of under-construction apartments and to-be-built houses. On the other hand, launches have been more in Hyderabad which is also one of the reasons for the high unsold inventory.

In Q3 2022, a total of 27,440 Housing units were launched, the second highest in the country after Mumbai (28,880 units). However, the sales are not able to match the launches as 10,570 housing units were sold in Q3.

The markets covered in the report include Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region, Delhi-National Capital Region and Pune. Meanwhile, with the festive season in full swing, real estate developers are hopeful of the sector receiving a boost towards recovery, and their wishes are already coming true.

“The real estate industry is bouncing back from the pandemic and subsequent disruptions, and it’s evident from the data trends and insights in our report. Especially with the festive season which has just commenced, we’re experiencing a continuous surge in consumers’ positive sentiments towards property investments,” said Vikas Wadhawan, Group CFO, PropTiger.com, Housing.com, Houseliv.com  and Makaan.com.

KUMBALGODU FLYOVER OPENS TO PUBLIC TODAY

 Bengaluru's longest six-lane flyover is finally set to be open to the public. The Kumbalgodu Flyover  will help commuters skip the congestion in the area. According to Mysuru MP Pratap Simha, one arm of the flyover (Bidadi side) will be open to the public from Wednesday, and the other arm (Bengaluru side) will be opened by Dasara.

With the opening of this flyover, Bengaluru will have five elevated flyovers to bypass traffic on the at-grade level.

The longest elevated stretch in the city is the Electronic City expressway (9.985 km). Work for the project had started in 2006, and it was opened to motorists in 2010. This flyover has four lanes. The third-most elevated stretch in the city is the Peenya flyover (4.3 km), which is also a four-laned one.

The 4.5 km-long Kumbalgodu flyover is the longest six-lane flyover and second-most elevated stretch in the city.

The fourth-most elevated stretch in Bengaluru is the 3.722 km-long flyover that connects Esteem mall to Kogilu Cross on Kempegowda International Airport Road. This is the second longest six-lane flyover in the city.

The fifth-longest flyover in the city is a 3.35 km-long road-cum-rail flyover connecting Jayadeva Hospital junction and Central Silk Board. It is still under construction and being built by the Bangalore Metro Rail Corporation Limited (BMRCL)

Interestingly, the first flyover, as well as the first elevated stretch in the city, was built on the Mysuru Road. The 2.65 km-long flyover was built to connect Town Hall with Sirsi Circle, bypassing the busy KR Market in 1999.

“For long, the Bengaluru-Mysuru Road has been neglected even though the traffic has increased. Kumbalgodu, which was a suburb, has seen rapid growth in recent years, and as a result, there is a spurt in vehicular growth. This road definitely required a flyover as the long-distance vehicles (going beyond Bidadi) will have hassle-free movement while the local traffic near Kumbalgodu can use the road below the flyover,” said Manjunath, a resident of Kengeri.

 However, experts say that flyovers are not really helpful in solving traffic woes.

They say that flyovers essentially move the traffic from one side to another. “Instead of spending huge amounts on building flyovers, the government should invest in promoting public transport so that more and more people shift from their personal vehicles to public transport which will automatically decongest the busy stretches,” said Girish A, a resident of Raja Rajeshwari Nagar.

A flyover is being constructed to decongest RR Nagar junction. The RR Nagar entrance on the Mysuru Road is one of the major bottlenecks holding up traffic. Construction work has been taken up at a cost of Rs 71.45 crore.

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Registration of ancestral property without sale deed made easy in Tamil Nadu

 CHENNAI: People who need to register ancestral properties but unable to do so without original documents have a reason to cheer now. The Commercial Taxes and Registration Department has amended the registration rules under Registration Act 1908 by inserting Section 55A, which stipulates rules for registration of documents provided the sale deed is lost or ancestral document is untraceable.

The State government had earlier passed a circular in this regard and it has been made a legal statute now after including it in the Tamil Nadu government Gazette.Under the amendment, if a previous original deed is lost, the registering officer shall register it only on producing a non-traceable Certificate issued by the police, along with an advertisement published in the local newspaper as to the notice of loss of the previous original deed.

Similarly, if the previous original deed is not available as the property is an ancestral one, the registering officer shall not register such document, unless any revenue record is produced evidencing the applicant’s right over the subject property such as patta copy issued by Revenue Department or tax receipt.

The amendment to the property registration rules in Tamil Nadu also states that producing the previous original deed shall not be necessary where the government or a statutory body is the executant of the document or for such class of documents as may be notified by the Inspector General of Registration, from time to time.

The amended rule states that the registering officer after being satisfied that the description of the property contained in the document presented for registration conforms with the description of the property found in the previous original deed provided under this rule, they shall inscribe the word ‘verified’ on a conspicuous portion of the first page of such title deed and affix his signature with date and thereafter cause scanning of the page containing such inscription as a reference document.

In case revenue records are produced under this rule, the same shall be scanned as the main document and where non-traceable certificates and the advertisement published in the local newspaper are submitted by the applicant, they shall be scanned as reference documents.

In case, an encumbrance as to mortgage, orders on the attachment of property, sale agreement or lease agreement exist over the property, the registering officer shall not register such document if the time limit for filing of the suit has not lapsed or No Objection Certificate is not granted by the appropriate authority or raising of the attachment is not done.

A relief to many
The new clause stipulates rules for registration of documents provided the sale deed is lost or ancestral document is untraceable. 

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