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Tips on Commercial Real Estate

IKEA's Distribution Center Dilemma: A Lesson in Real Estate and the Post-Pandemic Economy

IKEA logo

As a real estate license school in Rancho Cucamonga, California, we are vested in local developments and how they impact the surrounding community. Recently, IKEA's announcement of abandoning its initial

As a real estate license school in Rancho Cucamonga, California, we are vested in local developments and how they impact the surrounding community. Recently, IKEA's announcement of abandoning its initial plans to construct a colossal retail store in Ontario and opting for a distribution warehouse piqued my interest. Furthermore, the city's reaction to this planned shift carries significant implications and is worth observing closely. I wanted to write about this specifically because there are so many lessons here for the new real estate agent or the person studying for their real estate license exam. Among these lessons are exploring the role of cities in dictating land use, how the economy has changed post-pandemic, and how that has influenced this potential new location. Public records reveal that in 2019, IKEA purchased at least five parcels just north of the 10 freeway in Ontario, encompassing around 25 acres of land. Reporting indicates that IKEA initially planned to build a 330,000-square-foot retail store on Inland Empire Boulevard, across from the Ontario International Airport. This was undoubtedly a massive decision for IKEA as the company only has around 50 stores in the entire United States and there is already a massive retail showroom in Covina - only about 15 miles west of the proposed new location. Reporting also suggests that due to the pandemic, the company pivoted its business model and wanted to build a distribution warehouse instead of a full retail location. In the same reporting, the Daily Bulletin reports that this proposal to change the site from a retail showroom to a distribution center did not sit well with the city of Ontario. It appears that the city is going to block IKEA’s proposal according to additional reports. Questions remain as to what IKEA will now do with the around 25 acres that they own and whether they will be able to come to some compromise with the city of Ontario. From your Real Estate Principles course, you might remember that in urban planning, general and specific plans serve as two distinct yet related tools for guiding land use, development, and growth within a city or a county. Both plans help ensure that development occurs in a well-organized and sustainable manner, addressing various aspects of land use, zoning, transportation, housing, and environmental concerns. General Plan A general plan, or a comprehensive plan or master plan, is a comprehensive, long-range policy document that establishes the overall vision, goals, and objectives for a city or county's future growth and development. It provides a framework for land use, circulation, housing, conservation, open space, safety, noise, and other elements crucial to the community's well-being. The general plan guides decision-making regarding zoning, capital improvements, public services, and other land use matters. The general plan consists of several elements, each addressing a specific community development aspect. These elements are usually interrelated and should be consistent with one another. State laws often dictate the minimum required elements for a general plan, but local governments may include additional elements as they see fit. Specific Plan On the other hand, a specific plan is a more detailed planning document that focuses on a smaller, well-defined area within the jurisdiction. It serves as a bridge between the general plan's broader policies and the actual development projects that will take place within the specific plan area. Specific plans outline precise development standards, land use designations, zoning regulations, infrastructure requirements, and implementation measures for the targeted area. They are tailored to address the unique needs and characteristics of the area in question, ensuring that development occurs in accordance with the community's vision and the general plan's goals. In summary, while the general plan provides a comprehensive, long-range vision for the entire city or county, the specific plan offers a more detailed and focused approach to land use and development within a particular area. Both types of plans work together to ensure that growth and development occur in a well-planned and sustainable manner, reflecting the needs and aspirations of the community. The Post-Pandemic Economy and IKEA's Decision The COVID-19 pandemic has significantly impacted the global economy, forcing businesses to adapt and change their strategies. One major shift has been the growth of e-commerce and the need for more efficient distribution channels. IKEA's decision to attempt to build a distribution warehouse instead of a traditional retail store is a clear reflection of this trend. As a real estate license school, we must stay updated on such trends and share our insights with our students and community. The evolving economy post-pandemic, the impact on businesses like IKEA, and the importance of cities' role in land use are all valuable lessons for aspiring real estate professionals. Ontario's IKEA distribution center dilemma is a prime example of how the post-pandemic economy, land use regulations, and city planning intersect in real estate. As a real estate school, we strive to provide relevant, timely, and informative content for our students and community. Stay tuned to our ADHI Schools blog for more local developments and real estate news updates and if you are interested in getting your real estate license visit or call us at 888-768-5285. Love, Kartik
Tips on Commercial Real Estate

