Tuesday, February 2, 2016
"Weaning" your #CRE Clients. TUESDAY Traffic Tips
"Weaning" your #CRE Clients. TUESDAY Traffic Tips. At what point during a commercial real estate transaction should you allow the owner and the occupant to deal directly? I discuss this and much more on this week's VIDEO tip.
Tuesday, January 19, 2016
How STRONG is Your #CRE Network?
How STRONG is Your #CRE Network? I'm sure if your client asked you for a referral to a roofer or general contractor, you could comply. What if your client needed a referral to a CPA or a wealth advisor? Would your Rolodex include names in this space? Today, I discuss a source of referrals you may be overlooking.
Friday, January 15, 2016
My Commercial Real Estate Didn't Appraise...Now What?
Appraisals of commercial real estate are required if you are financing your purchase through a lender - conventional or otherwise.
The possible exception might be an owner financed purchase. In that case, the owner becomes the bank and may not require an appraisal.
An appraisal is a lender's way of "hedging their bet" to insure the agreed upon value - the negotiated purchase price - is consistent with the market.
An appraiser is generally engaged by your lender and looks at three measures of value: market approach - recent sales of comparable buildings, the income approach - capitalized market rents, and cost replacement approach - the price of land plus depreciated construction costs . These three value measures are compiled, reviewed by the lender and a value is determined. The appraised value is then compared to the negotiated purchase price. If the appraisal supports the negotiated purchase price, great! If the appraisal is less than the negotiated purchase price, there is an issue.
So what can be done if the appraised value is less than the price that you and the seller have negotiated? In my experience, one of several solutions exist.
The seller can reduce the purchase price. The solution is simple but not easy to accomplish - especially in a robust market where buyers are plentiful. The seller chose you as the buyer because you had the best offer, the greatest motivation, or for another reason. Remind the seller of this fact. Also, if the building didn't appraise with your lender, there is a high likelihood that the building will not appraise with another lender. The low appraisal is now a material fact that will need to be disclosed to the next buyer - hmmm. Maybe a price reduction isn't so bad after all.
You can invest a larger down payment. If the seller is adamantly against reducing the purchase price, you can bridge the gap by making a larger down payment. Just understand your lender believes you are paying too much for the building so examine your reasons for buying the building.
A combination of the two solutions above can be used. Frequently, the seller and buyer will compromise and the seller will reduce the price slightly and the buyer will invest additional dollars to close the transaction. I would say this is the most common way in which a low appraisal is remedied - both parties participate to solve the issue.
An appeal can be made to the appraiser. Prior to the economic collapse of 2008, this was a viable option. We could "massage" the appraised value by talking to the appraiser, looking at the value measures and suggesting other comps, capitalization rates, or construction costs. These days, we have very little latitude because brokers are divorced from the appraisal review and the final determination of value. If all else fails, however, this is worth a shot.
The possible exception might be an owner financed purchase. In that case, the owner becomes the bank and may not require an appraisal.
An appraisal is a lender's way of "hedging their bet" to insure the agreed upon value - the negotiated purchase price - is consistent with the market.
An appraiser is generally engaged by your lender and looks at three measures of value: market approach - recent sales of comparable buildings, the income approach - capitalized market rents, and cost replacement approach - the price of land plus depreciated construction costs . These three value measures are compiled, reviewed by the lender and a value is determined. The appraised value is then compared to the negotiated purchase price. If the appraisal supports the negotiated purchase price, great! If the appraisal is less than the negotiated purchase price, there is an issue.
So what can be done if the appraised value is less than the price that you and the seller have negotiated? In my experience, one of several solutions exist.
The seller can reduce the purchase price. The solution is simple but not easy to accomplish - especially in a robust market where buyers are plentiful. The seller chose you as the buyer because you had the best offer, the greatest motivation, or for another reason. Remind the seller of this fact. Also, if the building didn't appraise with your lender, there is a high likelihood that the building will not appraise with another lender. The low appraisal is now a material fact that will need to be disclosed to the next buyer - hmmm. Maybe a price reduction isn't so bad after all.
You can invest a larger down payment. If the seller is adamantly against reducing the purchase price, you can bridge the gap by making a larger down payment. Just understand your lender believes you are paying too much for the building so examine your reasons for buying the building.
A combination of the two solutions above can be used. Frequently, the seller and buyer will compromise and the seller will reduce the price slightly and the buyer will invest additional dollars to close the transaction. I would say this is the most common way in which a low appraisal is remedied - both parties participate to solve the issue.
An appeal can be made to the appraiser. Prior to the economic collapse of 2008, this was a viable option. We could "massage" the appraised value by talking to the appraiser, looking at the value measures and suggesting other comps, capitalization rates, or construction costs. These days, we have very little latitude because brokers are divorced from the appraisal review and the final determination of value. If all else fails, however, this is worth a shot.
Tuesday, January 12, 2016
Get your #CRE offer ACCEPTED! TUESDAY Traffic Tip
In these days of limited inventory, it is important to have a strategy to get your client's offers accepted. Today, I discuss a three step process to insure your commercial real estate offers get accepted.
Tuesday, January 5, 2016
The DOWNSIDE of a #CRE Holiday. TUESDAY Traffic Tips
The DOWNSIDE of a #CRE Holiday. TUESDAY Traffic Tips. You had a great year. You enjoyed a bountiful holiday with friends and family. You are fired up to get back to the grind. However, you're staring at a blank slate. Now what? Here is a suggestion to get that new year off to a GREAT start. I discuss this and much more on this week's TUESDAY video tip.
Tuesday, December 8, 2015
#CRE Timing is EVERYTHING! TUESDAY Traffic Tips
#CRE Timing is EVERYTHING! TUESDAY Traffic Tips. Whether you've been around five minutes or fifty years you know this. But, today's VIDEO tip is a real world reminder of this important aspect of making a commercial real estate transaction.
Friday, November 20, 2015
5 Overlooked Reasons You Hire a Commercial Real Estate Professional
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.
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.
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