Finding the Best Deals in Commercial Real Estate

If you want to be successful and profitable in the commercial real estate market, it will depend greatly on your ability to find the best deals in the commercial real estate market. You can lower your load and maximize your net profits if you only invest in commercial real estate deals that have a great amount of potential. As an investor, it is important that you find excellent deals in order to make money, but you have to remember that it takes some work on your part as an investor to find the best deals. The following are several tips that can help you find the very best deals in commercial real estate so you can make a profit and earn success as an investor.

Tip #1 – Know the Area and the Market – The most important thing you need to know if you want to find the best deals in commercial real estate is the area and the market. You need to be very familiar with the area that you are planning to invest in and you also need to be very informed on the market in that specific area. If you are not familiar with the area you plan on investing in, then you should make it your business to learn about the area and the market trends. You cannot determine whether an investment opportunity is a great deal unless you have a good grasp of the commercial real estate market in that specific area. Take the time to know both the area and the market in the area, and you’ll be sure to get the best commercial real estate deals.

Tip #2 – Make Use of Pocket Listings – Another tip that can help you find the best deals in commercial real estate is to make use of pocket listings that you may have access to. These listings can help you find and keep track of great investment opportunities. Many times you can get these listings from a broker to help you in your pursuit of excellent real estate investment opportunities. Pocket listings are commercial real estate opportunities that have not yet hit the market. So, you essentially get a jump on the property before anyone else does. If you want to find a great deal, don’t forget to make use of your pocket listings.

Tip #3 – Use Online Resources – Many real estate investors today really make use of their online resources when looking for the best commercial real estate deals. Using online resources can save you a huge amount of time; however, you will still need to be sure that you take the time to do the investigating that you need to do. There are many online websites that are geared towards investors in the commercial real estate market. Quite a few investors are using online resources to find the best possible deals, and you can take advantage of these easy access resources to help find great deals as well.

Tip #4 – Use Business Contacts to Find Deals – If you have a variety of great business contacts within the commercial real estate market, you can make use of them. These business contacts can help you find some great commercial real estate deals. It is important that you take the time to build up good relationships with these business contacts so that you are the one they inform when they hear of a great commercial real estate deal. Cultivating business contacts can take some work; however, it is worth the work if you can get a great business deal out of it.

Tip #5 – Know Your Financial Capacity and Strategy – Knowing your financial capacity and strategy is important as well if you want to find the best deals in commercial real estate. You will never want to overextend yourself financially, so you need to know your financial capacity. It is also important that you have a good strategy for investing as well in order to be successful with finding great deals in the commercial real estate market.

Tip #6 – Be Sure to Practice Due Diligence – It is imperative that you practice due diligence if you want to find the best commercial real estate deals. Due diligence is one of the most important steps in finding a great deal. Some of the things that you’ll need to consider when practicing due diligence is the existing conditions of the property, the actual value of the property, how much you can make from the property, title issues, zoning issues, and many other important aspects. Be sure that you take the time to do adequate due diligence in order to be sure that you are really getting a great deal on the commercial real estate that you plan to invest in.

Using all of these tips together can help you find great commercial real estate deals. If you want to be on your way to success, great deals are important, and these tips will enable you to find the very best deals in commercial real estate available today.

Commercial Real Estate Agents

Let’s face it – you cannot intelligently buy commercial real estate properties without the help of an expert. Hiring a commercial real estate agent is your best bet against losing thousands of dollars you’ll likely spend, when you make costly mistakes or miss out on solid, commercial real estate investing opportunities. That is why finding and hiring a commercial real estate agent should be your first and most crucial step – it can make or break your commercial real estate venture.

Benefits of hiring commercial real estate agents

Professional commercial real estate agents or broker companies give you access to the best commercial real estate information available. They provide you with information about the latest sales price data, vacancy and absorption rates and comparative tax and labor costs to help you make informed decisions.

Experienced commercial real estate brokers can also help explain to you the present market lease trends, the current demographics, and they will give you a straightforward competitive analysis of different commercial properties that fit your purpose and budget. Professional commercial real estate agents or broker companies give you all this information so that you can anticipate opportunities, gain a competitive advantage and implement the best possible real estate approach.

If you plan to build commercial real estate, an agent can help you determine the best location using scientific local market data and a keen knowledge of the economic trends that affect the commercial real estate market. These agents are specially trained to handle very large transactions – millions upon millions of dollars. Their purpose is to find investments that will not only increase in value, but also give the investor a good revenue stream.

Never try to invest in commercial real estate property without consulting a commercial real estate agent. He or she will have the right training to impart helpful research, advisory and transaction services to you so that your commercial real estate venture goes smoothly.

