Commercial real estate transactions involve more than finding an available property or agreeing on a price. Buyers, sellers, tenants, landlords, and investors must also consider financing, lease structure, permitted use, property condition, operating expenses, and transaction timing.
The answers below provide a general introduction to common commercial real estate questions. Every property and transaction is different, so specific decisions should be made with guidance from the appropriate real estate, legal, tax, lending, and inspection professionals.
Eugene Commercial Real Estate represents:
- Buyers purchasing commercial and investment property
- Sellers marketing commercial and industrial real estate
- Tenants searching for and leasing business space
- Landlords marketing available properties and negotiating leases
- Investors completing acquisitions, dispositions, and exchange transactions
We assist clients with a range of commercial property types, including:
- Industrial buildings
- Warehouses
- Office properties
- Retail space
- Multifamily and apartment properties
- Income-producing investment property
- Development land
- Mixed-use property
- Owner-user commercial buildings
We also assist clients evaluating properties that may require improvements, permitting, or changes in use.
Our primary focus is Eugene, Springfield, and Lane County. We are licensed throughout Oregon and also assist with selected commercial real estate transactions in other markets, including Bend and Redmond.
Commercial transactions often involve issues that are not immediately visible in a listing. A commercial real estate broker can help clients evaluate:
- Market pricing
- Lease structure
- Property income and expenses
- Intended use
- Zoning and permitting
- Site access
- Utilities
- Building condition
- Tenant and lease information
- Transaction timing
- Negotiation strategy
A broker also helps coordinate the real estate process with attorneys, lenders, inspectors, accountants, qualified intermediaries, and other professionals.
Commercial transactions are often more complex and less standardized than residential transactions. Important differences may include:
- Longer negotiation periods
- Greater emphasis on property income
- Detailed lease terms
- Environmental concerns
- Zoning and permitted-use issues
- Business-specific improvements
- Financing based partly on property performance
- More extensive due diligence
- Fewer standardized contract terms
The suitability and value of a commercial property often depend on the buyer’s or tenant’s intended use.
Broker compensation varies by transaction. In many sales, the seller offers compensation to the buyer’s broker. In other situations, the buyer may be responsible for some or all of the brokerage fee. The compensation arrangement should be discussed and documented before representation begins.
In many leasing transactions, the landlord pays the brokerage commissions associated with the lease. However, this is not automatic. Compensation depends on the property, listing agreement, lease terms, and representation agreement. Tenants should confirm the compensation arrangement before beginning a property search.
Tenant representation means the broker is working on behalf of the business or organization seeking space. Tenant representation may include:
- Defining space requirements
- Identifying available properties
- Scheduling tours
- Comparing lease structures
- Estimating occupancy costs
- Investigating intended use
- Requesting proposals
- Negotiating business terms
- Coordinating inspections and due diligence
The tenant should still have the final lease reviewed by a qualified attorney.
Landlord representation means the broker is working on behalf of the property owner to market and lease available space. Services may include:
- Evaluating the property
- Recommending rental terms
- Developing a marketing strategy
- Advertising the space
- Responding to inquiries
- Conducting property tours
- Reviewing tenant qualifications
- Negotiating letters of intent
- Coordinating lease negotiations
The objective is to attract qualified tenants whose business needs align with the property.
The timeline varies depending on:
- Property type
- Size
- Location
- Budget
- Availability
- Required parking or access
- Zoning
- Permitted use
- Construction needs
- Lease negotiations
A straightforward office search may move relatively quickly. A specialized industrial, restaurant, medical, or manufacturing use may require a longer search and additional permitting or construction review. Businesses should begin the process well before their current lease expires or their anticipated opening date.
No. A property’s current appearance or prior use does not guarantee that a new business can legally or practically operate there. The intended use may be affected by:
- Zoning
- Land-use regulations
- Building code
- Fire and life-safety requirements
- Parking requirements
- Accessibility standards
- Utility capacity
- Environmental conditions
- Conditional-use requirements
- Prior permits
- Required improvements
The intended use should be investigated before a buyer or tenant becomes fully committed to the property.
Tenants should review more than the monthly base rent. Important lease considerations may include:
- Lease term
- Renewal options
- Rent increases
- Operating expenses
- Property taxes
- Insurance charges
- Common-area maintenance
- Repairs and maintenance
- Utilities
- Tenant improvements
- Signage
- Parking
- Permitted use
- Assignment and subleasing
- Personal guarantees
- Insurance requirements
- Restoration obligations
- Default provisions
A commercial lease should be reviewed by an attorney before it is signed.
