Expected Returns for the Commercial Real Estate Owner/User

How much money should be expected to be made from a commercial real estate investment?

Let’s look at an example scenario and determine a projected return on actual money invested. 

XYZ Company makes a $4,000,000 real estate purchase. In the Puget Sound market that could be an approximately 27,000 square foot industrial/office building (depending on specific submarket and a variety of other factors). As a user, the required down payment would typically be between 10% to 20% of the value. For our example, let’s look at a 10-year return on a 20% down payment. We will assume current market interest rates (5.4% in our example) and 3% average yearly appreciation of the building over the holding period. Under those metrics, the average yearly return of the $800,000 invested would be 14.17% over a 10-year period. This result considers selling costs at the end of the 10 year period. It also factors in market rent even though the company is effectively paying rent to itself. That attractive projection explains why commercial real estate stays in high demand.

Can we get much higher? Yes, through SBA financing, a loan of 90% of the building’s value can be obtained. For our $4,000,000 purchase – that is a $400,000 down payment and the projected average yearly return over the 10-year period becomes almost 18%. Real estate comes with risk, but the returns can be attractive.

growth example.PNG

What does this mean in real numbers? In the instance of investing $800,000 – that initial investment turns into just over $3,000,000 in 10 years. Or if investing $400,000 – just over $2,000,000. Of course, this all comes with the standard risk associated with real estate investing. For example, it’s not a given that appreciation will average 3% per year or that it will appreciate at all. However, if you’ve decided the risk profile is right for you and your company, then an annualized effective compound rate between 14% and 18% can be a realistic expectation.

Working with a quality commercial real estate broker can be key to maximizing your real estate opportunities. Springer Real Estate is a commercial real estate company dedicated to our clients’ real estate objectives. We handle sales and leasing for buyers, sellers and tenants. Feel free to reach out to us to discuss your specific commercial real estate interests.



First Two-Story Warehouse in the U.S. under construction in Seattle

New ProLogis Warehouse Building under construction in Georgetown

ProLogis is currently building the first multi-story warehouse in the United States. Located in the heart of Georgetown, this new construction site is a prominent feature along the SR-99 route.

This multi-story construction design shows a significant change in the Seattle market, signaling that industrial spaces are going to need to look at new ways of building and occupying land in Seattle as the city continues to expand and grow.

Want to read more?  See our March 2018 Newsletter.

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Additional Rent

There’s rent. And, then there is “additional rent.”  What is it and…why is it?

This is an important item to understand as many, if not most, industrial users and many office tenants in the Puget Sound area have a lease that includes additional rent.  In short, additional rent is a share of building operating expenses.  This type of rent is paid in addition to what is often referred to as “base rent”. It’s a way that landlords pass along the risk of fluctuating expense to tenants.

This model adds a layer of complexity in comparing the cost of various facilities.  Asking rates are often quoted on base rates only.  The additional rent must often be obtained separately.  However, obtaining the current, projected and historic operating expenses from the landlord or landlord’s representation is only the first step in unpacking what the actual rental obligation will be over a term.  Much more must be done than simply obtaining a copy of the building’s historic operating expenses to fully understand a tenant’s exposure to building expenses.

As tenant representation, the SRE team is can perform a review of expenses to determine how a particular building’s costs compare to similar properties in the market.  This is an important step in understanding the true cost of building occupancy.   If costs are reasonable compared to market costs and the ownership has historically consistent operating expenses, then the review may be done.  However, often a building will have substantially higher expenses than the average. In this case, it’s best to investigate further. 

The SRE team reviews a building’s expenses to determine if items included as additional rent, in which the tenant is responsible for, are typical according to industry standard.   If items are out of the ordinary, then it may be worth pursuing further negotiation.  An experienced real estate professional can justify to building ownership why an expense should be removed from additional rent.  This “item inclusion review” is just one component of total review – which includes looking at the history of building costs as well as taking steps to limit exposure to exorbitant increases in the future.



Working with People that We Like

If you can’t see yourself working with someone for life, don’t work with them for a day.
— Naval Ravikant, Successful Tech Angel Investor

Admittedly, this is way easier said than done. At some point in our careers, especially in the early stages, we may not have the luxury of selecting who we work with or for.  Warren Buffet, certainly someone with a lot of autonomy over his working life has said “I don’t have to work with people I don’t like.”

Still, while it’s a luxury to select who we work with to the extent we can choose; I believe we should choose for the long run.  While we will all undoubtedly find ourselves in situations where the priority is production or task completion, what we choose in the present can be determined by our long-term vision.  It’s the decision between being transactional in what we do versus being relationship based. If we are thinking beyond the quarter’s or year’s goals, then what type of values and priorities as parameters do we choose for those goals?

