Purchasing Commercial Real Estate

The Delaware real estate attorneys at Elzufon Austin Tarlov & Mondell explain some key things to consider when purchasing commercial real estate.

The issue of location is one of the larger decisions faced by a business. This is true everywhere, but is especially important in Delaware. There’s no single solution to suit every business, but there are several considerations that can help better guide the decision-making process.

Lease or buy?  The prospect of owning property is always alluring, as it can provide more return on the capital investment than the traditional expense that is rent.  Businesses may realize the ability to develop an additional source of revenue in purchasing commercial property and leasing part of it to other tenants. However, pitfalls exist.  A location may become less desirable over time and reduce the value of the property.  Tenants may be unreliable in paying rent and create cash-flow issues.  Property ownership may tie up too much of a company’s cash, reducing its ability to operate as it would like.  Being a landlord is a hands-on process that is not for everyone. Sometimes leasing is actually a more suitable investment in that it buys back much of the time and responsibility that comes with ownership.

Consult a real estate expert or real estate attorney for a rent versus own analysis that will take into account not only real estate trends in a given area but growth forecasts for the business.

Draft the team.  If the decision is to purchase property, a business will need a team of professionals beyond that of just a commercial real estate agent.  A real estate broker may be able to assist with the research of possible locations, but a full team of professionals is needed to account for different areas of expertise. An accountant should be used to assess affordability and tax benefits. An attorney is needed to guide the negotiations with seller and lender. Lastly, a mortgage broker can help evaluate lending options, including instruments from the U.S. Small Business Administration.

Find your space.  Just as with residential property, “location, location, location” tops the list of considerations for finding space. However, choosing a commercial site involves some other unique criteria as well.  There are a variety of important questions that must be asked. Is the zoning appropriate for the use the business intends?  If alterations are needed, will local zoning and neighborhood covenants permit them?  Is there adequate parking, and is access compatible with the Americans With Disabilities Act?  Finally, consider a best-case scenario: if the business grows, is there room for expansion?

Due diligence.  Once a suitable location is found, even more professionals may be needed. It may be required to bring in environmental analysts, appraisers and engineers to evaluate the building and its systems and to identify any potential sources of liability.  As with any transaction, the business has the choice of walking away from the deal or attempting to negotiate more favorable terms if problems are found. However, not finding them beforehand can be a tremendous mistake.

The purchase.  There is still work left to be done even after all of that. The accountant and real estate attorney are vital as appropriate financing is secured and the complex details of a contract are hammered out.  Commercial real estate contracts must cover a host of contingencies, and the financing details are often correspondingly complex, and even more difficult in the post-2008 credit crunch.

An experienced real estate attorney will be able to help you assess what issues described above are applicable to you, and ultimately help identify what course of action is best for your business. It can seem overwhelming to manage on your own, but that’s what professionals are there for.  

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