What’s Taking So Long with my Deal?

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Commercial real estate deals take time to complete - generally, a lot longer than buying your family’s residence. Best case - but rarely? The deal is completed in thirty to forty-five days. More typically? Seasons change with no conclusion to the transaction.

What begins with a simple framework of search, locate, negotiate, contract, execute, and close - many times morphs into a mire of minutiae. Layer in some professional advisors - lawyers, bankers, environmental engineers, accountants, appraisers, building inspectors, contractors and commercial real estate agents - who all must have their say - and the complexity begins.

What - you may ask - takes so long? Indulge me as I describe a few areas where transaction traffic gets pinched akin to your commute on the 405.

Search. Available inventory is at an all-time low. 98 of every 100 industrial buildings is occupied. This is great for owners - but if you’re looking for a place to re-locate your business - you are scrambling to find the right spot. So, if you could simply run out and check a half a dozen sites and choose the best - awesome! The reality is you may wait months for the right match to come along. The days are getting shorter and leaves beginning to turn.

Negotiations. Because of the historically low vacancy - owners are bullish. They understand occupants have very few - if any - choices. High asking prices follow. Motivation migrates. Concessions wane. Couple this with an occupant determined to find a “deal” and negotiations reach an impasse. The clock ticks.

Due diligence. Once you find that dream building and have struck an agreement - you now must figure out if you can buy it. Third party reports must be ordered to investigate all manner of details - appraised value, environmental history, condition of title, roof, air conditioning, structural, seismic, biological, zoning, permitting - to name a few. Normally, transactions are structured with a time-frame to complete these studies - but rarely are the time frames generous enough to allow proper ordering, investigating, reporting, reviewing and approving. One slip in scheduling can cause endless delays and the need to return to the bargaining table to beg for additional time.

Financing. Many small business owners employ the Small Business Administration - SBA - to finance their commercial real estate purchases. Depending upon the size of the loan and lender appetite - two approvals are necessary - one from the bank and the other from the Federal Government. When we experienced our government shutdown last December - SBA loan approvals screeched to a halt. Any loan package not in the approval queue before the hiatus suffered an interminable delay. Great scrutiny is placed upon the environmental health of the real estate and the value as determined by an appraisal. Unfortunately, you and your purchase operate on the loan’s timeframe.

City approvals. The use to which the property will be placed as well as any changes planned - office, power, warehouse racking, freezer cooler space - will need to be vetted and approved by the municipality. We once encountered a city approval process that eclipsed a year! This year - by the way - after leases were signed. Fortunately, we anticipated the approval timing and were able to negotiate a satisfactory structure.

Transition planning. Moving a manufacturing plant can be a bit more involved than packing your household belongings. Pair the complexity of the relocation with the inability to be “out of business” for any duration and planing becomes tantamount.

Please tune in next week as I’ll provide some suggestions to roll back Father Time and expedite your deals.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.com.