For me, I want to feel rewarded in completing those goals alongside people I like. Success, like laughter or a lot of things, is best when shared.  And what’s better than forming friends out of the people that we work with so that we can enjoy our day to day life, regardless of the resulting production? 

Of course, the best part of all this is that good relationships can be a key ingredient to success anyway.  It takes some amount of initial faith to move from the transactional to the intangibles in life.  It can feel a little untethered to leave the world of projections and objectives to spend some time in creativity or self-expression.  However, to use one more Naval Ravikant quote, “Following your genuine intellectual curiosity is a better foundation for a career than following whatever is making money right now.” I think this statement utilizes the same philosophy as the first quote – namely that the priority should be working in a way that provides some immediate gratification in the form of being with people you enjoy and following genuine interests.

SRE is based on the notion of being around people we like. Our core plan is simple. Do good work, be you and be excited about what you do. 

Our business, is a relationship based one. 




How much office space does Amazon really occupy in Seattle?

How much office space does Amazon really occupy in Seattle?

This is a question I ask myself on my daily stroll along Blanchard Avenue from the Westlake Whole Foods up to the SRE office at the Denny Building.  That walk looks like a jungle gym of sidewalks covered by scaffolding and cranes.  As you cross 4th Ave heading West you are literally between two full city blocks being developed by Amazon. This is before you get to 5th Ave and find yourself on the corner of the two brand new towers just built by Amazon.  Are we now a one company town?  To answer this, let's break down the numbers. 

Facing southwest on 8th Avenue and Blanchard Street - site of another 1 million square feet of Amazon office space

Facing southwest on 8th Avenue and Blanchard Street - site of another 1 million square feet of Amazon office space

Here is our breakdown:

By The Numbers:

  • All Amazon occupied Seattle Office Space= 8.1m square feet
  • Total Class A downtown office space =42.5m square feet
    • Amazon is 19% of Class A Seattle Office space! 
  • Total Class A office space in all South Lake Union and Denny Regrade = 12.9m square feet
    • Amazon is most of this area! 
Amazon Graph - SLU.PNG
Amazon Graph - Class A.PNG

AMAZON AS AN Urban Campus:


What is striking is that Amazon occupies a huge portion of office space in the South Lake Union area as well as an extremely significant part of all Seattle office space.  What is really unique about this isn’t necessarily the size of the campus, but that it is in a major city.  Microsoft actually occupies 14.6 million square feet but that is largely concentrated in suburban Redmond and spread out into Bellevue and Seattle.  Google has 14 million square feet but it is spread out around suburban Silicon Valley. Amazon wants to be in the middle of everything.  The next largest single downtown office user in the nation is Citi at about 3.7m square feet however they are located in New York City, a much bigger market.  It truly is a unique occurrence that one company has this size of an urban campus.

Facing northwest on 8th Avenue and Blanchard. Site of more construction that will add to the already 8.1 million square feet of office space occupied by Amazon

Facing northwest on 8th Avenue and Blanchard. Site of more construction that will add to the already 8.1 million square feet of office space occupied by Amazon



Why Representation?

“If everyone is working for you then no one is working for you.” 

One common concern we often hear is that an exclusive agreement with one company excludes other brokers from working on an assignment.

Let’s address this by considering how the brokerage world reacts to an organization entering the marketplace unrepresented. If an organization’s message to the real estate world is that “we are in the market and whoever brings the space gets the deal” then for brokers it will be a race to bombard you with information on many spaces, in a speedy manner but not necessarily in a clear manner.  Where your company would benefit from a prepared report, complete with floor plans, direct verification of availability, availability dates, building operating expense information and other details, you would instead receive information in the quickest way possible so that another broker doesn’t end up hitting “send” on the email just one minute late.  It will then be your responsibility to sort and compare information.  With several brokers vying to represent you to several different buildings you will be left without a single advisor that can compare all available options for you.  Without representation, no professional brokerage will be able to dedicate the time needed to prepare and present quality information. 

Searching for properties, verifying availability dates, gathering floorplans, and evaluating tenant improvement packages takes considerable time.  A knowledgeable, experienced person or team will handle all of this for you. Establishing an exclusive relationship will enable the broker to dedicate their time and team’s energies toward delivering quality information, scheduling tours, and lending expertise. Simply put – selecting a real estate brokerage team as an exclusive representative means that you actually have a team working for you.  That work extends beyond the initial stage of gathering availability information and tour scheduling.  A true advisor can provide comprehensive market information, manage a proposal process, provide an evaluation of alternatives, and deliver regular updates on the process.   