Keys To Closing Commercial Real Estate Transactions

Anyone who thinks Closing a commercial real estate transaction is a clean, easy, stress-free undertaking has never closed a commercial real estate transaction. Expect the unexpected, and be prepared to deal with it.

I’ve been closing commercial real estate transactions for nearly 30 years. I grew up in the commercial real estate business.

My father was a “land guy”. He assembled land, put in infrastructure and sold it for a profit. His mantra: “Buy by the acre, sell by the square foot.” From an early age, he drilled into my head the need to “be a deal maker; not a deal breaker.” This was always coupled with the admonition: “If the deal doesn’t close, no one is happy.” His theory was that attorneys sometimes “kill tough deals” simply because they don’t want to be blamed if something goes wrong.

Over the years I learned that commercial real estate Closings require much more than mere casual attention. Even a typically complex commercial real estate Closing is a highly intense undertaking requiring disciplined and creative problem solving to adapt to ever changing circumstances. In many cases, only focused and persistent attention to every detail will result in a successful Closing. Commercial real estate Closings are, in a word, “messy”.

A key point to understand is that commercial real estate Closings do not “just happen”; they are made to happen. There is a time-proven method for successfully Closing commercial real estate transactions. That method requires adherence to the four KEYS TO CLOSING outlined below:

KEYS TO CLOSING

1. Have a Plan: This sounds obvious, but it is remarkable how many times no specific Plan for Closing is developed. It is not a sufficient Plan to merely say: “I like a particular piece of property; I want to own it.” That is not a Plan. That may be a goal, but that is not a Plan.

A Plan requires a clear and detailed vision of what, specifically, you want to accomplish, and how you intend to accomplish it. For instance, if the objective is to acquire a large warehouse/light manufacturing facility with the intent to convert it to a mixed use development with first floor retail, a multi-deck parking garage and upper level condominiums or apartments, the transaction Plan must include all steps necessary to get from where you are today to where you need to be to fulfill your objective. If the intent, instead, is to demolish the building and build a strip shopping center, the Plan will require a different approach. If the intent is to simply continue to use the facility for warehousing and light manufacturing, a Plan is still required, but it may be substantially less complex.

In each case, developing the transaction Plan should begin when the transaction is first conceived and should focus on the requirements for successfully Closing upon conditions that will achieve the Plan objective. The Plan must guide contract negotiations, so that the Purchase Agreement reflects the Plan and the steps necessary for Closing and post-Closing use. If Plan implementation requires particular zoning requirements, or creation of easements, or termination of party wall rights, or confirmation of structural elements of a building, or availability of utilities, or availability of municipal entitlements, or environmental remediation and regulatory clearance, or other identifiable requirements, the Plan and the Purchase Agreement must address those issues and include those requirements as conditions to Closing.

If it is unclear at the time of negotiating and entering into the Purchase Agreement whether all necessary conditions exists, the Plan must include a suitable period to conduct a focused and diligent investigation of all issues material to fulfilling the Plan. Not only must the Plan include a period for investigation, the investigation must actually take place with all due diligence.

NOTE: The term is “Due Diligence”; not “do diligence”. The amount of diligence required in conducting the investigation is the amount of diligence required under the circumstances of the transaction to answer in the affirmative all questions that must be answered “yes”, and to answer in the negative all questions that must be answered “no”. The transaction Plan will help focus attention on what these questions are. [Ask for a copy of my January, 2006 article: Due Diligence: Checklists for Commercial Real Estate Transactions.]

2. Assess And Understand the Issues: Closely connected to the importance of having a Plan is the importance of understanding all significant issues that may arise in implementing the Plan. Some issues may represent obstacles, while others represent opportunities. One of the greatest causes of transaction failure is a lack of understanding of the issues or how to resolve them in a way that furthers the Plan.

Various risk shifting techniques are available and useful to address and mitigate transaction risks. Among them is title insurance with appropriate use of available commercial endorsements. In addressing potential risk shifting opportunities related to real estate title concerns, understanding the difference between a “real property law issue” vs. a “title insurance risk issue” is critical. Experienced commercial real estate counsel familiar with available commercial endorsements can often overcome what sometimes appear to be insurmountable title obstacles through creative draftsmanship and the assistance of a knowledgeable title underwriter.

Beyond title issues, there are numerous other transaction issues likely to arise as a commercial real estate transaction proceeds toward Closing. With commercial real estate, negotiations seldom end with execution of the Purchase Agreement.

