Avoiding problems with Commercial Real Estate Transactions

How can you avoid issues with Commercial Real Estate transactions? There are some fairly straightforward tips that can help you stay on track. Let’s start with some questions:

1. Is this your first commercial real estate transaction? If the answer is yes, then hire a broker or agent that specializes in the type of property you need.
2. Is this an investment purchase, an owner user purchase or a lease transaction?
3.  Are you a cash buyer or one that needs financing?
4. Does your company have good credit ?

Next Steps

We can take each number above and broaden it here for next steps. Number one, you should go with a “specialist”.  Why? Because a specialist will have a better working knowledge about properties than a generalist. Generalists will take any type of deal that comes their way. Specialists do just that, specialize in specific properties.

Number two- There are several types of investment purchases. STNL’s ,  Multi-tenant properties, Properties to be re-purposed, Medical properties, Retail etc. You will want to have a good idea of which type of property best suits your needs.  You can read more about STNL’s here.

Number three- Alot of clients do not have their financing approved pro-actively. This applies to folks that are not cash buyers. The first rule of thumb is you should have a conversation with your lender. Ask your lender how much financing can you be approved for based on your financials.  This will allow you to focus in on specific target properties that fit your budget. Without money, everything becomes an exercise in futility.  For efficient results, have your financing approvals in order.

Number 4- Specifically for lease transactions, you want to have solid credit. What is solid credit? Credit scores of 700+ are a good starter. In addition to your credit score , you must have “liquidity”. Liquidity in this discussion is your company’s ability whether it is old or new to be able to pay rent. How long should you be able to pay rent? At least 18 months without any substantial growth is a good rule of thumb.

Commercial Transaction Issues

Transaction issues occur when there is not enough preparation. They can also happen if communications are not clear and concise. Along the way, are you and your broker sharing all of the details? There is nothing worse than getting to the 2 yard line and an “Oh by the way” comes up. You will want to make sure everything is disclosed so that you have a seamless experience. Some brokers may ask for retainer fees if you want to start a new development. The retainer fee should be completely refundable or deducted from commissions if you close. You should also make sure a retainer fee is not just a fee for a broker to make money and not work for you.  Having a good commercial real estate attorney is something a broker can recommend to you. If you already have an attorney, you can utilize them if there are any contractual issues.