What We Do

Are you a commercial property owner who wants to add value to your existing commercial property without additional investment? We can help!

We have over ten years of experience in property conversion to help you convert your office building, commercial property (such as industrial, retail, office building, etc.), quickly and swiftly. We will be there to provide you with expert advice, legal assistance and will assist you every step of the way.

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Easily convert your office property into a Condo

We have the experience of working with local municipalities and turning regular office properties into condo units, making the conversion process as simple and straightforward as possible.

When you transform your building into a condo you reduce your direct property expenses and realize equity that you can take out of the property.

This is a great option for commercial property owners who are tired of paying for big-ticket items such as windows repairs, electrical upgrades, leaks and property damage. Why harbor all the costs, when you can sell the units for a profit and withdraw the equity?

Sell your condo to small business owners

A vacant property that might only have one owner can be converted into distinct units which would be sold to additional investors and/or small business owners.

Small business owners often cannot purchase their own building, but look favorably on their business owning its own space. This option allows businesses to realize the potential of the equity by owning their own space. It is a win-win for all parties involved.

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Learn More About The Condo Conversion Process

Empty office
Find out how to convert your building into condos and remove the frustration of the never-ending tenant search.
Exterior view of two office buildings in spring
Find out how to add value to your commercial property
Interior view of a condo building
Find out how to realize the equity in your commercial building, without selling.
Black and White Condo building
Find out more about the evaluation process
Window view of high rise condo building
Find out what happens when you need to tap into the equity of a property that has vacancies
Euros
In this post, we demonstrate how to move a property from its current status to one of a higher-value
Dimes and nickles
You ought to understand that you have to be very competent to work in the world of commercial real estate. Read More…
Outdoor shack in austrailia
Find out how to evaluate your property before conversion

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How to Evaluate Your Commercial Property

In our previous post, we discussed the steps needed before an evaluation. Today, we will discuss the evaluation process in a little more detail.

There is a significant difference between evaluating a residential house and assessing a commercial building. When listing a residential property, emotional factors are taken into consideration, whereas when assessing a commercial property more weight is given to hard numbers. Generally speaking, two factors play a crucial role in evaluating a commercial property: income and capital gain.

Two types of Economic Value
From a very broad perspective, commercial properties can be evaluated by taking into consideration two factors: net income and capital gain.

Capital Gain:
In addition to hard numbers (net income), the existing and future income potential of the property is considered. In the near term, income potential can be predicted through the change of use approvals by the local municipality. But it is quite challenging to predict the future potential of the property as it could depend on multiple factors such as economic growth and job creation, future development plans, etc. Again, assessing capital gain is a lot more complicated than it sounds, but suffice it to say that any potential property may have in the future is to be considered at the time of evaluating the property.

Net Income:
Net income refers to the overall income the property generates, considering both current net income and potential net income. Although there are discussions around the meaning of “net income”, “net net income” and “net net net income”, what it boils down to is that net income is the income a property generates after paying all its expenses such as property taxes, utilities, maintenance, etc. The net income is generally accounted for before paying debt (mortgage) and taxes (income tax).

Know the Cap Rate
There is another term you have to be familiar with in order to calculate the value of the property: Cap Rate. It is used in relation to net income to evaluate the property. Cap rates are determined by the current conditions of the market for the area in which the property is located, and the type of property it is. Although cap rates on a particular type of property may differ from area to area, usually cap rates are lower on apartment buildings and higher on office buildings. Remember that the higher the cap rate, the lower the price and vice versa. Cap rates can be as low as 3% and as high as 14%. This simply means that if you were to pay all cash for the property, you will get 3% or 14% on your money. For example, if you purchased property for $1 million and paid all cash, you would expect a return of $30,000 to $140,000 depending on multiple factors. These factors include property type, risks associated with the property, and the location of the property.

Here is the formula for calculating the value of a commercial property:
Value (Listing Price) = NOI (Net Operating Income) /Cap Rate
Apartment Building Net Operating Income: $100,000
Apartment Building Cap Rate in The Area: 5%
Value (Listing Price): $100,000 / 0.05 = $2,000,000

The same income with a 10% cap rate for an office building will give you a $1,000,000 listing price ($100,000 / 0.10). As you can see cap rates are a very important factor in your evaluations.
You can search current commercial listings and recently closed transactions to gauge the cap rates in your market. Further, you can find valuable information in research-based reports published by commercial real estate firms in the area.