Understanding Los Angeles' Controversial Mansion Tax and Its Implications

Mansion tax and large homes

Los Angeles is currently grappling with a significant homelessness crisis, and city officials are searching for ways to address this pressing issue. One idea that went into effect recently is the so-called

Los Angeles is currently grappling with a significant homelessness crisis, and city officials are searching for ways to address this pressing issue. One idea that went into effect recently is the so-called “mansion tax”, a controversial policy that has generated considerable debate among residents. While some argue that the tax is necessary to alleviate the city's housing crisis, others contend that it unfairly punishes wealthy property owners and successful individuals. I wanted to write an article that delves into the complexities surrounding the mansion tax, exploring both the benefits of the tax in addressing homelessness and the concerns about its potential negative consequences. Most of our real estate classes are now on Zoom and done virtually, but I taught at a couple of real estate schools on the Westside of Los Angeles for many years and several of our students wanted to break into luxury real estate and I’m curious to know what you think. Understanding the Mansion Tax On April 1, 2023, a so-called “mansion tax” was enacted in Los Angeles. The tax applies to property sales at or over $5,000,000, with an increased rate for sales of $10,000,000 and above. The tax was approved by voters in November 2022 as a city-wide tax, implementing a 4% tax on properties that sell for $5 million or more and 5.5% on properties that sell for $10 million or more. The mansion tax aims to raise about $900 million yearly for affordable housing, homelessness programs, and other related initiatives. However, the tax has faced criticism from real estate brokers, developers, and property owners. Arguments for the Mansion Tax Proponents of the mansion tax argue that it is a much-needed source of revenue to address the affordable housing crisis and homelessness in Los Angeles. The tax is expected to generate millions of dollars earmarked for subsidized housing, housing acquisition and rehabilitation, rent assistance, and homelessness-related programs. Advocates say the tax will help bridge the gap between the rich and the poor and provide resources for those in need. A 2022 UCLA study found that the mansion tax's potential impacts on new construction would be minimal, suggesting that the tax will not significantly deter developers from building new properties in Los Angeles. The mansion tax in Los Angeles, despite its drawbacks, offers several benefits that could potentially help address the city's homelessness problem: 1. Generating Revenue for Affordable Housing and Homelessness Programs: The mansion tax is estimated to raise about $900 million annually, which can be directed towards various initiatives focused on tackling the housing crisis and homelessness. This additional funding can support the construction and preservation of affordable housing units and provide rent assistance to those in need. It can also help fund comprehensive homelessness programs, such as emergency shelters, permanent supportive housing, mental health services, and job training programs, essential in addressing the root causes of homelessness. 2. Progressive Taxation: The mansion tax is a form of progressive taxation, as it targets high-end property sales and wealthier individuals who can afford to pay a higher tax rate. This approach can help reduce income inequality and bridge the gap between the rich and the poor. By imposing a higher tax on luxury properties, the city can allocate more resources to support vulnerable and low-income residents, often disproportionately affected by the housing crisis. 3. Encouraging Efficient Use of Land: The mansion tax might encourage more efficient land use in Los Angeles. Luxury properties often occupy large plots of land, and the mansion tax could motivate property owners to either downsize or sell their land to developers who might build more affordable housing units in its place. This could ultimately increase the overall housing supply, alleviating the pressure on the city's housing market and potentially reducing homelessness. 