How Do Commercial Real Estate Transactions Work?
Thinking about buying commercial real estate? Be prepared for a long and complex process. Here’s everything you need to know about commercial real estate transactions.
Commercial real estate is property provided only for business practices and transactions. “Commerce” comprises varying industries like legal, retail, and membership organizations. Unlike residential property, there are countless ways it can be used and facilitated.
Generally, legislation regards properties used for anything besides residency as commercial real estate. Anything from hazardous storage to non-profit organizations is on the table. And so zoning, regulatory, and legal considerations are on the table as well.
What does that mean for your ambitions to buy? There are three steps to consider, from developing an investment thesis to purchase. Don’t miss your opportunity to do this transaction correctly.
The 3 Phases of Commercial Real Estate Transactions
U.S. commercial real estate is a multi-trillion dollar market. There are thousands of business types and even more properties to consider for your business. Much of the transaction process begins with your introspection on properties that will best serve your purpose.
Phase 1: Identifying Investment Opportunities
Start by considering your business experience. Have you had greater success at previous types of properties? What size mortgage is most reasonable for you?
Research what asset type, asset class, risk profile, and geography will work best for you. This could be the difference between a small shop to a retail complex. Consider the legal and regulatory requirements as you choose the best model.
Ensure your choices best connect you with your target market. Geography, size, and quality may play a role. Only when you have isolated some ideal properties can you proceed in a practical way.
Phase 2: Prepare for Contract Negotiation
Unlike residences, your real estate contract is conditional to the nature of your business. You also need a long-view of the value of your investment. That means understanding the property value for both your business function and yourself.
Do you know why the seller is parting with the property? How will property demand–and the needs of customers–change after you purchase? Ask these questions during the underwriting process before negotiation.
You must also weigh the return on your investment against risk. These can range from structural integrity to local crime rates. Only after the initial underwriting process should you commence negotiations.
Phase 3: Introduce Due Diligence and Legal Counsel
It’s a competitive market. But let’s assume you landed the deal for a property that is just right for your business. The process isn’t over yet.
The scope of your legal counsel’s role may vary widely. But your counsel will have one specific goal in mind: protecting both you and your interests. This includes written protections in title agreements to protecting against zoning or encroachment issues.
Start with your business goals and identify the options that are best for you. Work with your budget to get the property you want. Your legal counsel is there to deliver on these goals with your long-term best interests in mind.
Manfred is On Your Side
Our legal team features experts in commercial real estate transactions. We find cost-effective solutions to help small businesses succeed. We know it’s about more than money–it’s about your ongoing and future success.
Contact us now for a free consultation. We’ll develop a long-term solution aligned with your business.