I. Introduction
So, you’ve decided to make some long-term investments in order to grow your wealth portfolio. Commercial real estate in Toronto proves to be one of the most stable and lucrative sectors to consider. Although this decision requires much time and consideration, you might think about working with a commercial real estate agent in Toronto as you navigate this process. In the meantime, we want to pass along our insights into this type of investment.
II. Understanding Commercial Real Estate in Toronto
Starting with the demographics, population growth, and shift play a key role in your decision. For instance, places, where mostly young families reside, would have a higher demand for daycares, shopping centers, grocery stores, and fun or relaxing places that are geared toward a broad range of ages. On the opposite spectrum, locations that draw more retirees may have opportunities for healthcare facilities, senior communities, and other support services. So, you might keep your thumb on the pulse of the local demographics since even the slightest shift can present new opportunities.
Likewise, financial factors cannot be ignored, especially interest rates. Keeping a close watch on fluctuations will help you navigate affordability and perhaps the process of getting prequalified if you choose to do so. Additionally, federal, and provincial tax matters require your close attention, as they can change from one year (or even a quarter) to the next. So, stay updated on this matter, along with previous ownership of prospective properties and possible competition in the area.
Finally, you will need to consider the supply of skilled labor and any environmental issues that may spring up in the areas of the city that most interest you.
III. Finding the Right Office Space for Rent in Toronto
While keeping an eye on the factors that drive commercial real estate trends leads you in the right direction, you should also take the time to check out office space to determine what would work best for you. Are you looking to attract and eventually rent to growing businesses that need extra space as they expand their workforce? Do you see a trend in the demographics of families who prefer the flexibility of a hybrid situation? Then you might look for an office building that’s versatile enough to suit that company’s situation.
Likewise, investing in commercial real estate might change your work requirements, and you find that you need an office space that’s conducive to meeting with prospective clients and has an ideal location. For this reason, you might also look for affordable office space for rent in Toronto.
IV. Navigating the Toronto Commercial Real Estate Market
As noted, a commercial real estate agent would be best equipped to help you navigate the plethora of options out there. After all, commercial real estate encompasses a broad range of choices, including:
- Multifamily properties
- Retail properties
- Office space
- Industrial campuses
Under these categories, you also have a broader selection of subcategories, like condominiums, apartment buildings, or temporary housing units for traveling medical personnel. Or you can choose to invest in storage facilities, shipping fulfillment centers, or medical complexes.
Moreover, you might weigh the benefits versus the drawbacks between direct ownership, either on your own or with co-investors, and indirect ownership, which you’ll find most often in the form of a real estate investment trust (REIT). Each choice has its own set of pros and cons. With direct ownership, you have almost all the decision-making ability when it comes to your investment, but this type usually requires more upfront revenue. Likewise, working with co-investors eases that burden, but you may face higher management fees. As for the REIT option, you’ll pay less upfront, but asset prices fluctuate almost daily, and they don’t always coincide with the property’s values.
V. Financing Commercial Real Estate Investments
This is where investing in commercial real estate versus residential real estate differs. You might consider finding a tenant before approaching a lender. While it’s not required, it increases your chances of getting financed because you’ll already have the numbers to calculate the profitability of the property and the risk level. Also, the lender will request a past financial performance of the property to make sure there’s no history of constant tenant turnover, a copy of your portfolio, and a verification of your income, which will guarantee that you won’t default on payments.
In addition to the commercial mortgage loan, you have other options for obtaining the startup capital that you’ll need, such as:
- A working capital loan is a short-term loan that helps with hiring employees and buying equipment.
- A leasehold improvement loan which covers the cost of a renovation to a leased space
As you get to the point of deciding which property to buy, you’ll need to finalize your business plan, the evidence of succession planning, and your management team.
VI. Due Diligence and Property Evaluation
Another crucial step in the purchasing process involves uncovering every possible aspect of the property that may cause financial difficulties later after contracts are signed. For instance, you (or your broker or attorney) will need to find out if the previous owner had any legal or regulatory issues related to the property, or if they still have liens or back taxes attached to it.
Also, you’ll need a thorough inspection of the building(s) for any possible repairs. Plus, you’ll have to find out about zoning restrictions and possible encroachments on the property. Getting all this information will save you time and money later and help you avoid any catastrophic legal or financial quandaries.
VII. Negotiating and Closing the Deal
This next part of the purchasing process involves close communication between you and your agent, who is, by now, aware of your needs and your budget. When making the offer, keep in mind that fewer conditions on your part (except for those related to due diligence) may work to your benefit regarding price and the time it takes to close the deal. Also, you might consider some conditions that sellers may request, like renting part of the space that they’re selling to still be able to operate their own business. This could present a win-win situation for you both. Whatever the offer involves, you’ll also need to allow enough time to complete the due diligence and gain the lender’s approval, which could take six weeks.
Once a deal is made, you and the seller, along with your representatives, will go through the closing process. At this point, the escrow agreement is established, and signing authority is verified for the two parties who are representing the two entities involved in the transaction.
The documents that you can expect to receive include copies of title reports, zoning and building jackets, deeds, environmental reports, and assignment and assumption leases.
VIII. Managing and Optimizing Your Commercial Property Investment
Once you have purchased your property, you’ll be able to make changes to optimize its functionality and appearance. In this regard, it pays to still stay up to date with commercial real estate trends, but at the same time, keep an eye on economic changes in your area to see what potential tenants may need or want.
Furthermore, you’ll need to consider hiring a management company if you can’t or don’t wish to manage the property on your own. Otherwise, you can find management software that would streamline your managerial duties.
IX. Conclusion
Considering the number of legal and financial aspects of purchasing this type of property, you’re going to avoid pitfalls if you choose to hire a commercial real estate agent in Toronto who is familiar with the economic climate and property listings. So don’t try to embark on this process alone. Make sure you have a reliable, experienced professional who will represent you well and advise you through every step.