Cap Rates and the location of the Property
Cap rates are specific to the location of the property and the property type. The risk is also a factor; for example, apartment buildings are considered to be lower-risk investments and office buildings are a higher risk. The location of property can be assessed as follows:

  • Primary Market: properties in major urban centers and surrounding areas are considered primary markets and considered to be lower risk.
  • Secondary Market: These are generally neighboring communities of major urban centers
  • Third Tier: As the name suggests, these properties are outside the primary market and are considered to be a higher risk.

As you might have anticipated, the higher the risk the higher the cap rate, and the higher the cap rate the lower the value (listing price) of the property as illustrated above.

Property type
Different types of commercial properties and the risks associated with each type will influence your property evaluation. You have to understand different types of properties and their current demand in the market. Following are some of the most common types of commercial properties:

Mixed use: Usually this is a retail environment on the main level and offices or apartments on the upper level(s). These type of properties are harder to rent as there are much better options available for the tenants. There are exceptions to this general rule, especially new mixed developments.
Multi-Family: These are rental apartments ranging from a couple of storeys to high rises. In most markets, this is a lower-risk investment compared to other types of commercial properties.

  • Strip Plaza: These are mostly one-level retail outlets with available parking. This type of property is highly dependent on population stability or growth in the surrounding area. New housing development is a good predictor of population growth.
  • Retail: This type of property is generally owner-occupied and located in a prime location. Higher-net-worth areas and/or increases in family incomes are considered to influence the value of this type of property as higher incomes increase the purchasing power of residents in the area. Tenants thus pay higher rents.
  • Office Building: Mostly occupied by professionals and corporations. In most markets, this type of property is considered to be one of riskiest, because a sudden economic downturn could lead to vacancies.
  • Industrial: There are multiple categories of uses ranging from a factory to a warehouse. The current use that may potentially contaminate the property will negatively impact the value of the property. For example, an auto repair property use might be harder to finance and riskier for environmental assessment.
  • Power Centers: In major urban centers this type of property rarely comes to market. You must work with a group of specialists to properly disclose all related matters.

Property Details to Consider for Finalizing the Listing Price
In addition to the important factors of location and type of property, the features of the property must be considered before setting a final listing price. Here is a breakdown of each type of property and feature that impact the value.

    For a Residential Investment Property consider:

  • Proximity to amenities
  • School district and ranking
  • Rental demand
  • Financing options available
  • Residential Tenancies Act

For a Retail/Strip Plaza consider:

  • Traffic count and flow
  • Visibility
  • Adequacy of parking

Office Building Price Will Be Affected By:

  • Fiber-optic wiring
  • Accessibility (public transportation and highways)
  • Current rental vacancy
  • Common areas and facilities

For Industrial Properties consider:

  • Structural condition of the property
  • Ceiling heights
  • Loading docks
  • Drive-ins
  • Accessibility
  • Environmental assessment
  • Proximity to transportation routes

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Make Money in Commercial Real Estate From Day One

Commercial Real Estate requires a different skill set.
For many different reasons, you might prefer to serve commercial clients. Whatever your reasons might be, you ought to understand that you have to be very competent to work in the world of commercial real estate.

You can become knowledgeable by taking professional development courses in commercial real estate and shadowing an experienced commercial real estate professional. As a commercial real estate sales professional, you have to be sufficiently knowledgeable about different types of commercial properties to offer the client the most viable option depending on their circumstances and needs.When advising clients on property acquisition, the old real estate mantra of “location, location, location” might come to mind.

Of course, location is important in any piece of real estate. However, in the world of commercial real estate, another mantra is used: “Jobs, Jobs, Jobs.” The current and future state of employment in the area where the commercial property is located has a significant impact on its current value and will have on its future value.
You have to be well-versed on the type of property you are going to suggest that the buyer acquire. Further, you have to consider the assets and resources of your client when making a specific suggestion.

