The purchasing of commercial real estate involves a challenge to many companies as well as a large capital investment. It raises many questions about the advantages of such a purchase for a company as well as what other options are available if there is not enough capital to purchase commercial office space. Maybe thought needs to be given about an R.E.I.T.

Definition

REIT stands for Real Estate Investment Trust. It is owned by real estate companies and operates by producing income through such property. There are two requirements to qualify a company as an REIT: its assets and income must be tied with property investments and annually, 90% of its taxable income must be distributed in the form of dividends to its shareholders.

Benefits

There are at least five reasons why many financiers have embraced the REIT approach:

• Diversification – REIT has more potential diversification when compared to other classes of assets.

• Dividends – When it comes to industry performance, REIT has a more reliable income return.

• Liquidity – Investment in property is considered as non-liquid and ultimately immovable assets.

• Performance – The long-term returns offered by REIT’s are considerably stronger.

• Transparency – REIT offers transparency in both taxes and operation.

Function

An REIT is an option of putting money indirectly in commercial real estate for businesses with insufficient capital to directly purchase property. An accredited REIT company will handle the investment, purchase and maintain the property, look for tenants, etc. All the purchasing company has to do is buy shares in the REIT, just like acquiring stock.

Advantages

An attractive leasing rate is one of the biggest advantages to a company when acquiring this type of office space. Real estate yields better results, even in areas where there is new construction, but is limited by land or law.

In addition, putting one’s money in commercial office space offers more benefits as tenants tend to have longer contracts than tenants of residential real estate. Often, leases for residential real estate last for as little as 3 to 6 months, maybe up to one year. For this reason, commercial office space is more stable, with reliable cash flow from long-term tenants occupying the building.

Further Considerations

Entrusting one’s money in commercial real estate can be any company’s biggest and most challenging decision. Business owners should look at this type of real estate solely as an investment rather than a partial-use property. One of the most important factors to consider in the evaluation process is supply and demand. Taking supply and demand into consideration can lead to investment in areas where there are low vacancy rates and where available space is a rarity. Low supply with higher demand means rental rates that are favorable to investors.

Acquiring commercial office space that meets business needs as well as being within budget is an important accomplishment. Investing in this type of office space could eventually help a business achieve further growth and expansion in the future. It is therefore possible that an REIT could indeed be the answer in the acquisition of commercial office space for many companies!