Lucrative Commercial Property for Sale, Say Foreign Investors

According to some research sources, commercial property prices are continuing to rise, while others insist the market is slowing. Either way, now could be an ideal time to consider if your current business premises is going to be sufficient for your needs over the next two or three years. The economy has meant some businesses might have been unable or unwilling to commit to moving to a larger or more appropriate building.

After all, it’s better to keep a job in an outdated building than to have no job at all. However, there are signs of national economic recovery and many companies are wondering if now is a good time to buy a new workplace, or even consider becoming a landlord. Foreign investors into British commercial property for sale have had this idea for some time now, taking advantage of low prices and helping bump values and stir up investment, especially in the City of London.

Some companies might also be motivated to buy their own property because of the resultant rising rents, and not just in the capital but outside London and beyond the M25. As the economy recovers there will be plenty of opportunity for people with their pulse on the property market to make the most of the upturn. A snapshot of values across the country shows a predictable variation of the price of commercial property for sale.

Some canny company business owners also trawl residential building specifications for suitable premises for their operations – though change of use permission can make the buying process slightly more lengthy and complicated.

Official house price figures for July fell, according to the Royal Institution of Chartered Surveyors (RICS), whose surveyors recorded a glut of properties being put up for sale, which could account for the overall price drop. “The fall in the RICS house price measure is broadly consistent with most other recent data that has been released,” said Ian Perry, RICS spokesman “Significantly, the forward looking price expectations numbers suggest that this softer trend will continue through the second half of the year. However, agents are still generally optimistic about sales activity which should benefit from more realistic pricing of properties.”

This means, presently, it could be a buyer’s market and whether you are looking for commercial or residential properties, it’s wise to keep a close eye on what’s occurring. More good news for business owners and their properties is that the government is considering changes to Discretionary Business Rate Discounts to make them fairer.

How To Find Commercial Properties To Buy

So how do you find commercial properties that fit into your investment criteria? It can be challenging and it may take a while but it is definitely worth it.

Before you start your commercial property search, you should know: what type of property, what rate of return (cap rate), and how much money you want to spend.

And before you start looking for properties all across the U.S., I would suggest that you concentrate in your local market until you have enough experience to venture out.

So you have all of those questions answered, so lets take a look at different sources for finding properties.

Commercial Realtors

I would say that your best bet is to find a good commercial realtor to help you in your search. Not only can a good realtor locate the properties but they can also provide assistance with your due diligence (notice I didn’t say “do” your due diligence). Also, the seller of the property will usually have a realtor, so it is in your best interest to have someone representing you. By the way, it is usually the seller that pays the commission, so you won’t have any expenses with the realtor.

If you’ve done your homework and know exactly what you want, you shouldn’t have any problem finding a realtor to work with you. I would interview at least 3 agents to make sure that it is a good match between you. A good realtor will find commercial properties that you have outlined, as far as type and price. On the other hand, don’t waste their time either. They get paid at closing, so don’t have an agent spend a year finding properties for you and you can’t make a decision or if you’re scared to make that leap. Nobody likes to work for free, so be aware of that.

To find a commercial realtor, you can go online to the National Association of Realtors or you can also ask for recommendations from other investors or check out your local newspaper.

So for whatever reason, you’ve decided not to use the services of a realtor, what other ways can you find commercial properties?

Internet

The internet has exploded with different websites to help you find commercial properties. The most popular is loopnet.com. They offer free & paid viewing sources. If you are a serious investor, then pay the monthly fee to get the best properties. Also there is another website, costar.com. This site is geared towards commercial realtors but it offers excellent products.

Of course, there are other real estate forums and user groups where you can find commercial property for sale. The only down side to the internet search, is that it is very limited when you are searching for local properties. For local properties, try craigslist.com.

Networking

An often overlooked method for finding commercial properties is through networking. You can go to your local real estate investment group and post a flyer indicating that you are looking for commercial properties. You can try this also at Chamber of Commerce meetings. Also, join a local group of building owners, apartment owners, and shopping center owners associations.

