How to Grow Your Commercial Real Estate Portfolio in Chicago

Investing in commercial real estate offers a unique and profitable opportunity for investors looking to expand their portfolios. Investing in commercial real estate can provide different benefits, from stable cash flow to long-term appreciation.

In this guide from our team of experts at Brian Properties, we'll explain the ins and outs of commercial real estate and provide you with strategies for your success.

So, continue reading to learn how to dominate the commercial market in Chicago and expand your portfolio.

Table of Contents

Why Invest in Commercial Real Estate

real estate developer and architect discussing new housing development project in office

Investing in commercial real estate presents several compelling reasons for investors.

One of the main advantages is the potential for higher income compared to residential properties. Commercial properties, such as office buildings, retail spaces, and industrial complexes, often command higher rental rates and longer lease terms, resulting in greater cash flow.

Moreover, commercial real estate investments offer diversification. You can spread your risk across different asset classes and industries by adding commercial properties to your portfolio. This diversification helps to mitigate the impact of market fluctuations and economic downturns.

Commercial real estate investments provide appreciation potential. Over time, well-located and well-maintained commercial properties tend to increase in value. As the demand for commercial spaces grows, especially in prime locations, investors can benefit from the appreciation of their investment.

What Are the Benefits of Growing Your Commercial Portfolio?

Piggy and the tree growing on money coin stack for investment and saving with financial report of investor real estate business

Growing your commercial portfolio comes with various benefits. One advantage is the potential for increased cash flow. As you acquire more commercial properties, your rental income can grow, leading to a higher monthly cash flow.

Expanding your portfolio allows you to leverage economies of scale, such as shared resources and operational efficiencies, which can further enhance your returns.

Another benefit of growing your commercial portfolio is diversifying your investments across different property types and locations. By diversifying, you can reduce the risk associated with a single property or market.

Consider exploring different property types, such as office buildings, retail centers, or industrial warehouses, to broaden your investment scope.

Furthermore, expanding your commercial portfolio allows you to take advantage of capital appreciation. As the value of your properties increases over time, you can build equity and potentially access additional financing options. This appreciation can provide opportunities for reinvestment or diversification into new markets or property types.

Apply Market Research and Analysis

Market and research analysis concept for commercial real estate

Conduct thorough market research and analysis before expanding your commercial real estate portfolio. This enables you to make informed decisions and maximize your chances of success.

Assess Market Demand and Trends

To grow your commercial portfolio, it is essential to understand the current market demand and trends. By analyzing the demand for different types of commercial properties, you can identify thriving sectors with growth potential.

This is especially important when investing from out of state, as you may not know the market as well.

Demographics study the population trends in the area, including age groups, income levels, and employment rates. This information can help you determine the types of businesses that are in demand.

Research the local and national economy to identify flouring industries and drive growth. For example, if the tech industry is booming in a particular city, there may be a high demand for office spaces.

Additionally, evaluate the level of competition in the market. Understanding the existing supply of commercial properties and the vacancy rates will give you insights into the demand and potential opportunities.

Identify Promising Locations and Properties

Choosing the right location and property is crucial for the success of your commercial real estate investments.

Evaluate the accessibility of the location in terms of transportation, parking facilities, and proximity to highways or airports. Easy accessibility is often a desirable feature for commercial tenants.

Next, look for locations with a strong and stable economy. Areas experiencing significant economic growth are more likely to attract businesses and tenants, increasing the demand for commercial properties.

Research any ongoing or future development plans in the area. New infrastructure or revitalization projects can positively impact property values and attract businesses.

Evaluate the Properties

First, assess the property's condition, including any necessary repairs or renovations. Properties that require minimal work may be more attractive for investors looking to expand their portfolio quickly.

Evaluate the size and layout of the property to ensure it meets the needs of potential tenants. Consider factors such as floor plan flexibility, available amenities, and the potential for future expansion.

Finally, analyze the property's rental potential by comparing rental rates in the area and assessing the demand for similar spaces.

Financing Your Commercial Investments

Loan for commercial investments

To expand your commercial real estate portfolio, evaluating financing options and working with lenders and investors are essential steps.