4. Increased Awareness and Involvement: Implementing the mansion tax has generated significant public debate, raising awareness of the homelessness crisis in Los Angeles. This increased attention could lead to greater involvement from residents, businesses, and other stakeholders in finding long-term solutions to the housing crisis. This collective effort could result in developing more effective policies, initiatives, and partnerships to address homelessness in the city. 5. Demonstrating Commitment to Social Responsibility: The mansion tax conveys that Los Angeles is committed to addressing its homelessness problem and working towards a more equitable city. By using tax revenue from luxury property sales to fund affordable housing and homelessness programs, the city demonstrates its dedication to social responsibility and the welfare of all its residents. The mansion tax in Los Angeles presents several potential benefits that could help alleviate the city's homelessness problem. By generating additional revenue for affordable housing and homelessness programs, promoting progressive taxation, encouraging efficient land use, raising awareness, and demonstrating a commitment to social responsibility, the mansion tax might contribute to creating a more equitable city and ultimately reducing homelessness. Arguments Against the Mansion Tax Critics of the mansion tax argue that it may slow the number of new apartment complexes built in the city. The tax applies not only to mansions but also to apartment complexes, retail and industrial buildings, and other structures. Real estate brokers and developers, including those with real estate licenses from real estate school and those who have passed the California real estate exam, warn that the tax will disincentivize developers from building new housing. Moreover, the tax has faced backlash from wealthy homeowners, including celebrities, who rushed to sell their properties before it went into effect. Some critics argue that the tax may depress property values and force sellers to cut prices to complete deals before the deadline. Additionally, opponents of the tax are concerned about the transparency of how the revenue will be spent, and they argue that the tax may dissuade people from moving to Los Angeles. Higher Costs: Wealthy individuals considering purchasing a luxury property in Los Angeles might be deterred by the additional costs associated with the mansion tax. In comparison, other cities or states without such a tax might become more attractive for high-end property buyers, leading them to choose alternative locations for their investments. For example, a prospective buyer might opt for a luxury property in Miami, Florida, with no state income tax or mansion tax, making it a more financially appealing option. Reduced Investment: Investors might also be less inclined to purchase properties in Los Angeles subject to the mansion tax, as it could potentially reduce the profit margin on their investments. This could result in a decline in the city's overall demand for luxury properties, further impacting the real estate market and potentially leading to reduced property values. Consequently, the city could experience a slowdown in real estate investments, which could negatively affect the local economy and limit available resources to address homelessness and other social issues. Impact on Business and Talent Attraction: Businesses, particularly those in the entertainment and technology industries, often attract high-income employees and executives who might consider purchasing luxury properties. However, implementing the mansion tax could discourage some individuals from moving to Los Angeles. In turn, this could make it more difficult for the city to attract new businesses and retain existing ones and limit its ability to draw in top talent across various industries. Celebrity Exodus: Los Angeles is known for being home to numerous celebrities who often own high-end properties. The mansion tax could potentially prompt some of these high-profile individuals to sell their properties and relocate to areas with lower taxes, as seen in the backlash from wealthy homeowners who rushed to sell their properties before the tax went into effect. This exodus could further contribute to the decline in property values and negatively impact the city's image, tourism, and the overall economy. In conclusion, implementing Los Angeles' mansion tax has stirred a significant debate in the city's real estate market. Advocates argue the tax will generate much-needed revenue to address the city's affordable housing crisis and homelessness issues. However, opponents contend that the tax will dissuade property development, negatively impact non-luxury properties, and ultimately harm the real estate industry in Los Angeles. As real estate professionals with real estate licenses from real estate schools, and those studying for the California real estate exam, monitor the situation, the long-term implications of the mansion tax on the city's real estate market remain uncertain. Time will tell whether this tax proves to be an effective solution to Los Angeles' housing challenges or an obstacle to the city's real estate growth. As always if you are interested in getting your real estate license, visit or click here for a real estate exam crash course. Or if you’re old school - call us at 888-768-5285. Love, Kartik
Tips on Commercial Real Estate

What is the GRM in real estate?

