Commercial properties in California have great potential to produce income, but owners must make an ongoing effort to maintain their curb appeal, occupancy and net operating income. Mortgages on commercial real estate mature every five to 10 years, and property investors need to be ready to withstand the scrutiny of lenders when the time to refinance arrives. Refinancing a commercial building could also present an opportunity for the investor to increase cash flow or cash out equity to pay for new investments.
Commercial real estate lenders look primarily at net operating income when they make lending decisions. Landlords who let space remain vacant, ignore maintenance or fail to collect rent will face an uphill battle when trying to secure a new loan. Lenders could view a building with vacant space or persistently unpaid rent as distressed properties. If a loan does come along, the terms and interest rate will be undesirable.
To avoid this situation, a building owner should catch up on maintenance and invest in upgrades whenever possible. These efforts could attract new tenants and allow the landlord to increase rents. An owner who puts in this work and improves the net operating income will be able to present a property with a rising value to lenders.
A landlord who wants to buy, sell or develop a property might need legal advice. An attorney familiar with commercial real estate could research issues like zoning and environmental regulations that could impact the investor’s plans for a property. Legal representation might help the person gain approval from local authorities for building plans. In addition, legal review of a financing agreement could help a client understand the risks and obligations associated with the loan contract.