Due Diligence

Although it is a norm in the world of commercial real estate that the listing sales professional provide all the information and details related to the property, ranging from income potential to structural details, you as the buyer’s representative must perform necessary due to diligence on behalf of your buyer. Information and details have to be verified, from net income “claimed” to uses “allowed.” Therefore, proper due diligence is required.

Here are the most important aspects of due diligence that need to be carried out:

Due Diligence Aspect #1: Income
You have to understand that, generally speaking, your buyers are mainly interested in commercial properties to generate income.While the buyer is likely to have a mix of investment vehicles, such as a stock portfolio, Registered Retirement Savings Plan (RRSP), Guaranteed Investment Certificates (GICs), mutual funds, etc., the buyer is considering an investment in a commercial property. The buyer may wish to park their money in a tangible asset or commercial properties as these investments might offer superior tax-saving strategies.

Many investors believe that a positive cash flow will keep them above water when markets experience volatility and reduce overall exposure. So your first and foremost concern should be about the income generation of the property. You have to do your full due diligence on the income aspect of the property. The numbers disclosed might not necessarily take into account all of the deficiencies and costs related to the property.

Generally, the following are the numbers to watch as they have potential for error and miscalculation:

  • All expenses are not disclosed. Watch out for a lack of information regarding management, vacancy and maintenance costs.
  • When calculating expenses, the listing agent will naturally present a best-case scenario. Cost lines such as utility use, routine cleaning, etc. might be minimized to reflect the best case scenario.
  • In some cases, miscellaneous expenses which are mostly related to administration, management and supervision of the property might not be accounted for. In addition, managerial expertise and experience cost items that may be ignored.

By far one of the most overlooked items when calculating income is “tenant credibility.” The net income numbers might suggest purchasing the property is justified, but you have to remember that some tenants may have established a profitable business, but others may be in financial difficulty. Corporate searches and due diligence might reveal that the tenant is in financial difficulty.

Your first and foremost concern should be about the income generation of the property.

Corporate searches and due diligence on tenants, especially the ones that occupy bigger spaces in the building, are a must. Further, you may ask for financial statements from the existing tenants. In fact, your financial lender might require those statements from the tenants of the building anyway.

Due Diligence Aspect #2: Capital Expenditures
A property’s income might seem very attractive, but you may not be aware of the capital expenditures required to operate the building. These expenditures could be big-ticket items such as replacing windows, roof repairs, HVAC upgrades, mechanical systems, etc. There could even be structural issues with the property which could sometimes cost more than the purchase price. You should solicit inspection reports from HVAC and engineering specialists.

Due Diligence Aspect #3: Specific Requirements
When acquiring commercial properties your client may have specific plans for the property. These plans could be implemented right after the property acquisition or in the future. Below are a few examples of issues and pitfalls that you may want to investigate further.

When the Property Is Owner-Occupied
In addition to the above due diligence items, if your client intends to operate a business in the property, you have to find out if the legal use of the property will allow your client to do so. If not, then ascertaining what permits and additional items are required is for you to find out.

In addition to zoning, some uses might require a business license. For example, a day care center might require a playground to get its license, and a restaurant might need additional parking spots to get approval. Do not assume you do not have to carry out due diligence if a similar business is in the property. For example, a restaurant that operates as a fast-food takeout restaurant compared to a sit-in restaurant might have different zoning and parking requirements. So due diligence is required to be assured of the correct future use regardless of the existing use of the property.

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Excerpt from chapter 19 of James Hussaini’s book –Yours Independently

The Best Value-Adding Strategy

Property ownership is a vehicle for creating income and wealth the standard way:

  • Purchase a property
  • Put up a building
  • Fill it with tenants
  • Generate income as the mortgage is paid down

It’s simple, right?
And it’s long term.

But what happens when you need to tap the equity of a property that has vacancies? Or has a large mortgage on it with little equity or income?

The solution is to convert the building into condos. This allows you to realize the equity you’ve built up and at the same time shift much of the expenses onto new owners that can afford a smaller piece of a property but not the whole building.

Evaluate Your Commercial Property Before Considering Condo Conversion

Generally speaking, two factors play a crucial role in evaluating a commercial property: income and capital gain.

