5 Overlooked Reasons You Hire a Commercial Real Estate Professional

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Professional services are expensive! In many cases, hundreds of dollars an hour.

Generally, the level of experience is coupled with a high hourly fee structure. I am talking about consulting, tax, legal, banking, and wealth advice.

The more experienced your service provider is, the more you pay for her services - except with commercial real estate services.

Your commercial real estate service provider could have five minutes or fifty years of experience and you pay the same percentage of a sale or a lease if you hire him to sell or lease your building.

So aside from her experience, what are the overlooked reasons for hiring a commercial real estate broker?

The value of his network. Need a contractor to bid a tenant improvement - check! How about a consultant who will walk you through the maze of city requirements - check! What about a lender that can look past a couple of minor credit blemishes and get your loan done to purchase that building - check! Your commercial real estate professional can be a treasure trove of referrals for folks that can solve your problem.

His knowledge of the market. Two buildings of the same size appear in the comparable sale or lease set. One took five months to sell and the other was sold in thirty days. What was the difference? This is the type of market knowledge that can help you get your building leased or sold quickly.

Transactional expertise. Want to take your equity and accomplish a tax deferred exchange through  chapter 1031 of the IRS code? How would you structure a lease with an option to purchase so that you are protected? If you award free rent to a prospective tenant, are you better served calling that concession "free" or "abated" rent? A professional can guide you through all of these variables and/or put you in touch with the professional service providers who can - see The Value of His Network.

Relationship with other commercial real estate professionals. Are you getting the true scoop on the interested parties that tour your building? How is your broker's reputation with his competition? Is your guy cooperative with his fellow brokers? Roughly 75% of all commercial real estate transactions are concluded with an owner rep AND an occupant rep. Make sure that your representative plays nicely with others.

Problem solving ability. Potential environmental contamination, city compliance issues, a building sprinkler system that is insufficient, seismic studies for your racking, building permits for new offices, a use of your building that requires a conditional use permit from the city, Americans with Disabilities Act conformance. ALL of these hurdles can stop a deal in its tracks if your professional is ill equipped to help you navigate the rapids. Make sure your provider is experienced in real problem solutions.

Buying Commercial Real Estate - In the Future

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Owning a building is in your future, but not in your immediate future.

You have carefully considered your company's growth projections, bankability, and available cash and have determined that leasing a building makes more sense today than owning a building.

You do, however, want to reserve the opportunity to own the building you are leasing.

So what alternatives are available to you if you want to lease today and potentially own in the future?

You have one of several ways to structure future ownership into your lease agreement.

Option to Buy. An option to buy grants to you as the tenant the right to purchase the building in the future. Some options include a fixed price. Other options are based upon the market price at the time. Generally, a market option has a mechanism included on how the market price is determined. Options to buy are typically personal - meaning that they cannot be assigned to another person. Time is of the essence with an option to buy - you must declare your intention to buy (exercise the option) within a certain time frame or the option can go away. Options to buy benefit you as the tenant more than they benefit the owner. You are in control of when and if the option is exercised and the owner must oblige your desire. Sometimes, the rent you pay prior to exercising your option can be applied to your purchase price. Additionally, some owners require option consideration - a sum of money to reserve the option - which is lost if you decide not to buy the building.

Right of First Refusal. A right of first refusal gives you the right to match an offer to purchase that the owner receives. Most of the time, the owner must present a bona fide offer to you from a third party and you have a certain number of days to meet the terms of the offer. The marketplace dictates the timing of the right which is the biggest downside of a right of first refusal - you don't control when you get to buy the building - only that you get a crack if the owner decides to sell.

Right of First Offer. A right of first offer gives you the first kick at the can in the event an owner decides to sell his building. Similar to a right of first refusal, the timing of a right of first offer is dependent upon the motivation of the owner and not necessarily when you are ready willing and able to buy the building.

An unwritten agreement. The reality is that if an owner wants to unload the building and you are his tenant, he will generally approach you first to gauge your interest in buying the building. After all, you have occupied the real estate for a period of time and have your operation entrenched in the building. You are generally his best buyer.