Hire a Commercial Real Estate Broker

The next step and an important one, is to hire a commercial real estate broker, specifically, one that specializes in Tenant and Buyer representation. This is crucial because the broker will know what and how to plan for you to accomplish this goal. A Buyer’s agent will have a team in place to help you plan accordingly. Especially, if you can’t find an existing building to refurbish and you have to buy a parcel of land. Either way, their advice can save you tens of thousands of dollars. 

Ok, so now you have hired a commercial real estate broker. He or she has introduced you to a couple of lenders or you already met with your business banker and you have set a budget. This is key, if you don’t know what your budget is, you will have your broker running all over town looking for properties you like rather than what you can afford. The issue with not knowing your budget is that you are putting yourself at a disadvantage when negotiating the purchase price. Not to mention, you are wasting everyone’s time and you may end up making offers on properties you can’t buy. By knowing your budget ahead of time, you can negotiate from a position of strength. You are looking for properties that you can afford and when you make an offer, you and your broker know with confidence there is a good chance you’ll be able to close. 

Now that you know your budget, your broker will begin the property search process. Typically, depending on the market inventory, this can take a week or two. This process is about not just finding a building in your price range. It also includes making sure the commercial zoning works for your type of business. Does the property have plenty of parking? How long has the property been for sale? Is visibility a factor? How do you access the property? What part of town is it in? What are the demographics…etc.? These are all questions that the broker is contemplating when researching commercial properties. 

After narrowing down the list of properties to five or six, depending on inventory, the next step is for you to tour the properties. The broker will tour each property with you to see if it is a potential fit. However, the tour will help define what the client really wants or what is truly important to them. There have been many times that I have toured with clients where they thought they wanted one thing only to realize that there are other factors they should consider. 

A good broker will anticipate what their client needs or what is important under the current market conditions and educate the Buyer on it. 

I remember I had one client tell me they wanted to be in a certain part of town. They gave me the demographics they needed, the size of the space, the visibility they were hoping for. The client knew what they wanted. Upon getting all that insight and putting the property list together I met with them a week or so later. As we prepared to tour the properties, I made one small request to my client. I said, “when we go on tour, please keep an open mind as to what I show you”, which they agreed to do. I showed them what they asked for, but then, I took them to a part of town that had a void or lacked their type of profession. After the tour, my client realized that where they wanted to be would put them at a disadvantage due to the amount of competition they would have. The part of town I took them to gave them the ability to be one of the first of their profession in a growing part of town. Thankfully, all the options they had, gave them the ability to make the right decision for their business. They have been killing it ever since.

Negotiating the Purchase

Once you find the property that fits your budget, most if not all the questions listed above have been answered, and the commercial zoning allows for your type of business to operate on it, then begins the hard work. First, you will begin to negotiate on the price, typically, you are trying to make sure you get the best deal possible. In addition, you are trying to make sure you are under or at the budget for the real estate purchase. Next, you will negotiate the due diligence timeframe. An example would be 45 on up to 120 days of due diligence and then close on or before 30 days later. The due diligence timeframe is extremely important. Several items have to be completed before the bank will close on the loan. These items include but are not limited to the following:

1. Earnest Money
2. Title
3. Survey
4. Commercial Property Insurance
5. Appraisal
6. Loan approval

The items listed are the ones you will typically deal with when using a commercial lender as in your local bank. However, if you are doing a Small Business Administration loan, or SBA for short, you will need to tackle a few more items. They include everything already listed and a few others. You will need to add a Phase 1 environmental report. If you are doing any refurbishing to the property, you will need to add in the “As Complete Appraisal” along with construction documents and a detailed bid from the general contractor. You see, the commercial appraiser will need to appraise the property for the purchase price or “As-Is Appraisal”. Also, the appraiser will include the cost of the improvements the Buyer will be doing to the property, or “As Complete or As Built Appraisal”. Both combined will be included in the SBA loan and that is the amount you will finance. Also, as part of the SBA loan, if you are doing the construction work, the SBA will not fund the loan until the construction plans are approved and permits have been issued.

After you have negotiated the purchase price and the due diligence timeframe, next you and the Seller will sign the purchase agreement. After that occurs, you are now under contract. Congratulations!!

In part 3, I will discuss the due diligence items and getting to the finish line. Click Read Part 3!