Friday, October 21, 2016

Is Time your Friend?

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Time frames vary in commercial real estate transactions. I've witnessed a lease completed in one week with a Fortune 500 occupant - with more counsel than a government litigant, a sizeable sale deal close in two weeks, and a standard industrial lease take over a year to complete.

Commercial real estate brokers try very hard to predict the time necessary to close deals - sometimes we are spot on - and sometimes our predictions run the way of millennium preppers.

So, what are the time killers in a deal and how do we manage the various owner and occupant  time pressures?

Basic transaction structure. A lease or sale deal begins with a search of available buildings and ends with the occupant moving into the building. Between the search and move-in are myriad time hurdles that must be cleared.

The search. Searching is easy in an occupant market as many available buildings are vacant and open for business. The opposite is true in an owner's market. A search can take several weeks longer - especially if some complexity exists in the occupant's requirement - an abundance of power, fenced staging area, a finite geography, an unconventional use of the building, etc. - there just aren't enough available buildings.

The negotiation. Clearly, owners will be much more willing to layer on concessions and respond quickly to offers, if the cobwebs darken the doorway and you're the only occupant they've seen for awhile. Arriving at acceptable deal points can be accomplished rather quickly with an ample of amount of owner motivation. If an owner is convinced he is the only boy at the dance, he may play a bit harder to get - thus delaying his response to your offer.

Deal execution. Will your deal require financing? If yes, plan on an appraisal, an environmental report and sundry other lender time munchers. If you're entering a lease arrangement, what form of lease does the owner prefer and how much legal time will be necessary to insure you are protected and knowledgeable about what you're signing?

Move-in. Will your use of the building require any special city or municipal approvals? If so, plan on weeks until you change your address. Are you able to occupy the building with no construction changes? You just saved yourself a few months by avoiding costly planning, permitting and building improvements.

Color on the examples above. The Fortune 500 company negotiated with a private owner ready to deal on a building ready to lease in a market ripe with availabilities. One week from first tour to signed lease. Sizeable sale deal was purchased by a buyer with money in a tax deferred exchange account with no loan requirement and the seller had all of the due diligence information recent and available. Purchase and Sale agreement was signed and the escrow closed exactly two weeks later. Standard was the industrial lease deal. Extraordinary was the use which required a conditional use permit. One year from signing the lease, the occupant was allowed to move in.

Friday, October 7, 2016

Are you Getting the MOST from your Commercial Real Estate Broker?

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I recently conducted a training session with a collection of commercial real estate brokers. I asked the group how many would agree to market a commercial real estate listing without a signed exclusive arrangement with the owner of the property. No hands were raised.

Next, I polled the group to find out how many would search for a building on their client's behalf without a signed agreement. Every hand shot up.

As I pondered the reason for the difference in direction, it occurred to me.

When we approach an owner of a building and discuss finding a tenant or buyer for the vacancy, we spend our time describing our process in locating the tenant or buyer. Generally, the marketing process includes signage, brochures, mailers, web presence, virtual video tours, entry into the multiple listing services, broker open houses, tours of the property with prospective occupants, receiving offers, vetting potential buyers or tenants, and execution of the sale or lease. These steps are tangible and measurable. Also, we are asking the owner to compensate us if we successfully lease or sell his building - thus the need for the contractual relationship.

Now consider our process when we search for a building - that silence you hear is deafening. You see most commercial real estate brokers don't have a process for searching - just a process for marketing a vacant building. Therefore, when you ask a commercial broker to find you a building, the disconnect occurs - and you are getting shortchanged!

So, how do you get the most out of your commercial real estate broker when searching for a building? I would suggest doing these things.

Interview three brokers. Select the one that can clearly describe the process he will employ to find your new business home. Pay careful attention to the way in which he will send notices to cooperating brokers, review the submittals, preview the alternatives, conduct the tours, request proposals or draft officers, analyze the responses and monitor the escrow or lease phase.

Engage one - in writing. Sign an agreement with the broker of your choice. Stipulate you are engaging him for a period of thirty days with a right to cancel the agreement if you are not satisfied with the results. Let him conduct his process without worrying about waking earlier than his competition and showing you a property he knows few details about. Allow him to WORK for you and find you the very best deal available. Make him a member of your team and heed his advice on procedure.

Enjoy the process. I can assure you'll be pleased with the results. You will also save yourself time, effort and money - and the right home for your business.