CRE 101

If you are new to the industry, this is where to start.  I break down the basics of the industry relative to property types and groups involved.  

What is commercial real estate?

Commercial real estate (CRE) is effectively any building that the owner leases to someone in exchange for money (rent).  It is everywhere you look.  If you are in a building that you or your family does not own, chances are high that you are in CRE.

Types of CRE

• Multifamily / Apartments: the fancy name for apartments if multifamily.  They are the same thing.  This consists of 2 or more rental units in one building or apartment complex.  It could be a simple as a duplex or as complex as a high rise apartment tower.

• Single Family Home (SFH) for Rent: this is a house that is rented as opposed to the owner living in it.

• Retail: have you ever gone to a physical store (not online) to buy something?  Then you have been to a retail property.  Examples: your local grocery anchored shopping center.  A restaurant.  Walmart or Costco. 

• Industrial: these are warehouse buildings used for storing, distributing, and/or manufacturing stuff.  There is also a sub-type referred to as industrial outdoor storage or IOS.

• Self-Storage: these are small storage facilities rented on a month-to-month basis.

• Office: these are office buildings where people work (mainly on computers).  If you look at many urban downtowns, they are full of high-rise office buildings (and often apartment buildings).

• Medical: sometimes considered a sub-set of office buildings, medical is where doctors and dentists work.  They require more extensive interior build outs than office.

• Biotech: these are highly specialized office or industrial buildings built out with laboratories and other specialty equipment for the biotechnology industry.

• Data Centers: some may argue that a data center is not commercial real estate.  A data center stores computer serves and other equipment to support websites, phone apps, and / or artificial intelligence.  Data centers are very expensive and specialized. 

• Hotels: imagine an apartment that rents by the day.  This is a hotel.  Although it is CRE, it operates more like a business that real estate.

People and Companies Involved in CRE

There are many!  See below for the industry players in a single slide.

Let's break down what everyone does.

Groups with Financial Ownership

• Owner: the owner could be a single person, a group of people, or a company.  The owner oversees the day to day management of the property.  If the owner raises money from investors, the owner is also known as the general partner (GP).  See the post on Equity & Joint Ventures for further discussion.  Some owners buy properties already constructed.  Some owners develop the properties.  They are known as developers or a development company.

• Investor: an investor invests in a property through the structure put together by the owner.  An investor can be also known as a limited partner (LP).  See the post on Equity & Joint Ventures for further discussion.

• Lender: whereas an investor has an equity ownership position in a property, the lender loans money to the owner in exchange for a monthly interest payment.  See post on Debt for more information.

Groups Providing Services to Owner, Investor, and/or Lender

• Brokers: brokers are involved in most transactions.  They keep the industry moving.  They specialize in selling buildings, representing buyers, representing owners (landlords) and tenants in leasing space, placing loans, and finding equity.  All of this is done for a commission.

• Title & Escrow: title companies have databases on documents that are recorded on the title of a property showing various rights to the property and ownership history.  Often the same company as title, an escrow company acts as a neutral 3rd party to facility the sale of a property or the placement of a loan on a property.

• Vendors: this is a catch all for groups that provide services for a property to the owner.  Examples: property management, property accounting, maintenance, repairs, and inspections.

• Construction & Design: often more complex building support is needed.  Example: expanding a building, major remodels, and new development.  In this case an owner will work with a general contractor (GC) for construction as well as various specialist for design support such as architects and engineers.

• Specialty Services: this is a catch all for the office workers that provide services.  Examples: 

  • Legal: lawyers negotiating document and working through legal disputes.

  • Valuation: appraisers and other valuation groups.

  • Audit: many loans and equity funds require an annual audit of the owner's reporting.

  • Tax: tax returns.

  • Insurance: this includes insurance brokers and insurance carriers.

  • Advisory: this could include consulting services to large investors, property tax appeals, and various other services specific to CRE. 

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Download "The Commercial Real Estate Industry in One Slide" here: CRE101

For further discussion on where to start in the CRE industry, see post on Career Advice.

Disclaimer: This information is provided to help you better understand commercial real estate.  It is based on my experience over 20+ years.  There is no guarantee that this information will allow you to be successful.  No guarantee is provided as to the accuracy of the information.  It is provided for educational purposes only.