Before proceeding with commercial investment, carefully consider the available financing options.

Traditional bank loans typically require a good credit score, substantial collateral, and a solid business plan. Bank loans often have competitive interest rates and longer repayment terms, making them popular for commercial real estate investors.

Next, the Small Business Administration (SBA) provides loans specifically designed to support small businesses, including those involved in commercial real estate. SBA loans offer favorable terms and lower down payments, making them an attractive option for investors looking to expand their portfolios.

Private lenders, like private equity firms or individual investors, can provide alternative financing options. Private financing may offer more flexibility in terms of eligibility criteria and repayment terms. However, interest rates may be higher compared to traditional loans.

Lastly, real estate crowdfunding platforms allow multiple investors to pool their resources and invest in commercial properties. This option provides access to a wider range of investment opportunities and may require a lower initial investment.

However, thoroughly research and assess the credibility and track record of crowdfunding platforms before participating.

How to Build a Diverse Portfolio

Building diverse commercial investment portfolio

Expanding your commercial real estate investment portfolio involves diversifying your holdings and strategically balancing risk and return.

Explore Different Property Types

Consider investing in different types of commercial properties to create a diverse portfolio. Each property type has unique characteristics, market demand, and potential for profitability.

You can mitigate risk and maximize returns by diversifying your investments across various property types.

Balance Risk and Return

Higher-risk investments often have the potential for greater returns but also carry a higher probability of financial loss. On the other hand, lower-risk investments may offer more stability but with potentially lower returns.

To manage risk and return, assess the current market conditions and economic trends to understand the risks associated with specific property types and locations. Conduct thorough market research to identify areas with strong growth potential and favorable market dynamics.

Evaluate the potential cash flow from each investment property. Consider rental income, operating expenses, financing costs, and potential vacancies. This analysis will help you determine the expected return on investment and assess the risk associated with each property.

Additionally, consider working with experienced professionals, such as a property manager or real estate broker, who can provide valuable insights and help you make informed decisions. Brokers like our team here at Brian Properties can help you identify promising investment opportunities and guide risk management strategies.

Property Management and Tenant Relations

tenant relations

Managing commercial properties and fostering positive relationships with tenants is essential to growing and maintaining a successful commercial real estate portfolio.

Implement Effective Property Management Strategies

To ensure the smooth operation of your commercial properties, it's crucial to implement effective property management strategies. These strategies involve overseeing day-to-day operations, maintaining the property, and addressing issues.

One aspect of property management is regular maintenance and upkeep. This includes conducting routine inspections, promptly addressing repairs and maintenance requests, and ensuring that the property meets all safety and regulatory standards.

You enhance its value and attract quality tenants by maintaining the property's condition.

Additionally, effective property management involves efficient communication with tenants. This includes providing clear and timely information regarding lease agreements, rent payments, and any changes or updates related to the property.

Property management can become challenging as your portfolio grows. At some point, you may consider hiring a property manager to help oversee the operations and maintenance of your properties.

Nurture Positive Tenant Relationships

Building and maintaining positive relationships with your tenants is crucial for the long-term success of your commercial real estate portfolio. Happy tenants are more likely to renew their leases, recommend their properties to others, and contribute to a positive reputation.

Nurturing positive tenant relationships starts with clear and effective communication. Regularly engage with your tenants to understand their needs and address any concerns promptly. Encourage open lines of communication and provide multiple channels for tenants to reach out to you.

Being responsive to tenant requests and concerns is also vital. Promptly address maintenance issues, resolve disputes, and provide assistance whenever needed.

Another way to foster positive tenant relationships is by offering amenities and services that enhance their experience. This could include providing common area maintenance, security services, or access to amenities like parking facilities or fitness centers.

Establish a Legal Entity for Your Commercial Property

LLC for commercial property

Setting up a legal entity for your commercial real estate holdings can offer substantial benefits. This entity, such as a Limited Liability Company (LLC), can provide investors with personal asset protection, potential tax advantages, and increased flexibility in management.

