Investment in commercial real estate can be productive and even highly profitable. It also involves complex transactions with a multitude of details, logistics, and traps for the unwary. Whether you plan to purchase an apartment complex or an office condominium, an industrial space or a retail mall, a basic understanding of certain fundamentals can set you in the right direction as you start the process to purchase a commercial property.
What types of property purchase transactions are commercial in nature?
Commercial real estate purchase transactions involve buying real estate for commercial investment or use. The property itself may be residential or commercial in nature, and it can be raw land or land already developed, but it is held by the owner for commercial or business purposes. The primary investments in commercial property we assist clients with are:
- Multi-family real estate investment: this refers to a residential property that contains more than one unit of housing and can range from a duplex with two units to multiple units in an apartment or condominium building.
- Retail real estate investment: this refers to buildings where products are sold. This could be a small coffee shop or a strip mall with multiple stores.
- Office space real estate investment: This may be as small as a stand-alone building housing an insurance office or an entire multi-unit office condominium.
- Hospitality real estate investment: this class of real estate refers to motels, hotels or luxury resorts that serve business and leisure travelers.
- Industrial real estate investment: these investment opportunities refer to specifically zoned real estate for land or buildings that house industrial activities ranging from manufacturing and distribution to warehousing and storage.
What matters do I need to investigate when considering a commercial property purchase?
Though this question is property-specific, the following are some of the matters commonly analyzed in a proposed commercial property purchase:
- Zoning and land use: is the property currently zoned appropriately for your planned use, or will you need to seek rezoning or other variances? Does it have the necessary infrastructure or will larger-scale planning and development be needed?
- Title: does the current owner have clear title to convey to you? What easements or other encumbrances affect the property? Is it subject to restrictive covenants? Does the property have access to a public street?
- Survey: are current structures in compliance with setback requirements? Do structures or other improvements on adjacent properties encroach onto the subject property? Where are the easements located on the property? Where are the boundary lines of the property?
- Environmental matters: are there underground storage tanks located on the property? Has there been any contamination of the soil by hazardous substances that needs to be remediated?
We will discuss these, and other, matters in greater detail in future blog posts.
How do I get funding to buy commercial real estate?
Most individuals and companies rely on loans to fund the purchase of commercial properties. It is advisable to begin the process of identifying potential lenders early so you can determine the amount of money you are qualified to borrow, current interest rates, and possible loan terms. Lenders generally have a list of real estate-specific requirements that will need to be complied with in order for a loan to proceed to closing, including surveys, environmental inspections, appraisals, and title insurance matters; as discussed above, many of these items are important to the buyer as well, even if a lender is not involved in the purchase. A commercial real estate attorney will assist with coordinating and analyzing these matters, as well as reviewing the proposed loan documents with her client and conducting the closing.
When do I need a commercial real estate attorney?
Purchasing commercial real estate involves complex documentation and processes, but having a team of real estate, financial, and legal experts can protect your interests and facilitate a smoother path to meeting your goals. There are many steps that must occur before any transaction is complete; an experienced commercial real estate lawyer will guide you through the legal requirements involved with the proposed property purchase, as well as consult with you regarding financing, environmental issues, zoning, taxes, title insurance, and other steps specific to your goals for the subject property.
Brooke Dalrymple is a knowledgeable commercial real estate and business law attorney whose clients includes privately-owned businesses and companies, banks and individuals. Brooke’s clients see her as a trusted partner, providing valuable, thorough council.