Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Commercial Real Estate

What it is:

Commercial real estate is any property that is exclusively used for business activity.

How it works (Example):

Commercial real estate is any non-residential property used for commercialprofit-making purposes. Commercial real estate includes stores, malls, office buildings, and industrial parks.

For example, a baker wants to open up a store in a Dallas strip mall owned by a commercial real estate company. Instead of paying the high up-front costs associated with buying the building, the baker will lease the floor space from the company, paying them a monthly rent. This is how the commercial real estate company makes the majority of its revenue -- by collecting rent and other payments from its property's tenants.

Why it Matters:

Commercial real estate provides venues for companies to carry out daily operations and cater to customers conveniently. Companies generally lease commercial real estate in order to maintain cost-effectiveness and flexibility.

Real estate investment trusts (REITs) are most often compiled of commercial real estate assets as opposed to residential real estate.

The potential profitability of commercial real estate may surprise you. McDonald's (NYSE: MCD), probably the world's best-known fast food company, actually derives most of its profits from its property assets, not from food.  McDonald's, with its premier locations, owns arguably the most valuable property in the world.