It separates your assets from your real estate investments, helping to protect them from any potential lawsuits or debts related to the property.

Moreover, having a legal entity may enhance your professional image, making your business more appealing to potential tenants, lenders, and partners.

Strategies for Portfolio Expansion

strategizing for commercial portfolio expansion

Expanding your commercial real estate portfolio requires careful planning and strategic decision-making. By exploring acquiring additional properties and redevelopment and renovation opportunities, you can grow your portfolio and maximize your returns.

Long Distance Investing

Consider investing in properties outside of your local market. This strategy expands your investment opportunities and allows you to take advantage of emerging markets or areas with higher growth potential.

However, long-distance investing requires extensive research and due diligence to understand the market dynamics, risks, and regulations in different locations.

Redevelopment and Renovation Opportunities

Another way to expand your commercial portfolio is by capitalizing on redevelopment and renovation opportunities. You can enhance their value and attract higher-quality tenants by upgrading existing properties.

When considering redevelopment or renovation projects, conduct market research and analysis to identify areas with growth potential and assess the demand for upgraded properties. Understanding the local market trends and demographics can help you determine the viability of such projects.

When planning redevelopment or renovation projects, consider the scope of work, budget, and potential return on investment. Engaging experienced architects, contractors, and project managers can help ensure the successful execution of these projects.

Assessing the local permit requirements and regulations is crucial to avoid legal or compliance issues.

How to Mitigate Risks

risk mitigation concept for commercial real estate

One of the most effective ways to manage risk is portfolio diversification. Investing in different types of properties, such as office buildings, retail spaces, and warehouses, can help spread risk across various market sectors.

Conducting thorough due diligence before acquiring a property is essential. This includes analyzing the property's financials, assessing market trends, and conducting inspections.

Next, consider obtaining comprehensive property insurance, general liability insurance, and any other relevant coverage to mitigate potential risks associated with property damage, accidents, or lawsuits.

Lastly, maintaining an emergency fund is crucial to handle unexpected expenses or income interruptions. Having readily available funds can help you navigate challenging times without compromising the stability of your portfolio.


Our Commercial Property Management Experts Help You Grow Your Portfolio

Expanding your Chicago commercial real estate portfolio involves planning, strategic decision-making, diligent property management, and nurturing positive tenant relationships. It's crucial to diversify your investments, conduct thorough market research, evaluate all financing options, and take calculated risks.

At Brian Properties, we offer comprehensive commercial property management designed to help you expand and maintain your commercial real estate portfolio. Leveraging our extensive industry experience and strategic approach, we facilitate the acquisition of new properties, oversee effective property management, and nurture positive tenant relationships on your behalf.

Our dedicated team conducts detailed market research and due diligence, ensuring you make informed decisions and capitalize on lucrative investment opportunities. We can help diversify your portfolio, suggesting investments across various property types.

If you're ready to partner with us or you want to hear more about our services, contact us today!

What's Happening in Chicago Commercial Real Estate?

Chicago Skyline With Blue Clear Sky

The Chicago commercial real estate market continues to show resilience and growth despite some economic uncertainties. Some notable trends and developments include:

  • Adaptive Reuse: Redevelopment of underutilized properties, such as converting old warehouses into trendy office spaces or repurposing historic buildings for mixed-use projects, is gaining popularity in Chicago.
  • Tech and Innovation Hubs: Chicago is establishing itself as a leading hub for technology and innovation, attracting startups and companies in sectors like fintech, biotech, and logistics. This demand drives the need for flexible office spaces and coworking environments.
  • Industrial Expansion: The e-commerce boom has increased the demand for industrial spaces and warehouses near transportation hubs. Investors are exploring opportunities in the logistics and distribution sectors.
  • Sustainable Development: Chicago emphasizes sustainable building practices and green initiatives. Investors are incorporating energy-efficient features and obtaining LEED certifications to attract environmentally conscious tenants.

Knowing the landscape for CRE in Chicago, let's focus next on some essentials for investing.

