Page 97 - Trump University Commercial Real Estate 101

Ho w to Read a Deal

Parking

Parking is very important at commercial properties. With offi ce and
retail spaces, look for a ratio of four spaces per 1,000 square feet. For
an apartment complex, you ’ ll want to see at least 1.5 spaces per unit.
If you ’ re considering converting an apartment complex into con-
dominiums, then you ’ ll want two spaces per unit, because this is the
typical ordinance for condos.
I ’ ve passed on many otherwise solid deals because the parking was
either not adequate or I could not add it cost - effectively.

Breakeven Analysis

Before we run the numbers on a couple of deals, let ’ s first talk about
your breakeven occupancy . This is a critical calculation, because if your
property drops below this mark, your property will not be supporting
you; instead, you will be using money to support it .
If you have a property whose breakeven occupancy is 82 percent,
you must keep it economically occupied at 82 percent to pay expenses
and debt service.
Notice that I said economically occupied . There are two types of occu-
pancy: physical and economic. Physical occupancy is the obvious version.
Economic occupancy is the percentage of units that are actually
paying you. The other units may not be paying you as a result of a few
months of free rent that you gave away in order to get tenants, for
example. Economic occupancy usually lags physical occupancy by a
couple of percentage points and sometimes more, depending on the
type of property you encounter.
The higher the breakeven point, the riskier the property.

Types of Properties

Just like the letter grades you were given in school, commercial prop-
erties are rated from Class A to Class D .

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