Grm in real estate1

Get ready for a little bit of basic math as we define the GRM in real estate investing and compare it to the capitalization rate. Both the GRM and capitalization rate (also known as the “cap

Get ready for a little bit of basic math as we define the GRM in real estate investing and compare it to the capitalization rate. Both the GRM and capitalization rate (also known as the “cap rate”) are important metrics for investors to consider when looking at an investment property. If you are interested in real estate investing this will be a good read for you. I’m guessing that most readers who are interested in getting their real estate license have at least toyed around with the idea of investing in real estate. The gross rent multiplier represents the relationship between the gross income that a property produces and its potential purchase price or value. It is a simple back-of-the-envelope way to represent the multiple of the gross income relative to the property’s purchase price - the GRM is not a measurement of time (more on that later). As a general rule, the higher the GRM the more pricey the property is relative to the income. The lower the GRM the more of a “value” investment the property might be. Investors looking for the most “bang-for-their-buck” might seek out properties with lower GRMs as the multiple of gross income to the amount invested is lower. Examples of the GRM As an extreme example, consider the property below. Purchase price = $100,000 Gross yearly income = $100,000 In the above case, the GRM would be 1x. The purchase price of this property equals the gross rent collected. This is an impossible and extreme example but it illustrates just how good of a deal this would be if it were true. Imagine a property that rents for $100,000 per year (or about $8,333 per month) that you could buy for only $100,000. This would be such a good deal that you would have to get in line and fight hundreds of other investors for it. More likely, is that if a property rents for $100,000 per year that it would cost something like $2,000,000 or 20x the gross rent collected. Again, lower gross rent multipliers can generally represent better value purchases for investors and higher gross rent multipliers mean that the investor is paying more for every dollar of rent collected. More Realistic Examples of GRM Property 1: Purchase price $2,500,000 Gross annual income of $50,000 $2,500,000 / $50,000 = The purchase price is 50x the gross rent collected. Property 2: Purchase price $1,750,000 Gross annual income of $75,000 $1,750,000 / $75,000 = The purchase price is 23.3x the gross rent collected. Drawbacks to the GRM There are some drawbacks to using the gross rent multiplier method as the only way to value property. Because only the gross rent is considered expenses are not factored into this equation. This is a key distinction between the gross rent multiplier compared to the capitalization rate of a property. Unlike the GRM, the cap rate does consider expenses like property taxes, insurance, maintenance and management to name a few to calculate net operating income. The GRM merely looks at the total rent collected relative to the gross income of the property. Investors may look at both the gross rent multiplier and the capitalization rate to determine whether or not a property is a good investment and compare it with other properties the investor might be considering. However, rarely will an investor only consider the GRM. What is the difference between the GRM and cap rate? The Gross Rent Multiplier and the capitalization rate are two wildly different methods of valuing an investment property. As I mentioned above, the GRM is a very simple way to find out how many times the gross rent collected will equal the value. The capitalization rate on the other hand is a way for an investor to determine the annual rate of return. Formulaically, the capitalization rate is calculated by taking the net operating income that the property produces and dividing it into the purchase price. If you are interested in learning more about the cap rate check out the first in a 3 part series here: As a matter of practice, most investors will give more credence to the capitalization rate as opposed to the GRM. Why the GRM isn’t a measure of the number of years it will take to pay off the property There are several problems with assuming that the GRM is the number of years it will take to recoup your investment. The first fallacy with considering GRM as a measurement of time is that it does not take into account expenses. If a property produces $50,000 per year in gross rent, the GRM does consider property taxes, insurance, maintenance, management nor does it include any debt service that the investor might be paying to secure the investment. The second issue with considering GRM as a measurement of time is that rent typically increases as time progresses. The gross rent multiplier only considers the current rent not any future rent increases. For the above two reasons, it is inaccurate to assume that the GRM is some measurement of the “number of years” it would take to recoup your investment because it doesn't include expenses, nor does it include any future increases in rent. Both of these affect the amount of time it will take to get your investment back. Does a buyer want a high GRM or a low GRM? Generally, as a buyer, a low GRM is preferred. Lower GRMs generally represent better deals for buyers because the ratio of the gross income to the purchase price is lower. Higher GRMs generally mean that the buyer of an investment property is paying more for every dollar in income that the property produces. Closing thoughts While not perfect, the gross rent multiplier is still a common method that investors used to analyze a particular property. Keep in mind that this is not the ground truth golden method, because expenses are not considered. If you are considering signing up for real estate school we would love to have you! Love, Kartik
Tips on Commercial Real Estate