The above methods will offer you the best opportunity to find commercial properties. However, you can also try the classifieds in your local newspaper or thrifty paper. You can also drive around and look for “For Sale” signs. They might not be the quickest way to find a commercial property but it can’t hurt.

Commercial Property Condition Assessment (PCA)

The purpose of all Commercial Property Condition Assessments (PCAs), ASTM standard E2018, is to make sure that the property and building you believe you are purchasing or leasing is actually the property being received. You will have reached that decision, in part, from the information attained via a professional inspection and Property Condition Report (PCR). Every real estate transaction is different and each transaction has its own unique set of considerations and conditions to validate before finalized. The utilization of professional third party experts in the physical property due diligence process is critical to the overall accuracy and cost efficiency of your property transaction.

The Purchase or Leasing of Commercial real estate, whether it be a basic commercial net lease, a commercial triple net lease, the purchase of a church facility, a retail outlet, or the purchase of a million square foot office/warehouse, the prospective buyer or lessee absolutely must conduct an adequate level of due diligence when investigating the physical quality of the commercial real estate they are investing in.

You need to know not only the physical characteristics of the real estate and buildings being acquired, but the approximate condition and age, to assess the good with the bad, such that you can adequately balance the risks and rewards being offered in conjunction with your real estate deal. The single most important part of the real estate transaction process, aside from the purchase price and profitability balance, is a well-documented review of the actual physical condition of the real property. Otherwise, you could find yourself the not so proud owner of a commercial property that, doesn’t suit your needs, costs more than you can afford in upkeep, or the ultimate remorse for investors – capital expenditures are being sunk into a property on a regular basis that someone else is utilizing and making money off of, and you are not. Suddenly, that long term lease with a solid anchor doesn’t seem so attractive anymore.

The process of commercial real estate inspection begins before the offer to purchase real estate is drafted or signed, by visiting the site and discussing the physical condition of the property with the Owner and real estate brokers. This process should be considered invaluable to establishing relationships required to obtain the information that will be necessary to concrete your due diligence with a Commercial Property Condition Assessment (PCA).

During negotiations and drafting of the real estate sales/lease contract it is important to recognize seller or lessor reluctance to points such as the existence and availability of important documents such as warranties, maintenance contracts, architectural and engineering plans and/or local municipality reviews and inspections. Negative reaction to the request for release of these documents by seller or lessor can imply possible deferred maintenance and/or inattention related to property and building condition(s) and inspection issues.

Once the commercial real estate sales contract is signed the due diligence period begins, focus on maximizing efficiency of time and cost and prioritizing concerns to start checking off the costly big ticket items from the top down. Assuming adequate documentation is furnished by the seller for review, adequate time should be allotted to verify the information provided. Additional effort and monies that that will need to be spent to make up a shortcoming of available documentation through extra property condition assessment and additional field inspections and/or experts should be considered essential and figured into the cost of the property transaction. Ask the seller for all documents and contacts the seller received during his due diligence process when he purchased the property to speed up fact finding.

Review of existing property documents where available may include:

Accessibility surveys, Architectural Building plans, Certificates of Occupancy, Citations from Authorities Having Jurisdiction, Emergency evacuation plans, Environmental studies, Electrical System Construction plans, Fire-detection test and maintenance records, Fire-door inspection reports, Fire-Protection System Construction plans, Fire and Restoration records, Maintenance records, Mechanical System, Construction plans, Violation Notices from Authorities Having Jurisdiction, Construction Permits, Plumbing System Construction plans, Previous inspection reports, Roofing System Construction plans and Warranties, Safety inspection records, Seller condition disclosures, Sprinkler System Test Records, Systems and Material Warranties, Current tenant information, Current policy of title insurance, Notices of any environmental conditions, Notices of any new or special assessments or taxes, Copies of all current bills for the property, Service contracts, Evidence of current zoning, As-built plans and specifications, All construction related documents including warranties, All past and present uses of the property, Third party reports or inspections, Any surveys of the land and improvements in seller’s possession.

