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Frequently Asked Questions

Get your commercial property management FAQs answered with Servis Realty. Essential knowledge made simple for investors and stakeholders.
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When should I start investing in commercial real estate?

Determining the right time to start investing in commercial real estate largely hinges on your financial readiness, market conditions, and personal investment goals. Ideally, starting as early as possible is advantageous, as it allows more time to capitalize on market growth and compound returns.

However, it’s essential to have a solid financial foundation first. This includes having enough for a substantial down payment (typically around 20% for commercial properties), additional funds for potential renovations or unforeseen expenses, and a stable income to manage any loans or mortgages.

It’s also crucial to consider the current state of the real estate market, including property values, rent demand, and interest rates, as these factors significantly influence the potential return on investment.

Beyond financial considerations, educating yourself about the market, property types, and investment strategies is critical. Understanding the nuances of commercial real estate, from lease agreements to property management, can significantly affect the success of your investment.

Assembling a team of experienced professionals, including a real estate agent specializing in commercial properties, a financial advisor, and a legal expert, can provide valuable insights and guidance. Additionally, it’s vital to align your investment with your long-term financial goals and risk tolerance.

Whether you’re looking for immediate rental income, long-term property appreciation, or a mix of both, your strategy should reflect your overall financial plan. Starting with a clear understanding of your objectives and a well-researched plan can position you for a more successful and profitable venture into commercial real estate investing.

How stable is the Canadian real estate market?

The Canadian real estate market, particularly in the commercial sector, has historically shown a pattern of resilience and steady growth, although it experiences regional variations and cycles influenced by broader economic conditions.

The market’s stability is often underpinned by Canada’s strong economic fundamentals, including a stable political environment, a diversified economy, and a steady influx of immigration which fuels demand for real estate.

However, like any market, it is subject to fluctuations driven by factors such as interest rates, government policies, and global economic trends. Investors typically consider long-term trends and local market dynamics to gauge stability and potential risks.

In recent years, cities like Toronto and Vancouver have seen significant growth, but investors remain watchful of market indicators to anticipate changes.

The COVID-19 pandemic, for instance, has introduced new variables, affecting sectors differently, with industrial and warehouse spaces seeing increased demand, while retail and office spaces face challenges due to shifts in work and shopping habits.

How should I react to market downturns?

Reacting to market downturns in Canadian real estate, especially in the commercial sector, requires a strategic and patient approach. Downturns are a natural part of any economic cycle, and real estate markets have historically recovered and grown over time.

The key is to avoid panic selling during a downturn, as this often results in significant losses. Instead, a ‘buy and hold’ strategy is commonly advised, where maintaining your investment through the downturn can potentially lead to gains as the market recovers.

Additionally, downturns can present unique buying opportunities. Lower property prices and increased availability can offer investors a chance to expand their portfolio at a reduced cost.

However, it’s crucial to have a clear understanding of your long-term investment goals and ensure you have sufficient financial stability to weather the downturn. Consulting with real estate experts and financial advisors can provide valuable insights and help in making informed decisions during these periods.

What is the impact of Canadian tax policies on commercial real estate?

Canadian tax policies significantly influence the commercial real estate landscape, affecting investment decisions and the bottom line for property owners.

For instance, the Goods and Services Tax (GST) applies to commercial property sales, impacting cash flow and investment returns. Property taxes, which vary by municipality, can also significantly affect operating costs.

For international investors, the Non-Resident Speculation Tax (NRST) might apply, which can influence investment attractiveness. It’s crucial for investors to stay informed about tax policies, including capital gains tax implications and potential deductions, to effectively manage their investments and optimize financial outcomes.

Working with a tax professional who specializes in real estate can provide investors with strategies to navigate the complexities of Canadian tax law.

What are some non-obvious aspects of commercial real estate investment?

In commercial real estate investment in Canada, some non-obvious aspects include the complexity of lease structures and the importance of location-specific demand.

Unlike residential leases, commercial property leases can be intricate, with terms including triple net leases, where tenants pay most of the property expenses, and percentage leases based on the tenant’s revenue.

Moreover, the success of commercial investments often hinges on micro-location factors — even within the same city, different districts can experience vastly different growth rates and demand levels due to local economic activities and development plans.