New and unexpected issues often arise on the path toward Closing that require creative problem-solving and further negotiation. Sometimes these issues arise as a result of facts learned during the buyer’s due diligence investigation. Other times they arise because independent third-parties necessary to the transaction have interests adverse to, or at least different from, the interests of the seller, buyer or buyer’s lender. When obstacles arise, tailor-made solutions are often required to accommodate the needs of all concerned parties so the transaction can proceed to Closing. To appropriately tailor a solution, you have to understand the issue and its impact on the legitimate needs of those affected.

3. Recognize And Overcome Third Party Inertia: A major source of frustration, delay and, sometimes, failure of commercial real estate transactions results from what I refer to as “third-party inertia”. Recognize that the Closing deadlines important to transaction participants are often meaningless to unrelated third parties whose participation and cooperation is vital to moving the transaction forward. Chief among third-party dawdlers are governmental agencies, but the culprit may be any third party vendor or other third party not controlled by the buyer or seller. For them, the transaction is often “just another file” on their already cluttered desk.

Experienced commercial real estate counsel is often in the best position to recognize inordinate delay by third parties and can often cajole recalcitrant third parties into action with an appropriately timed telephone call. Often, experienced commercial real estate counsel will have developed relationships with necessary vendors and third parties through prior transactions, and can use those established relationships to expedite the transaction at hand. Most importantly, however, experienced commercial real estate counsel is able to recognize when undue delay is occurring and push for a timely response when appropriate. Third party vendors are human (they claim) and typically respond to timely appeals for action. It is the old cliché at work: “The squeaky wheel gets the oil”. Care must be taken, however, to tactfully apply pressure only when necessary and appropriate. Repeated requests or demands for action when inappropriate to the circumstance runs the risk of alienating a necessary party and adding to delay instead of eliminating it. Once again, human nature at work. Experienced commercial real estate counsel will often understand when to apply pressure and when to lay off.

4. Prepare For The Closing Frenzy: Like it or not, controlled chaos leading up to Closing is the norm rather than the exception for commercial real estate transactions. It occurs because of the necessity of relying on independent third parties, the necessity of providing certifications and showings dated in close proximity to Closing, and because new issues often arise at or near Closing as a consequence of facts and information discovered through the continual exercise of due diligence on the path toward Closing.

Whether dealing with third-party lessees, lenders, appraisers, local planning, zoning or taxing authorities, public or quasi-public utilities, project surveyors, environmental consultants, title insurance companies, adjoining property owners, insurance companies, structural engineers, state or local departments of transportation, or other necessary third-party vendors or participants, it will often be the case that you must wait for them to react within their own time-frame to enable the Closing to proceed. The transaction is seldom as important to them as it is to the buyer and seller.

To the casual observer, building-in additional lead-time to allow for stragglers and dawdlers to act may seem to be an appropriate solution. The practical reality, however, is that many tasks must be completed within a narrow window of time just prior to Closing.

As much as one may wish to eliminate the last minute rush in the days just before Closing, in many instances it is just not possible. Many documents and “showings”, such as UCC searches, surveys, water department certifications, governmental notices, appraisals, property inspection reports, environmental site assessments, estoppel certificates, rent rolls, certificates of authority, and the like, must be dated near in time to the Closing, often within a few days or weeks of Closing. If prepared and dated too far in advance, they become stale and meaningless and must be redone, resulting in additional time and expense.

The reality is that commercial real estate Closings often involve big dollar amounts and evolving circumstances. Rather than complain and stress-out over the hectic pace of coordinating all Closing requirements and conditions as Closing approaches, you are wise to anticipate the fast paced frenzy leading up to Closing and should be prepared for it. As Closing approaches, commercial real estate counsel, real estate brokers and necessary representatives of the buyer and seller should remain available and ready to respond to changing demands and circumstances. This is not a time to go on vacation or to be on an out of town business trip. It is a time to remain focused and ready for action.

Recognizing that pre-Closing frenzy is the norm rather than an exception for commercial real estate transactions may help ease tension among the parties and their respective counsel and pave the way for a successful Closing.

Like it or not, this is the way it is. Prepare for the Closing frenzy and be available to respond. This is the way it works. Anyone who tells you differently is either lying to you or has had little experience in Closing commercial real estate transactions.

So there you have it. The four KEYS TO CLOSING a commercial real estate transaction.

1. Have a Plan

2. Assess And Understand the Issues

3. Recognize And Overcome Third Party Inertia

4. Prepare For The Closing Frenzy

Apply these Keys to Closing, and your chance of success goes up. Ignore these Keys to Closing, and your transaction may drift into oblivion.