If you currently invest or are considering investing in commercial real estate, here are a just a few more commercial property terms that you should be familiar with.
Clear Span
Clear span means no columns, posts, or anything else that might impede traffic. This relates to more specialized buildings, such as at the airport. Those buildings are not just for airplanes, but more for companies like Emery Air Freight and UPS. Theyre interested in how quickly they can get into a building, get the package, and get it out of the buildingno matter where it is in the warehouse. That means that they will be looking for greater clear span areas. Its a more expensive space, because of the trusses. The greater the clear span, the more expensive the truss work, and the more engineering that has to go into the building.
Tips:
Some companies require a tremendous amount of clear span
Unless you understand the industry and marketplace, stay away from it.
If youre getting into this specialty area of real estate, someone may ask you if you have any buildings with columns every 20 feet and lots of clear span. They may even expect you to be able to clear a couple of columns, which may involve major engineering issues. So, if youre considering entering into a specialty product or a specialized industry, be careful.
Anytime youre dealing in the warehouse arena, always consider these elements:
Column spacing
Bay depth
Clear span
Ceiling Height
Today, people favor higher ceiling heights, especially for pure warehouse space-type property usage. It increases cubic capacity, because the cheapest way is stacking and racking. If you can stack 20 feet high instead of 10 feet, it effectively doubles usable area, but does not double cost.
So keep ceiling height in mind as you evaluate warehouses to acquire versus other similar properties you may be considering. The higher the ceilings, the more appeal to certain kinds of storage-oriented tenants (just be sure to point it out to them if you do in fact have much higher ceilings than similar properties available for lease!).
Functional Obsolescence
Some buildings are Class B buildings on the day they open because they dont measure up to previous Class A buildings. Class A buildings will have no functional obsolescence in other words, nothing in that building is considered old-fashioned or outdated. Most Class B buildings, and all Class C buildings, have functional obsolescence. Functional obsolescence is not easily determined. For example, if you enter a building and go into the elevator, youll notice immediately if the elevator is three feet by three feetthats functional obsolescence. Its claustrophobic and the novelty of the elevator was okay to have 40 years ago, but its no longer acceptable.
When that office building was constructed, the functional obsolescence of that elevator was literally cast in steel. Youre not going back and rehab that elevator to make it bigger, because its impossible. That elevator shaft was built with poured-in-place concrete, so removing the elevator might cost as much as rebuilding. You can install a new elevator thats bigger at great expense, but you cant make an elevator bigger. Thats how you measure a buildings functional obsolescence looking for obvious things like elevators that cant be changed.
Learning commercial property terms is not difficult. You just need to understand them as they relate to the industry. Taking the time to learn them will help you become more knowledgeable in this real estate industry.
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