Investors must also navigate varying provincial regulations and consider the impact of economic drivers such as resource sectors in Western Canada or financial services in Toronto.

These subtleties require thorough market analysis and an understanding of local economic indicators to make informed investment decisions.

What are the potential reasons behind a property being sold?
In the context of Canadian commercial real estate, properties may be sold for a variety of reasons. A common motive is the realization of accumulated equity; owners looking to capitalize on market appreciation may decide to sell their investments.
Alternatively, changes in investment strategy, such as portfolio diversification or shifting focus to different property types or locations, can prompt a sale.

Other reasons might include liquidity needs, where owners require cash for other ventures or personal reasons, or the end of an investment cycle, where investors sell as planned within their investment timeframe.

Additionally, changes in market conditions or anticipation of downturns can motivate owners to sell properties. It’s also possible that external factors, such as regulatory changes, zoning updates, or significant infrastructure developments, influence the decision to sell, as these can impact the property’s future value or the owner’s ability to manage it effectively.

FAQ
What types of businesses are ideal for my property?

Determining the types of businesses that are ideal for a commercial property in Canada involves assessing the property’s location, existing tenant mix, and local market demand.

For example, a property located in a downtown area with high foot traffic may be suitable for retail businesses, restaurants, or cafés. Conversely, a property situated in an industrial park might be better suited for manufacturing, warehousing, or distribution services.

It’s essential to analyze local business trends, zoning regulations, and demographic data to understand which types of businesses would thrive in your property.

Additionally, consider the current economic climate and emerging industries, such as technology or green businesses, which could offer sustainable tenancy options.

Engaging with a commercial real estate broker who has a deep understanding of the local market can provide insights into the types of businesses that would see your property as an attractive location.

What is a Broker Opinion of Value (BOV)?
In Canada, a Broker Opinion of Value (BOV) is an informed estimate provided by a real estate broker that determines the potential selling price or rental value of a property.
This assessment is based on the broker’s knowledge and analysis of the property, including its current condition, location, market trends, and comparables — similar properties that have recently been sold or are currently on the market.

A BOV takes into account various factors such as zoning and tax information, property highlights, and income and expense data to provide a comprehensive valuation.

While not as formal as an appraisal conducted by a certified appraiser, a BOV offers valuable insights for property owners considering selling, refinancing, or purchasing commercial real estate. It can also be used by lenders to evaluate a property’s worth during financing or foreclosure proceedings.

What does the term “due diligence” mean in commercial real estate?

In Canadian commercial real estate, “due diligence” refers to the comprehensive process of evaluating a property before finalizing a transaction.

This critical phase allows the buyer to verify information, confirm the property’s value, and assess potential risks. Due diligence involves reviewing legal titles, zoning compliance, environmental assessments, building inspections, and financial analyses to ensure there are no hidden liabilities.

It also includes examining lease agreements, tenant relationships, and operating expenses. The process is tailored to the type of property and the specifics of the deal, ensuring that the buyer has a clear understanding of what they are purchasing and can proceed with confidence.

What is a “value-add” property?

In the Canadian commercial real estate context, a “value-add” property is one that offers investors the opportunity to increase its worth through specific improvements.

This could involve physical upgrades, such as renovations or repurposing spaces to better meet market demands, operational enhancements like increasing efficiency or renegotiating vendor contracts, and improving the tenant mix to optimize rental income.

The goal is to increase the property’s income potential and thus its value, which can lead to a higher selling price in the future. These properties typically require a more hands-on management approach but can yield significant returns for investors who successfully execute their value-add strategies.

What is positive leverage in commercial real estate?

Positive leverage in Canadian commercial real estate occurs when an investor borrows funds to purchase a property and the return on the property exceeds the cost of borrowing.

For instance, if the cap rate (the property’s net operating income divided by its current market value) is higher than the interest rate on the mortgage, the investor gains additional profit on the borrowed money.

This leverage amplifies the investor’s return on investment because they are making more money on the property than it costs to finance it, effectively using the borrowed funds to increase their investment yield.

It’s a strategy widely used to enhance equity growth, particularly in markets with strong rental demand and stable property values.

What is the difference between buying on “pro forma” versus “in place”?

In the Canadian commercial real estate market, buying on “pro forma” involves making an investment based on projected future finances of a property.