Two Types of Economic Value:
From a very broad perspective, commercial properties can be evaluated by taking into consideration two factors: net income and capital gain. Here is a brief outline.

Net Income
Net income refers to the overall income the property generates, considering both current net income and potential net income. Although there are discussions around the meaning of “net income”, “net net income” and “net net net income”, what it boils down to is that net income is the income a property generates after paying all its expenses such as property taxes, utilities, maintenance, etc. The net income is generally accounted for before paying debt (mortgage) and taxes (income tax).

Capital Gain
In addition to hard numbers (net income), the existing and future income potential of the property is considered. In the near term, income potential can be predicted through change of use approvals by the local municipality. But it is quite challenging to predict the future potential of the property as it could depend on multiple factors such as economic growth and job creation, future development plans, etc. Again, assessing capital gain is a lot more complicated than it sounds, but suffice it to say that any potential the property may have in the future is to be considered at the time of evaluating the property.

Realizing the Highest Value
Once your evaluation is completed you can determine under which “change of use” the property can meet it’s highest profit potential. This complicated procedure should only be undertaken by a qualified specialist to ensure that anything that will impact the overall value has been taken into consideration. This can include (but not limited to):

  • Proximity to amenities
  • School district and ranking
  • Rental demand
  • Financing options available
  • Traffic count and flow
  • Visibility
  • Adequacy of parking
  • Fiber-optic wiring
  • Accessibility (public transportation and highways)
  • Current rental vacancy
  • Common areas and facilities
  • Structural condition of the property
  • Ceiling heights
  • Loading docks
  • Drive-ins
  • Accessibility
  • Environmental assessment

We can help you add value to your property using the condo conversion change-of-use that we specialize in. We have the experience, and the professional team to back us up, that you need.

Contact us for a Confidential Consultation

Don’t Sell Your Commercial Property to Realize Its Equity

There are many ways to add value to a property. Below is a list you can start with:

  • Add Income:
    The most common and simple way to add value is to increase income by filling vacancies or creating additional space to be rented. Increasing the gross income, obviously, increases your net income, which indeed increases the value of the property. This could also be achieved by renovating the building and charging higher rents upon lease renewal. Conversely, the best way to increase the bottom line might be to find ways to decrease expenses by operating the property more efficiently. The best example could be employing energy efficiency measures.
  • Change of Use:
    Another popular way to increase the value is to change the use to the best and highest use possible; for example, changing a building from residential to commercial use.
  • Land Assembly:
    In some prime areas, multiple adjacent properties are acquired to build a multiple-unit property. For example, buying three adjacent detached homes to build ten townhouses. Thorough due diligence measures are required to make sure that the zoning allows for this type of development on the specified lots.
  • Divide and Conquer:
    Buying a big lot and dividing it into smaller lots is an established way of increasing the value of a property. Basically, buying in bulk and selling at retail price.
  • Condo Conversion:
    This is the process of converting a property from one title to multiple titles to be sold separately. The process is similar to subdividing a big lot, but the process is a lot more complex. Examples could include converting an apartment building to condo residential, or office building to office condos and so on.

A property that has the potential for value growth through the change-of-use process of condo conversion is what we specialize in.

James Hussaini discusses “Change of Use” and how to add value to a property.

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Invest in a Condo Conversion Project

The condo conversion case study below is an example only and the financial structure is simplified in order to demonstrate how to move a property from its current status to a higher-value use. Everything in a project can go more or less as planned, but the final exit is what makes or breaks it.

Here is a snapshot of the team involvement needed to highlight the complexity involved:

  • The Investor Group: puts up the money to purchase the property
  • Property Owner/Seller: is ready to pull equity from their building and either sell it to the group of investors or work with a condo conversion specialist to change the type of use
  • Project Development Team: this group comprises the services and individuals needed to complete the condo conversion and includes city planners and zoning officials from the regional municipality, architects, appraisers, building inspectors, surveyors, general contractor, condo reserve fund study professionals, condo management companies, condo conversion lawyers not to mention our experienced team that provides the overall management of the project development team to keep the condo conversion process on track

Case Study: Converting an almost-vacant building

Background: The owner was busy operating a manufacturing business and didn’t have the time, resources or expertise to manage the building. As a result the office building was not tenanted and the owner desperately wanted to let go of a property that he considered a distraction and a headache. When I came into the picture, I evaluated the property and found that it did not meet my basic criteria. The current income could cover the expenses but not the mortgage I needed to take out on the building.