Commercial Real Estate Investing 101

Inspiration showing sign Commercial Real Estate

Before diving into the commercial real estate Chicago offers, it is essential to understand the fundamentals of CRE investing.

Key considerations include:

  • Market Research: Analyze market trends, vacancy rates, rental rates, and demand for various property types in Chicago.
  • Financing Options: Explore financing options such as traditional loans, private lenders, crowdfunding, or partnerships.
  • Due Diligence: Conduct a thorough analysis of property condition, potential income, expenses, lease agreements, and legal obligations.
  • Investment Strategy: Define your investment objectives, risk tolerance, and time horizon. Determine if you aim for long-term appreciation or immediate cash flow.
  • Network Building: Establish connections with brokers, property managers, attorneys, and other professionals in the Chicago CRE industry.

With this foundation, let's look at some of the risks and rewards you can expect when choosing commercial investments in this market.

Rewards and Risks You Can Expect With CRE Investing

3 risk management concept, depicts investors use a risk reward ratio

Investing in commercial real estate offers numerous rewards, such as potential cash flow, long-term appreciation, tax advantages, and diversification.

Cash flow from commercial rental income can provide a steady stream of income, while property value appreciation can lead to substantial returns on investment. Additionally, CRE investments offer tax benefits through deductions for expenses, depreciation, and tax-deferred exchanges.

However, CRE investing also comes with risks. Market fluctuations, economic downturns, vacancies, and changing regulations can impact the profitability of commercial properties. Therefore, conducting thorough due diligence, understanding the market conditions, and having a comprehensive investment strategy to mitigate risks are crucial.

What Are the Commercial Real Estate Types?

New Commercial Building with Retail, Restaurant and Office Space available for sale or lease

Commercial real estate encompasses various property types. In Chicago, the five primary categories are:

  1. Office Space: This includes buildings used for professional services, corporate offices, coworking spaces, and medical practices.
  2. Retail Space: Consists of properties where businesses engage in the sale of goods or services to customers, such as shopping centers, malls, and standalone retail buildings.
  3. Industrial Space: Encompasses warehouses, manufacturing facilities, distribution centers, and logistics hubs.
  4. Multifamily Residential: Refers to apartment buildings, condominium complexes, and other residential properties with multiple units.
  5. Hospitality: Involves hotels, resorts, motels, and other properties offering accommodations and related services to travelers.

As you can see, there's something for just about any investor when considering commercial property investments!

Tips and Tricks for Success When Choosing Commercial Real Estate for Sale

Finger on laptop keyboard written Tips & Tricks

Investing in a building is a big commitment. Investors should apply expert tips and tricks to improve their chances of financial success with CRE!

Build a Strong Network

Cultivate relationships with brokers, property managers, lenders, and other industry professionals. Attend networking events and join real estate associations in Chicago. Even if you aren't local to the market, you can connect with commercial investors as part of your network.

Never Skip the Due Diligence

Conduct comprehensive research on properties, tenants, market conditions, and potential risks. Verify financial statements, leases, and property documents.

If you invest with a partner, don't skip the due diligence on potential partners before choosing an investment together.

Location, Location, Location

Choose properties in prime locations with high demand and growth potential. Consider proximity to transportation, amenities, and target demographics.

Investors should also look at the commercial real estate Chicago suburbs offer.

Conduct Cash Flow Analysis

Perform detailed financial analysis to assess potential income and expenses. Factor in maintenance costs, property taxes, insurance, and vacancy rates.

Apply Your Long-Term Vision

Before choosing a property, make sure it fits your goals. Develop a clear investment strategy and focus on long-term goals. Consider factors such as property appreciation, rental income growth, and market trends over time.

Embrace Diversification

Spread your investments across different property types and locations to mitigate risk. Diversification helps balance your portfolio and reduces exposure to fluctuations in a specific segment of the market.

Stay Informed

Keep up with the latest trends, regulations, and market conditions in the Chicago commercial real estate industry. Attend seminars, read industry publications, and stay connected with local news.