There are also function challenges faced without representation. Here is an example of an initial roadblock to receiving quality service often encountered when a party does not have dedicated representation:

Broker A contacts three developers to discuss building a company’s new distribution facility.  Broker A may want to express to these developers that he is working on behalf of a tenant with $10 million in revenue, looking for 25,000 square feet with a targeted March 2018 occupancy.  At this point these developers are aware of the requirement, have gained some level of initial qualification (revenue) and know the best contact for requirement (Broker A).  One week later, Broker B calls the same developers (or some of them) and announces a requirement fitting the same description as Broker A’s “client”.  At this juncture, the developers will first be in the awkward position of not knowing who to deal with. Next, the credibility of the broker and end user themselves will be called into question and the developer will downgrade the likelihood and seriousness of the potential project.  Brokers, investors, and developers share information to facilitate transactions. Clarity and credibility are key in an efficient process.
If somehow proposals were to be gathered from the hypothetical developers with different brokers interfacing on behalf of the distribution company there will be another problem.  Those brokers will not be able to properly leverage those opportunities to create value for the end user. Instead the company itself will have to negotiate the options without having a broker mutually aligned in their interests as the brokers involved will be cut out of the deal, with all efforts wasted, if the project they are not interfacing on is chosen.  Again, nobody will actually be working on behalf of the organization.

Becoming a Priority

Another concern we sometimes hear occurs when a buyer is looking for off market property.  The buyer may not want to exclude brokers from bringing a property by committing to one brokerage team.  This can sometimes apply to sellers looking for buyers or tenants looking for space. 

Brokers will gladly note unrepresented active tenants or buyers. However, when they find an off-market property they will then be incentivized to try and procure the exclusive listing with the property owner first.  The broker is incentivized to collect notes on several tenants or buyers.  Since he doesn’t represent you, you will just go in the file as another active buyer or tenant. When he or she identifies a property, the broker will be in an advantageous position to represent the property owner and bring the property to the several tenants and buyers at once rather than bring the property to you first.  Without representation, you will not be a priority.

Also, it is very important to note that without representation the broker will not be able to dedicate time towards actively searching through off market properties on your behalf.  This goes back to the issue of being able to dedicate resources addressed in the first part of this post. 

The Benefits of Representation

The exclusive relationship means that a dedicated team of professionals are being put to work on your behalf.  It means that we can make you a priority.  At SRE, we want to give our full attention to our clients. We want to establish trust. We want work to be truly fulfilling for us and our clients. We know that the only way that happens is when we can go beyond the transactional. Fulfilling work happens with the establishment and growth of relationships. 


Built To Suit

Built To Suit


A “build to suit” is a type of real estate development wherein a building is constructed to meet the specific requirements of a particular end user. This begins with an undeveloped site and ends with the delivery of a finished product.  Key advantages include being able to customize building components and property features to a specific use. This could include everything from aesthetic features to parking and loading configurations.  A disadvantage may be the long amount of time required to plan and construct a new commercial building. 

During the exploration stage of a potential build to suit, tenant/buyer advisors are critical. Advisement encompasses qualifying the capabilities of the developer and the site.  Review of the planned end-product with a market expert is also crucial.  Users will want to ensure that the planned project has high long-term functionality relative to the market, especially if considering a purchase of the building.  


First, there may not be anything existing readily available that meets the specific needs & requirements of the end user.  The user may have fairly straight forward specifications however in a low vacancy market, it is possible that a build to suit may be the only option. However, it is more likely that a build to suit would be advantageous or necessary if the requirement is somewhat outside of the norm; for example – a larger than typical space, above average parking, etc.  It is also possible that a build to suit will also open more opportunities to purchase.  


The process of constructing a new office or industrial building can take up to approximately 2 years.  Six to nine months of this process can be permitting and planning and another 6 to 9 months in actual construction.  Additionally, it may take 6 months or longer to identify an appropriate site and conduct initial due diligence.  Working with a real estate agent 1 to 2 years prior to an expected relocation or new facility acquisition assures that all options are available. 


Development of commercial property can be complex.  There are initial land studies - environmental and geological, as well as interpretation of those studies. There is planning and permitting which is typically a months long process. Then, finally, there is construction.  It is best to involve an experienced developer or project manager. This can be done after the identification of a site. The reason behind this is that a site may sometimes go along with a particular developer. If the site ownership is a developer than the site may only be available as a build to suit from that particular entity. In the case that the site is not developer owned, it would be the responsibility of the user and its representation to employ a developer or project manager in conjunction with the site acquisition.  


The first step is to engage a commercial real estate advisor that can begin identifying sites.  From there, the advisor can engage the appropriate consultants for initial site investigations and negotiate terms of the acquisition.  At SRE, we will guide your organization throughout the process, from site exploration through the construction of the project and final occupancy.