One of the best tools available to the commercial property due diligence team is the interview process which can unlock a plethora of potentially useful information regarding the subject property.

Interview of any available key personnel with specific knowledge of the property conditions may include:

Owner, Tenants, Maintenance Foreman, Contracted maintenance services personnel or other contracted companies that routinely work on the property and/or building.

Property Inspection, Real Estate Inspection, Building Inspection, Due Diligence Survey, as they may be labeled in the due diligence report is essential to ensure sufficiency of construction considering the intended use of the occupants and the surrounding geography and climate. The furnishing of any available plans and specifications should be helpful here, but will not end the investigation. A current commercial property condition assessment should be done by a qualified third party inspection company experienced in the type of property to be inspected. A previously performed property condition assessment or inspection is nearly always furnished for the use of a single party in a single transaction and is protected under law and not reusable nor transferable to any other party. The focus of the inspection should be primarily on site condition and building components such as the site drainage, parking, building structure, mechanical and electrical systems and general accessibility and usability of the property. Various climates and geographical regions will require more specific inspection knowledge, thus hiring a local inspector is always a good idea if possible, in lieu of hiring a company out of Wisconsin to perform due diligence on a California high-rise building on a fault line.

Site Survey and Walk-Through to Observe Existing Conditions may include:

Grounds and Topography, Parking, Paving, Access, Building Exterior and Fa├žade, Building Interior, Roofing systems, Structural systems, Mechanical systems, Electrical Systems, Plumbing systems, Fire-protection systems, Vertical transportation systems, and any number of other specialty systems.

The 2010 Americans with Disabilities Act is the current guideline for accessibility standards nationwide and is a federal law, hence non-negotiable and to an extent, yes, it’s retro-active even for older commercial and public buildings. Many states also have additional and/or more stringent or specific accessibility standards as well. Most professional property condition assessment and inspection companies can also perform both abbreviated and complete accessibility surveys as part of a real estate transaction.

Basic abbreviated and full compliance Accessibility surveys may include:

Abbreviated survey looking only for basic ADA Accessibility components visible during the walk-through and documented according to the ASTM abbreviated survey form and checklist gives a quick check as to the general status of compliance. Full compliance survey involves physical measurements of distances, slopes, and push/pull forces required within the accessibility standards to allow for a certain level of physically disabled person to be able to successfully navigate a property, site, and building.

Environmental Due Diligence known as Environmental Site Assessment (ESA) is the most utilized Environmental Inspection Report. The typical level of report preferred by lenders to demonstrate adequate due diligence is called a Limited Phase I Environmental Transaction Screening ASTM standard E1528. This explores the past use of the property and the surrounding properties to identify any potential onsite or adjacent environmental problems or future liabilities. These reports normally require a significant monetary investment and take a number of weeks to complete so they should be done as soon as you have determined you will be moving forward with your due diligence. The purpose of this inspection is to determine if the property contains any hazardous materials or poses a threat in any way to its surroundings. This could be caused by underground storage tanks located on the property or runoff from the property into the water table or any other number of hazards listed by the Environmental Protection Agency. While the report is expensive, the cost of cleaning up an environmental hazard can be astronomical. While not every deal will require you to obtain a Phase I Environment Site Assessment, many lenders will require it as part of their loan guidelines. In case of a fairly new development with a clean environmental record and no neighbors of an industrial nature, a simpler less expensive and much quicker Environmental Transaction Screening ASTM standard E1528 may satisfy lender and legal requirements.

Any basic environmental due diligence report may include:

Research of historical site usage, aerial photography records, property transaction records, construction records, building records, EPA mapping data, local municipality topography mapping, and a through site walk-through to visually identify potential environmental issue indicators.

The information contained herein is purely professional opinion and provided for general real estate inspection reference only and is not intended in any way to be a definitive guide, nor a guarantee of past, present, or future legal or state or federal requirements, nor a measure of performance of any professional services company. Best of luck to you in all of your future property, real estate, and building dealings!