Navigating the Permit Process for Commercial Real Estate

Permits text on card

Navigating the permit process is a crucial aspect of commercial real estate development and renovation projects in Chicago. To successfully obtain permits, investors should research zoning regulations to understand requirements and restrictions for their specific property and intended use.

Investors should also consult with experts, architects, engineers, and property management companies who are familiar with Chicago's permit process. They can help navigate the complexities and ensure compliance with building codes.

A commercial property management company can also help you prepare application documents, then submit applications and pay appropriate fees for permits.

Should You Invest In Chicago Suburb Commercial Real Estate?

Wide angle view at smiling real estate agent speaking by phone while standing on roof of modern building next to red FOR RENT sign

While Chicago's downtown area is known for its bustling commercial real estate market, the city's suburbs also offer significant investment opportunities. 

Suburban commercial real estate benefits from lower costs, ample parking, and access to a broader customer base. Investors should consider factors such as population growth, transportation infrastructure, and proximity to amenities when evaluating suburban locations.

The Top Chicago Suburban Neighborhoods for CRE

Several suburban neighborhoods in Chicago offer promising opportunities for commercial real estate investors. Some top neighborhoods include:

  1. Oak Brook: Located in DuPage County, Oak Brook is known for its upscale commercial properties, including office buildings, retail centers, and hotels. It is home to prominent corporate headquarters and offers a prestigious business environment.
  2. Schaumburg: With its strong business community and strategic location, Schaumburg has a thriving commercial real estate market. It boasts a diverse mix of office spaces, retail centers, and industrial parks. The Woodfield Mall, one of the largest shopping malls in the United States, is located in Schaumburg.
  3. Evanston: Situated along Lake Michigan, Evanston is a vibrant suburban community with a thriving downtown area. It offers a mix of commercial properties, including office spaces, retail storefronts, and mixed-use developments. The presence of Northwestern University adds to the appeal of the area.
  4. Naperville: Known for its strong economy and quality of life, Naperville attracts businesses across various sectors. The city offers a range of commercial properties, including office spaces, shopping centers, and industrial parks. Its well-educated workforce and proximity to major transportation routes make it an attractive location for businesses.

While these are just a few of the ideal suburbs for commercial investing, a local CRE property manager can help you learn more about specific areas around Chicago.

What About New Construction?

The Chicago suburbs are experiencing significant new construction activity in the commercial real estate sector. Developers are capitalizing on the suburban growth and demand for modern, well-designed spaces.

Key sectors witnessing new construction include office buildings, mixed-use retail centers combining shopping, dining, and entertainment options, and industrial parks.

Do You Need a Commercial Property Management Company?

Buildings with Shops and Restaurants along the Naperville Riverwalk with a Covered Bridge in the Distance

Hiring a commercial property management company can offer several advantages for CRE investors.

Property managers handle day-to-day operations, including tenant management, rent collection, maintenance, and repairs. This frees up your time and ensures smooth operations. Experienced property managers also know how to attract and retain high-quality tenants, reducing vacancies and maximizing rental income.

Your property management expert also keeps a pulse on the local market, enabling them to set competitive rental rates and adjust them based on demand and market conditions. Additionally, they stay up-to-date with local laws and regulations, ensuring your property complies with safety codes, lease agreements, and tenant rights.

The Future of Commercial Real Estate in Chicago

The Chicago Loop is the historic commercial center of downtown Chicago

The future of commercial real estate in Chicago is influenced by various factors and trends.

The demand for mixed-use developments combining residential, commercial, and recreational spaces continues to grow. Developers are focusing on creating vibrant, walkable communities that offer convenience and a live-work-play environment.

Commercial properties are also becoming more technology-driven, incorporating smart building systems, energy-efficient features, and advanced connectivity infrastructure to meet the evolving needs of tenants and businesses.

Additionally, the pandemic has highlighted the importance of flexible and adaptable spaces. As a result, commercial properties that can easily accommodate changing tenant requirements and support hybrid work models are expected to be in high demand.

Lastly, environmental sustainability is a growing priority in commercial real estate. Investors and developers are incorporating green building practices, renewable energy sources, and sustainable design principles to attract environmentally conscious tenants.