6 Things To Consider When Starting as a Commercial Real Estate Agent

6 steps to becoming a commercial

Starting a career in real estate and obtaining your real estate license opens up a new world of opportunity to you.There are so many different career paths that can be taken one you get your real estate

Starting a career in real estate and obtaining your real estate license opens up a new world of opportunity to you.There are so many different career paths that can be taken one you get your real estate license. While it’s true that most of our students start their career selling houses, commercial real estate (CRE) is also an option for you in California. There are similarities between both areas of practice as they involve helping clients buy, sell and lease property so the desired outcome is the same. The high level difference is that the clients to whom you provide services are simply looking at a different class of property. A common misconception is that the commercial side of the business is somehow more complicated than residential but in many ways the opposite is true. Commercial files can be thinner because there are many forms and documents that are required in residential real estate that don’t exist in the commercial world. In any case, if commercial is an area of specialization you find appealing,here are some things to consider and things you’ll need to do: 1. Obtain a real estate license Every real estate agent, regardless of whether they plan to work in residential or commercial real estate, must meet specific criteria and pass an exam. Individual states set their own criteria, so be sure to research your state’s process. Generally speaking, you must meet eligibility requirements, take approved re-licensing real estate classes , and pass the real estate exam to obtain a license. 2. Find a firm specializing in CRE After you choose a real estate school and receive your real estate salesperson license in California, you’ll have to place your license under a broker. Once you select a broker, the firm will dictate the type of real estate you can practice. If you want to pursue work in the CRE market you will have to find a broker that has the bandwidth and resources to conduct commercial sales and leasing. This is where it can get a little sticky because most residential firms don’t offer the tools needed to do commercial real estate and most commercial firms don’t offer the residential tools to sell a house. 3. Get trained up in commercial real estate Finding someone to mentor and train you to practice commercial real estate is not as easy as finding a residential mentor. Part of why this is true is that there are far more residential real estate agents than there are commercial ones and residential firms are typically more eager to hire than commercial ones. There are large commercial companies like CB Richard Ellis and Jones Lang LaSalle that might hire you with the right resume and connections, or you can explore working at a more boutique local shop in your area. The key thing here is to find solid training and a mentorship program that will allow you to start your commercial real estate career properly. 4. Identify an area of specialty Many residential real estate agents specialize in certain types of homes,such as retirement communities, townhouses, luxury homes, or another niche. The commercial real estate industry tends to be even more specialized than this.The commercial real estate world tends to be broken down into five pillars: Retail - Shopping centers Industrial - Warehouse type uses Office - Larger or single tenant office spaces Raw land - Developer specialization Apartments/multi family sales - 5 or more apartment units While there can be some cross-over between these two functions there is still a high level of specialization. 4. Identify an area of specialty Not unlike residential real estate, you need to have marketing and branding strategies in your toolbox. In addition to the types of properties you want to specialize in, your plan should include factors such as how to target clients, budgets, unique selling points, and strategies to client outreach. These branding and marketing initiatives can include real estate postcard mailing, really cool property photos, or a social media strategy. 6. Explore other career possibilities One of the benefits of working in the commercial real estate field is the ability to expand your practice. Besides an area of specialization, there are opportunities to participate in arranging financing for a property, performing property management, or (as mentioned above) negotiating tenant leases. Just how wide of a net you can cast is going to be dependent on your brokerage and the services that they offer. If your brokerage doesn’t have a trust account and accounting systems created, you won’t be able to legally conduct property management so you’ll want to explain your aspirations to your broker and see if they have a system to support your endeavors. A final thought Because sales prices are generally higher on commercial properties than residential ones commercial agents often find they can earn larger commissions, which can equate to higher annual earnings. Many agents who specialize in this area find it to be a lucrative, exciting, and rewarding experience. It's important to know, success doesn't come overnight, it takes effort and experience. The large commercial deal sizes can have a negative impact on the commissioned real estate agent, however.If your entire earnings for the year are dependent on one large deal that ends up falling apart this can put you in a precarious position. Nevertheless, if commercial real estate sounds appealing to you,you need to start with our real estate license course.Register today so we can help you prepare for a lucrative career in the commercial market. Love, Kartik
Tips on Commercial Real Estate