Financing: Leading the investor group, I worked with the owner to overcome the mortgage issue. As the property had no mortgage, we struck a deal where the owner would provide an interest-free VTB (vendor take-back) for 75 percent of the purchase price until the end of the condo conversion process.

  • Purchase price: $2,000,000
  • VTB: $1,500,000
  • Down payment: $500,000

Adding value to the property: This building, located in a suburban downtown area, had about 20% occupied space so filling the vacant space became the primary focus of adding value to the project. Completing the condo conversion and filling it with new owners is the main focus to improving its value and allowing my group of investors to realize profit on their investment.

Marketing the condo units: Once the conversion was complete, and because of the type of financing arranged, we were able to offer potential condo owners a “Free Rent” option that allowed them to purchase their condo space with no down payment and use the accrued rent over 5 years as their down payment towards purchase once they have arranged their mortgage for the balance of the purchase price. This created a “win-win” situation for my investors and the tenant owners.

Exiting profitably: As the building fills up with new tenants that have an agreement in place to purchase their condo units, the investor group can realize substantial profit. It needs to be noted that individuals involved need to be entrepreneurial-minded and understand the concept of risk and reward. They must be prepared, both financially and emotionally, for ups and downs in the business. The return estimated on this project is as follows:

  • Purchase price: $2,000,000
  • VTB: $1,500,000
  • Down payment: $500,000
  • Condo conversion cost: $500,000
  • Total investment: $1,000,000
  • Appraised value after conversion: $3,500,000
  • Potential profit: $1,000,000
  • Project duration: Two years
  • Return on investment: 100% in two years

As a property owner, we can help you realize the full potential of your property through our experience with the condo conversion process, from start to finish.

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Adding Value to Your Commercial Property

Build it, Renovate it, Fill it.
These are the standard ways to add value to your commercial property or to pull equity out of your property.

Condo conversion is the most profitable way to add value to a commercial property. This allows you to cash out the equity without having to necessarily add extra value through renovations or additional building steps.

The condo conversion process is not for the faint of heart. The steps are complicated and time-consuming. But the rewards are great. Depending on the final goal of the conversion process you can withdraw the built-up equity of the property while you offload many of the expenses and headaches of property ownership to the new condo owners, all the while maintaining a stake in your property.

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How To Fill Your Office (or Industrial) Vacancy

Property owners know that without tenants they are spending money everyday that should otherwise be paid by their tenants.

Filling those vacancies is a huge expense as well. Signs, ads, flyers… this list goes on about how to showcase and market your property and entice tenants to fill your space.

You may decide to reduce the rent or add other incentives to increase some interest in your property…. which all adds to the expense of having vacancies in your building. And in 5 years time you may have to start the whole process over again.

It’s time you considered converting your building into condos and remove the frustration of the never-ending tenant search.

By converting your building into condominiums you are creating property owners out of business owners and at the same time you are able to cash out the equity you have built up in your property.

These new condo property owners pay their share of the taxes, maintenance, insurance and utilities so you have less to worry about. And because they own their property, these businesses are much less likely to move out at the end of the rental term – because there isn’t one!

We have a variety of strategies to discuss with you that can help you fill your vacancies, turn the built-up equity of your property into cash and eliminate the stress of dealing with tenants.

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Considering a Condo Conversion of Your Building? Have an Evaluation First!

A professional evaluation of your building will help you decide if the conversion to condominiums will help you to turn the equity you have in your property into profit.

James Hussaini leads the way with his experience in evaluating properties and he has an outstanding track record for the successful completion of many Toronto area buildings into condos.

What needs to be considered before the evaluation.

  • Do you have enough time for the process to be completed? It can take 1 to 2 years to complete the condo conversion
  • Is there enough equity in the property to make the conversion profitable?
  • Are there overriding concerns about the building, such as maintenance, required upgrades, etc, that may put off potential condo purchasers?

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