Shoot first, ask questions later.
I’ve found myself interacting with quite a few young investors and first-time commercial real estate buyers/renters. Unlike the residential sandbox, there are no consumer protections in commercial real estate. It is buyer beware, do your homework. As a result, it is on the buyer or renter to size up the property. The idea is to have zero (bad, costly) surprises, post-closing or after you move into the space.
So, assuming we have found a property the client wants to pursue, we inevitably have a conversation about making an offer. Rarely do we have all the information, and sometimes we have very little on a given listing. Often, I try to explain that the best way to work toward the answers is to make an offer via a Purchase and Sale Agreement or a Letter of Intent to Lease.
Here’s some common questions regarding a target property:
What are the financials?
What are the utilities?
What are my hidden costs?
Can I conduct my business here, is my use allowed?
Can I have that wall removed?
Is there 3-phase power?
Is there environmental contamination?
It is very common to submit an offer or an intent to lease with question marks on the property. Generally, it is often a lot easier to get the answers to our questions after we have made a strong offer.
Drafting an offer is work for me, but it is work I am happy to do, to get us one step closer to finding out if this property is the one for my client.
On a sale transaction, assuming the offering contract is accepted and we have a fully-signed agreement, earnest money is deposited with the title company. Simultaneously, the due diligence period begins. For a lease transaction, if the lease intent letter is accepted, we progress to a draft lease, usually supplied by the landlord.
If, for any reason, during the due diligence period, should you choose to terminate the sales contract, you get your deposit back and ride off into the sunset.
We can go into more detail on the earnest money deposit and the due diligence period in the future, but if you took anything away from this, it should be this: Shoot first (via an offer), and ask questions later.
I’m not saying this to create unnecessary work for me or your CRE professional, but if you’re genuinely interested in pursuing a property, an offer or lease intent letter is often the best primary move, despite the urge to only make an offer after all questions have been answered. Believe me, those questions, and many more, will be generated during the whole process, from initial offer to closing or a fully-signed lease.
Spire Commercial Real Estate