The Basics of a Commercial Real Estate Transaction

Commercial real estate deals are incredibly complex and intricate transactions that are different every time, not only from different type of asset to asset, but also depending on if it is a lease, purchase, or sale.

Additionally, to add to the complexity, there are a set of standard commercial contracts which are used by most commercial brokers, like AIR contracts, but most transactions will have clients with specialized commercial real estate attorneys that prepare their own contracts for each type of transaction.

In residential deals, at least here in California, there are about 15-20 standard CAR (California Association of Realtor) forms used regularly and that do not vary. This makes residential deals a lot more straight forward and predictable in the issues that will arise throughout the transaction. No such luck in commercial, for the reasons listed above but we will focus on some of the things that can be found in most commercial transactions to help you through the process.

build the right commercial real estate team

Building the Right Commercial Real Estate Team

First and foremost, in any commercial transaction, it is critical to have the right team surrounding you for every role needed throughout the whole process. Although, every transaction will require different parties your staple team will involve: Commercial Lender, Commercial Real Estate Attorney, Escrow Officer, Title Officer, and Transaction Coordinator.

Beyond these individuals, you may partner with associates such as CPAs, contractors, architects, design specialists, building inspectors and depending on the type of asset there may be further specialists. For example, if you are leasing a space for a restaurant you will need significant help with permits with the city, to the build out of the space itself, compliance with any local food and health boards, everything becomes very specialized.

Each of the particular roles that will help you along in this process need to be specialized in the field you need.

The attorney if handling a retail lease should be aware of certain protections needed for the Landlord such as how much protection the tenant should be given in regard to their particular use of their business.

The escrow officer handling the transaction should be familiar with estoppels and prorating current tenant leases when handling the sale of an office building. If these items are overlooked by a more general escrow officer or attorney, then there will be serious issues through the transaction.

Helping your client find and assemble this team for this transaction and then coordinating with all of them to ensure a successful close will be your utmost role.

check all of the commercial real estate boxes

Be Sure to Check All of the Boxes

Before you enter into a contract with the other party many boxes must get checked in order for you to get to that point. Items common in real estate like checking comparable properties to make sure you are listing the property at a proper price or when buying/leasing that it is at market price and your client is over paying.

If you are representing a buyer on a commercial non-cash purchase then you will be working very closely with a commercial lender that hopefully specializes in the asset class you are looking at, you will be coordinating with this loan officer quite a bit as the bank funding the loan will be looking for things like an appraisal on the property along with a significant number of documents from the landlord to prove certain requirements they will have to close properly.

Trusting the landlord to provide all documentation and to provide it forthright will not always be the case. Checking and double checking these documents against your own data and with other third parties is always necessary, otherwise you could be left in a quandary after the close of escrow when the landlord promised a certain gross income and expenses on the building and forgot to include certain long leases they have for laundry services or cable television or anything else.

Do Your Due Diligence

Due diligence may entail several various things, but due diligence is the list of items you need to check after the purchase contract is agreed upon or prior to agreeing upon a lease contract and the property is tied up for a certain amount of time.

If you are looking to place a restaurant in a space then you need to check with the city to get your permits, check if its possible to set up a kitchen how you want it, etc.

If you are purchasing a site for development, this time is critical to have your architects review everything with the city to see if your goals are possible. Some owners will allow you enough time to even get your building permits fully approved while others will demand your deposit go non-refundable day one of the transaction.

It is your responsibility to guide your client and make the best decisions depending on all factors involved.

commercial real estate can be overwhelming

Commercial Real Estate Can Be Overwhelming

Throughout a transaction if you ever feel overwhelmed or if you are in the midst of a transaction in which you do not have significant experience, reach out to a Commercial Consultant at www.CommercialConsult.com.

There you can connect with a commercial broker that specializes very whatever type of transaction you are working on.

Choose to partner with a commercial broker, refer it over to a commercial broker for a referral fee, or simply find help from someone who specializes in what you need and has significant real-world experience.

Points to Remember

In commercial real estate transactions, it is important to remember there are no standards or basic set of guidelines for certain types of transactions. If you have limited experience with the type of transaction, it is very important to partner or refer out the deal to protect yourself and your client.

As a residential agent, residential brokerages are not set up to support commercial deals through all the ways needed, including: contracts, E&O insurance, legal support, marketing, research/data and so much more and there are differences between residential and commercial real estate.

Some agents would be scared to trust their close clients with another broker, but if done correctly you can build excellent ongoing relationships with good commercial brokers to continue business back and forth for many years to come.


Share this Post


Leave a Reply

Your email address will not be published. Required fields are marked *