Taking Up Space: Buying Commercial Real Estate For Your Business

Happy Wednesday, powerful people! Last post, we discussed a few of the most popular ways of acquiring a physical space for your business - purchasing, leasing, or co-working. Today's post will focus on the nuts and bolts of a commercial real estate purchase, including a general, and highly simplified, overview of the process and what you need to know if you're thinking about buying commercial real estate to house your business.

Because I am not a realtor or a real estate broker in any capacity, I will allow the experts to guide you in that process, which means that you should consider getting a commercial real estate broker. Commercial brokerage is a different and, often far lengthier and protracted, process, so consider working with a broker experienced with the type of property that you want (retail space, office space, warehouse, land), and do your research. Talk to friends and family, google reviews, and have conversations with them before signing a representation agreement. Talk to your bankers and financial officers about financing. Ask lots of questions, and don't ever apologize for asking. Don't take "I don't know" as an answer, and don't let anyone convince you that your questions are displaced. You have a right to get answers to whatever questions you have about your prospective purchase, and a Seller that refuses to give answers could be a red flag.

Once you've identified a space of interest within your financial realities and one that you feel will fit in with the personality of your business, you should talk to your business partners, if any, as well as your financial contacts to ensure your broker or your lawyer will prepare a "Letter of Intent," which is a brief document that outlines the most essential terms of your purchase, like the purchase price, the amount that you're willing to put down as earnest money, Seller's disclosures, the timeframe for your due diligence and inspection of the property as the buyer, and contingencies for financing, licensing, and government approvals. An agreed upon letter of intent is intended to serve as a guidepost for the parties as they negotiate the actual terms of the contract. Unlike residential contracts where the parties use geographically specific forms, commercial contracts are often drafted for each individual transaction and negotiated several rounds by the parties' attorneys before executed. 

Once you come to an agreement, a few things will happen:

You'll begin working on your financing by providing your lender with everything they need to understand you, your business, and the property you plan to acquire. Your lender will do an appraisal of the property to ensure that the ratio of the amount of the loan in comparison to the property's fair market value makes sense for the lender's investment. 

You might work with your attorney to establish a new entity, with the approval of your lender, to own the property, aside from your business. For some, this allows a business owner to separate the liabilities between property ownership and business ownership.

During this time, you'll also receive documentation from your Seller relating to the history of expenses for the property, information regarding the state of title of the property, governmental notices, information about the property taxes, and information on the business, if that is part of your acquisition as well. We refer to this period as "due diligence." Typically, a Seller will have a certain amount of time to deliver these items to the Purchaser after the contract is signed, as it can be costly to engage an attorney to review these items for you before you have a signed agreement between the parties. It is ultimately your job, as the buyer and as the business owner, to review this documentation thoroughly because, as the end of the day, only you know your business and what your business needs, not your broker, not your lawyer, not your Seller.

In addition to receiving and reviewing the Seller's disclosures, you will also need to make sure that your business can obtain all of the necessary governmental approvals, permits, and licenses that might be needed for you to operate your business at that specific property. Many commercial contracts are contingent on such approvals because failure to get a liquor license when you're opening a bar could be a big problem, and one that a business owner would like to be aware of before buying the bar space.

While there are many other steps that come into play during this process, you should now have a sense of the process of purchasing a commercial property of your very own. It's a lengthier process than buying a home, and the investigation of the property is far more extensive in a commercial transaction than with a residential purchase.

If you are thinking about buying commercial real estate for your business, give us a call! We have closed millions in commercial transactions, and we offer a unique feel for our commercial clients in that we provide everything that a big firm offers but with small firm attention and pricing that works for your new business. Regardless of who you work with during the course of your commercial purchase, remember that it takes a village to get a new business into a home of its very own, so make sure that you're working with professionals that are experienced and that you like and trust.

Until later.

Yours, in power -

Priti

AKA The Boss Lady’s Lawyer