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Six Simple Steps to Success

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Six Simple Steps to Success

Buying & Leasing Commercial Real Estate

3/4 Acre Office - Retail Lot

The cost of owning or leasing commercial real estate is expensive. It may be the largest single cost of doing business, when you consider all expenses associated with operating and maintaining a facility.

Location and access are critical success factors for many businesses, like retailers. Cost and layout are the key for other business owners. While needs vary, the process of finding the best facility for your business is essentially the same.

Here is a Six Step Process that has produced success for us and our clients, time and again. The process is basically the same for buying or leasing:

1.  Conduct a thorough Needs Analysis. If you don’t know what you need, how can you make the best choice? How much space do you really need and for what functions? How do the  functions relate to each other? Are you likely to grow or shrink in certain areas? What’s are the critical success factors for your facility – location, image, visibility, access, local workforce, average income in the area…?

We utilize Needs Analysis templates developed over time for specific types of businesses including retail, office, service, medical, and manufacturing. Business owners almost always discover needs, features, and considerations they did not think of prior to the Needs Analysis.

2.  Gather Market Intelligence.  Once needs are clearly in focus, identify all properties in your selected market that meet these needs. Quantify and record factors like cost, square feet, and the features you have deemed important. Understand the real asking price. What do they really mean by NNN or Modified Gross and how much is it? What is the real “all in” apples to apples cost for these properties? 

Property information can be gathered through the internet, driving the market, tax records, business relationships, and through broker/owner relationships. All sources may be necessary to identify the global population of possibilities. Several commercial real estate databases exist to help, including LoopNet, CoStar, Xceligent, Showcase, etc. Most of these services require a premium paid membership to access all properties. Partial information is not very useful and you may miss the best prospective properties.

Make an initial database of the prospective properties that meet the needs, but continue market surveillance throughout the process to identify new properties that come on the market.  We utilize Excel to record, track, and compare property data.    

3.  Short List & Verify. Shortlist the database with the data collected and rank the properties by A,B & C  with ‘A’ being the properties that best meet the criteria , ‘B’ the next best, and ‘C’  being properties that don’t appear viable. Remember that asking prices are just a starting point and higher priced properties may be highly negotiable. We like to arrive at the ten or so best properties at this stage. 

Verify all cost and data including the ‘all in cost’ by initial phone calls and emails about the properties. A drive by of the properties is recommended at this stage too, if you don’t already know the property. Phone calls are better than email. A phone conversation reveals a better sense of the property. Is the property owner eager to make a deal? Are they going to be easy to work with and negotiable? Are there any deficiencies with the property?  

Sort the prospective properties again to include all information collected and verified. Short list three to five best properties.

 4.  Tour the Properties. Set appointments to tour the properties on your short list. It is better to tour all properties in one or two days, verses over several days. Verify if the property meets your needs, but carefully look for deficiencies.

Look and feel are important, but peel back the layers to look for hidden damage, substandard construction, and potential problem areas. This is also another great opportunity to gather key information for the negotiation.

Often, you are selling as much are your are buying.  The decision maker for the property needs to know you are a real prospect, financially capable, and why they should give you a great deal. Be prepared to provide a narrative of your business, credit application and  financials if needed.

 5.  Make the Offer. Offers move forward in a couple of ways with commercial real estate. With leases, you may issue a request for proposal (RFP) to the broker/landlord. You can also provide them with a letter of intent (LOI) of your proposed terms.

Purchases in commercial real estate almost always start with the buyer’s letter of intent (LOI) . The LOI process keeps the negotiation focused on a making a deal in principle.

The LOI should contain the essential elements of the transaction, without the exhaustive legal language of a contract. It is important that the LOI have the basics of price, timing, contigencies, and conditions. They should be non-binding on both parties, but well thought out to convey a serious offer. Our LOIs are normally three to five pages. Quite often, LOIs go back and forth multiple times before a deal is reached.

 It is best to seriously negotiate one property at a time, and move to the second choice if you don’t get there. With leases, you can initiate the process by asking for RFPs from multiple properties, and counter-offer the best overall deal.

 6.  Finalize the Deal. No deal is done until the final contract is signed. Landlords almost always utilize a lease format developed by their attorney for the property. Some may utilize a standard promulgated format, like a North Texas Commercial Association of Realtors (NTCAR) form. In either case, an Attorney experienced in commercial real estate transactions should review the agreement.

Buyers usually produce the agreement with the purchase of real estate. A standard NTCAR format is good because most in the industry are familiar with it and can easily move to the clauses that need special consideration. Again, an Attorney experienced in commercial real estate should review all agreements.

Finalizing the deal is an important step. A poor job here can ultimately bankrupt a business. Exit strategies, timing, contingencies, and special clauses need to be carefully considered. Skilled negotiation at this stage can make a good deal into a great deal.

Be certain the contract allows enough time for due diligence before you have to close the contract. When purchasing, an Inspection Period is required for inspections of the property, city approvals, and obtaining financing. Lenders normally require environmental reports, appraisals, and other information that require time. Use professionals and inspect every element of the property. Shortcuts here are risky and buying a property you can’t use for your intended purpose can prove fatal.

These six steps are simple, but they’re not easy to accomplish efficiently and effectively. Commercial real estate brokers invest decades of time and thousands of dollars per year to hone these skills. Most brokers that do tenant and seller representation are very  proficient and effective in the process.

The great news for buyers and tenants is that this service is usually at no-cost to them. Sellers & landlords almost always pay the fee for commercial real estate brokers that bring them tenants & buyers. Standard commercial contracts are written so the property owner pays all broker fees. If the owner has a broker to market the property, he is already paying a fee and his broker usually splits this fee with the buyer/tenant broker. Having a tenant or buyer representative on your team makes a lot of sense, especially when it cost you nothing.

Brokers can work both sides of a real estate transaction (an intermediary relationship), but few brokers do. Brokers almost always work for one party in the transaction and have a fiduciary responsibility to that party exclusively. Every real estate broker must present an Information About Brokerage Services form to clarify whose interest they represent (or anticipate representing).

Be clear that the seller or landlord broker does not represent your interest, no matter how helpful they are. By law, they owe their fiduciary duty to the owner of the property, must share everything about you with their client, and must make the best deal for their client (not you).

Not all buyer and tenant representatives are equal. Some have more experience, knowledge and skill than others. If you decide to have professional representation, it is important to select a broker that not only has the expertise to help you, but has the motivation to work hard for you. This means you need to commit to an exclusive representation agreement, assure them you will finalize a transaction, and assure that they will get paid for success.


Mark Glover is the Principal and Broker of iMark Realty Advisors. iMark helps clients safely and profitably buy and lease commercial real estate. The advice and information provided here is not meant to be legal advice or all the information needed to conduct a successful real estate transaction. It is general information to help business owners better understand the process. Contact Mark at 214-550-5017.





About the Author

Mark Glover is the Principle of iMark Realty Advisors in the Dallas/Fort Worth market. Mark has over 25 years experience in advising clients on how to safely and profitably buy, sell, lease, develop and invest in commercial real estate. Mark also helps clients gain cash-flow in their business with a specialized suite of tax studies and tax credits. These include cost segregation. R&D credits, Energy credits, and Recapture credits.