How Much Do Commercial Real Estate Agents Make?

Commercial real estate agent closing a sale

People considering signing up for real estate classes commonly ask the question “Can I do commercial real estate once I get my real estate license?” The answer to this may vary depending on your state.

People considering signing up for real estate classes commonly ask the question “Can I do commercial real estate once I get my real estate license?” The answer to this may vary depending on your state. In the case of California, our Department of Real Estate makes no distinction with regard to licensing commercial or residential real estate agents. The same license to sell a house would be the same license to sell a large building . While this is encouraging for the new licensee considering beginning a new career, it’s important to understand that there are different specialities as it relates to the world of commercial real estate. The five commercial real estate disciplines are office, retail, industrial, multifamily and raw land sales. With the exception of land, each of these areas have a couple of different ways to make money: Leasing and sales. While real estate commissions are negotiable in California, the typical percentage earned is 3-6 percent of the transaction value regardless of whether you are leasing or selling the underlying real estate. As an example - Let's start with a commercial lease. Imagine you are a commercial leasing agent and you have a dentist looking for 3,000 square feet of space in Los Angeles, and the rent is set at $3 per foot. She is likely going to be signing a lease for a five year term or 60 months. 60 months x $9,000 per month is a $540,000 lease value. This doesn't take into account annual rent increases that you'll likely be paid on also. Generally, representing this dentist would yield you a $16,200 commission. ($540,000 x 3% = $16,200) This is a handsome payday considering there's no escrow period, no appraisal, and there’s no home inspection. No request for repair or even a termite report. You sign the lease, generate an invoice and get paid. On commercial sales, the commissions can be even larger. Imagine a $6 million office building. You would generally get 3% of this. Your commission would be around $180,000. Not bad. Commercial real estate can be a lucrative career for someone seeking something a little different from the day to day life of selling houses. What's also nice about commercial real estate is that there are so many different disciplines. You can focus on selling shopping centers or office buildings, or even helping developers find land on which to build. Each one of these practice areas requires a different skill set and has unique vocabulary depending on what you are selling. For example, in industrial real estate the wiring and power capacity might be important. Do we have 3-phase power? In retail the co-tenancy would be a consideration. Who are the other retailers in the center and how can they help drive traffic to my store? Office and the other disciplines have their own unique considerations. When you get your real estate license in California, it doesn’t have to be about just selling houses. There are a lot of other career choices that are less competitive, but more lucrative than residential. If you are considering doing both it’s important to bear in mind that very few real estate companies do both well. The skillset, paperwork and databases to sell houses are actually different than those associated with selling commercial. That's why it's important to make sure that when you do get your real estate license in California, you are lined up with a brokerage that can set you up to succeed. Commercial real estate databases like LoopNet or CoStar can be quite expensive and most residential real estate companies don't have active subscriptions. Similarly, most commercial real estate companies don't have MLS access like a Century 21 or Keller Williams would. If you have any questions about getting your license or if I can help you get started please call me at 888 768 5285 or drop me a message. Love, Kartik