How to Buy Commercial Real Estate

23 Jan

I have helped many entrepreneurs with buying properties to accommodate the space needs for their businesses. The purchase of a commercial property may be the most significant asset the business owner obtains so it is important to understand the value and potential that this asset represents. This is a complex process that requires a number of steps.

First, one must identify their own space requirements. The business owner may need assistance with this initial space programming process and account for future expansion and space requirements. Then the search begins to identify and tour alternative properties. Most often, solutions for the ideal property solution is not readily available. The business owner will need to rely on the resources of his or her broker to fully investigate alternative properties and identify opportunities as they arise. It is also helpful for the business owner to talk to his or her lender to understand financing alternatives and qualify the ability to obtain financing to acquire property and relocate the business.

Once a property is identified, the owner’s broker should assist with evaluating the overall feasibility of the property and market pricing to determine the sale price that should be offered. The broker can prepare an offer to purchase and counsel the business owner on conditions needed in the offer. The owner’s attorney can also help to put the offer together. Once negotiations commence, the broker should be actively involved with continuing to advise the owner on the negotiations for price, terms and conditions. An offer to purchase (as opposed to a letter of intent) is a binding contract so one should fully understand what is involved. An initial deposit is also required at this juncture. After offer acceptance, the buyer’s attorney will review a purchase and sale agreement typically drafted by the seller which provides more detail on the structure of the sale. Customarily, a deposit of 5% of the sale price is required upon signing of the P&S agreement. This is typically refundable until such time as the buyer is satisfied with its inspection of the property. This due diligence period extends for a period of 30 days or considerably longer depending upon the type of inspections required. For example, if zoning relief is needed, a significant period of time may be required to obtain satisfactory approvals. Environmental inspection can also be very complex depending upon the type of property, prior use, etc. Conditions for structural inspections including roof, mechanical systems, floor slab, etc. is also imperative. The buyer’s lender will require a period of time to understand the condition of the property and will need to review an appraisal. The lender should also understand the due diligence timeframe so that their work is done in tandem with the timeframe set forth in the agreement. While the lender will have discretion on the environmental engineer chosen to conduct the investigation of environmental condition of the property as well as the selection of an appraiser, the buyer will be required to pay the costs of these services. The buyer’s broker should be part of the team to make sure the process of the sale is fully coordinated and assist the buyer all the way through to closing. The broker should also be able to help the buyer with planning for building improvements and the relocation. It is critical that the buyer have a professional, experienced and knowledgeable commercial real estate broker as its trusted advisor when purchasing property.

Please contact me to discuss how my firm can be of assistance with your purchase of commercial property.

Warren Brown
President, Boston Commercial Properties