Commercial Real Estate Acquisition Is a Process
- February 2, 2021
Buying commercial real estate is a lengthy, involved process; while it is often viewed as a relatively easy method for filling out an investment portfolio, the reality is that it does hold elements of risk, and it requires a great deal of research, legwork, and skill. The following is an overview of the commercial real estate acquisition process to give you a glimpse into the ins and outs.
6 Steps in the Commercial Real Estate Acquisition Process
Volumes can (and have!) been written about buying commercial real estate. It encompasses the following stages:
Time to do some research and begin your search. You’ll start by examining your investment strategy, and sourcing properties that align with your goals. As you search for opportunities, remember to keep your specific criteria in mind (i.e., location, class, purchase price, etc.). Leaning on a commercial real estate broker can be incredibly helpful. With a list of potential properties in mind, you’ll start doing some analysis and market research. This will help you determine if a property is going to be a good fit or not.
A major component of this phase is underwriting, a deep financial analysis of a property that looks at historical performance and future potential. You’ll examine aspects such as the reason the property is being sold, the price range and current market condition, occupancy, etc.
- Making an Offer
If a property meets your criteria, you can move forward into performing due diligence and, if everything still looks good, making an initial offer by submitting a non-binding Letter of Intent (LOI). This gives the owner a gauge of your interest and intent, while providing a starting point for negotiations.
- Formal Due Diligence
Yes, more homework! Here, you will address all concerns and gather all relevant information about the property (e.g., rights that accompany acquisition, property boundary lines, development options, easements, liens, etc.). This is also where you will examine titles, check for zoning compliance, and conduct surveys, as well as thoroughly inspecting the property.
During pre-closing, other buyers drop out or are excluded based on a variety of factors, including bids. Once you clear this round, you’ll submit a best and final round bid. Often, sellers conduct an interview with the final two potential buyers; this step is taken in order to minimize their risk. Once your bid is chosen, you submit a purchase and sales agreement (PSA), which details rights and obligations, liabilities, and other key information.
Once the PSA is accepted, you are officially the owner of the property. You’ll go through the closing process to tie up loose ends and dot all the i’s.
There are, of course, many technicalities and legalities involved in the commercial real estate acquisition process that we’ve just skimmed over here. It is important to partner with the right people, conduct the right research, and find the right commercial or retail property for your needs and goals.
Contact Belmont Associates to learn more.