This includes anticipated increases in rental income, decreased operational costs, or improved occupancy rates resulting from planned improvements or market growth.

The pro forma statement outlines potential income and expenses, offering a hypothetical picture of the property’s financial performance. Conversely, buying on “in place” means the investment decision is based on the property’s existing income and operational data.

It reflects the current financial status, including actual rents collected and expenses incurred. The “in place” numbers are factual and verifiable, representing the property’s performance at the moment of purchase, without assumptions of future changes.

What is the best investment strategy?

Determining the best investment strategy in Canadian commercial real estate involves aligning financial goals with market opportunities. For many investors, a buy-and-hold approach is favored, leveraging the long-term appreciation of property value and stability of rental income.

This strategy is particularly effective in high-demand markets or in cities experiencing growth. On the other hand, some investors opt for value-add strategies, which involve renovating or repurposing properties to boost profitability.

The key to a successful investment lies in thorough market research, due diligence, and a clear understanding of one’s financial capabilities and risk tolerance.

Each strategy carries its own set of risks and rewards, and the best approach is one that balances these elements with the investor’s specific objectives.

What should an investor know that’s not obvious?

In the realm of Canadian commercial real estate investing, there are nuances that are not immediately apparent to new investors. One such subtlety is the significance of due diligence in uncovering the latent value or risks associated with a property.

Investors should delve into the historical performance of the area, zoning laws, and future city planning developments that could affect property values. Another critical factor is understanding the market cycle and recognizing the right timing for buying or selling to maximize returns.

Moreover, investors should be aware of the tax implications, such as capital gains tax, and how these can influence the overall profitability of their investments.

It’s not just about the location; it’s about the confluence of timing, market conditions, and regulatory environment that shapes the success of a real estate investment in Canada.

Can non-residents invest in Canadian commercial real estate?

Yes, non-residents can invest in Canadian commercial real estate, opening doors to a robust and diverse market. Canada’s welcoming investment landscape offers opportunities across various sectors, from bustling city retail spaces to expansive industrial complexes.

Non-residents should be mindful of the legal requirements and tax implications, including the potential need for a Canadian bank account and the withholding tax on rental income.

It’s advisable to work with a local expert to navigate the process, ensuring compliance with Canadian real estate regulations and optimizing the investment’s potential.

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Real Experiences, Genuine Feedback

Discover why property owners across Edmonton trust Servis Realty Inc. Read authentic firsthand testimonials from our clients and learn how our dedicated commercial property management team have made a real difference in their commercial real estate ventures.

John Haswell

We have been with Servis Realty in our lease space for the past 8 years and the experience has been very positive. Unfortunately our business has outgrown the space, otherwise would have stayed even l Read Moreonger. Overall very convenient location, albeit sometimes hard for our customers to find. Specific details: -snow removal is always prompt the day after -our furnace was serviced regularly and when it broke down they fixed it very quickly -the parking lot was well managed, as well as the property owners investing in fixing the asphalt around the back of the building several times Special shout out to Kevin and Geoff and the rest of the team upstairs who has been very quick to address any concerns or issues we have ever had.

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Kevin Olsen

It's a great place to work. Our team is truly committed to providing uncompromising results for our clients and superior customer service to our tenants.

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Rob Allen

It's a pleasure working with Servis Realty. Their commitment to strong partnerships, prompt communication, and exceptional expertise set them apart. I highly recommend their services to anyone seekin Read Moreg a reliable and trustworthy property management company. Five stars, without a doubt!

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Joe Strasbourg

Today was one of many that Joanne and team at Service helped us out immensely with any day to day challenges we receive. As a tenant of Service Realty in the Bassani building we occasionally have a c Read Morehallenge which needs to be addressed such as plugged drain in the parking lot sewer or additional space required while we were under renovations. Their team is very accommodating, quick service and always happy to help. We appreciate the team at Servis and wanted to pass along our accolades to them!!

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Andy Bibby

Proudline Fire protection has been working with Servis Realty Inc for over 10 years and we could not ask for a better customer. Geoff and his team are Professional, Great communicators, and overall gr Read Moreeat to work with. I would recommend their services to anyone. Keep up the great work. J Andrew Bibby GM Service division Proudline line Fire Protection Services Ltd.

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