Under a gross lease, the tenant generally pays a set rental amount while the landlord pays most operating expenses. Under a triple-net lease, the tenant generally pays base rent plus a share of:
- Property taxes
- Building insurance
- Common-area maintenance and operating expenses
Lease terminology is not always used consistently, so the written lease must be reviewed carefully. For a more detailed explanation, see our guide to commercial lease types.
Due diligence is the period in which a buyer investigates the property before completing the purchase. Depending on the transaction, due diligence may include:
- Physical inspections
- Environmental review
- Survey and title review
- Zoning and land-use research
- Permitting review
- Lease and rent-roll analysis
- Income and expense verification
- Utility review
- Access and easement review
- Financing
- Appraisal
- Insurance review
The appropriate investigations depend on the property and the buyer’s intended use.
Net operating income, or NOI, is the income a property generates after normal operating expenses are deducted but before debt payments and income taxes. It is commonly used to evaluate income-producing commercial property. Accurate NOI calculations require reliable information about:
- Rent
- Vacancy
- Tenant reimbursements
- Property taxes
- Insurance
- Maintenance
- Management
- Utilities
- Other operating expenses
A capitalization rate, or cap rate, compares a property’s annual net operating income with its purchase price or market value.
It is calculated as:
Net Operating Income ÷ Property Value
Cap rates can help investors compare properties, but they should not be considered by themselves. Property condition, tenant quality, leases, location, operating expenses, and risk all affect the strength of an investment.
For a fuller explanation, see our guide to commercial real estate cap rates.
Debt service coverage ratio, or DSCR, compares a property’s net operating income with its annual loan payments. Lenders use DSCR to estimate whether the property produces enough income to support the proposed debt. A ratio above 1.00 indicates that the property generates more income than is required for debt service. Individual lender requirements vary. For more information, see our guide to debt service coverage ratio.
A 1031 exchange may allow an owner to exchange qualifying investment or business real estate for other qualifying real estate while deferring recognition of some or all taxable gain. The rules and deadlines are strict. A qualified intermediary must generally be involved before the original property sale closes. Eugene Commercial Real Estate assists with the property-related aspects of standard, improvement, reverse, and reverse-improvement exchanges. Tax and legal guidance must come from qualified advisers. For more information, see our 1031 exchange guide.
Yes. An improvement exchange may allow exchange funds to be used toward qualifying construction or improvements on replacement property. A reverse exchange may allow an investor to secure the replacement property before selling the original property. These transactions require careful coordination among the broker, qualified intermediary, tax adviser, attorney, lender, contractor, and other professionals.
In many cases, yes. Early lender discussions can help a buyer understand:
- Available loan programs
- Required down payment
- Debt service requirements
- Interest rates
- Amortization
- Property eligibility
- Borrowing capacity
- Required financial documents
Financing terms may affect which properties are realistically available to the buyer.
Commercial property may be evaluated using several approaches, including:
- Recent comparable sales
- Income produced by the property
- Replacement cost
- Property condition
- Location
- Tenant quality
- Lease terms
- Development potential
- Market demand
- Zoning and permitted use
Income-producing properties are often evaluated differently from owner-user buildings or undeveloped land.
Property owners can begin by gathering:
- Current leases
- Rent rolls
- Income and expense statements
- Property tax records
- Insurance information
- Maintenance history
- Building plans
- Surveys
- Environmental reports
- Permit information
- Utility records
- Recent improvements
Complete and organized property information can make valuation, marketing, due diligence, and negotiations more efficient.
The first step is a conversation about the property, your timeline, and the outcome you are trying to achieve.
Eugene Commercial Real Estate has more than 50 years of combined commercial real estate experience representing buyers, sellers, tenants, landlords, and investors.
Our office is located at:
711 Country Club Road, Suite 1B
Eugene, Oregon
Mailing address:
PO Box 41913
Eugene, OR 97404
Contact John Erving or Brent McLean, CCIM, to discuss a commercial real estate sale, purchase, lease, property search, or exchange transaction.
The information on this page is general in nature and does not constitute legal, tax, accounting, lending, or financial advice. Consult the appropriate qualified professionals regarding your transaction.