Negotiating Tips for Commercial Real Estate Transactions

Life’s Experiences, Lessons learned, Classes taken, Books and Articles read, and then summarized for your viewing pleasure in the following article on Commercial Real Estate Negotiating tips

  1. Don’t let contract negotiations go back and forth more than twice – the more back and forth, the harder it is to get a deal done. Round 1 and both are focused on the sale. Round 2 and the focus changes to money. When you get past Round 2 parties can begin to nitpick, start to resent each other and lose focus. Issues can then become personal.
  2. Focus on completing the sale. Don’t get sidetracked by emotions, unimportant details, unforeseen challenges or difficult situations that arise.
  3. Endeavor to put all contract offers and subsequent pertinent details in writing. This avoids the misunderstandings, misrepresentations and omissions that typically accompany verbal communications and lead to a breakdown in the process.
  4. When you give a concession, ask for something in return. You might not always get it but the fact that you’ve given in on an issue ought to give you the standing to ask for and often times receive something in return. Just by asking and not receiving you avoid the other side continuing to ask concessions of you and your Client.
  5. It’s best to not take the first offer too quickly or too easily. Wait at least a few hours. When talking about it with the other Agent don’t talk about the ease of getting the property under contract. The other side will immediately think they made a bad deal and from that point forward the closing process can become more difficult than it should be.
  6. If you get to an impasse, change the focus and resolve less complicated issues. Then go back to the difficult ones. The process will go smoother and once you have worked through the easy ones, momentum will help get things finished.
  7. If you aren’t sure how to reply to a request or if you know the answer but want to soften the blow, use the “limited authority” approach. “I’m not sure, let me check with my Partner”, or “Let me take a look at such and such data” so that you can better provide a more meaningful reply.
  8. In order to support your position, rely on precedent. Suggest that this is the way that issues like these are typically addressed or that you’ve done such and such before with great success.
  9. Ask the other side for something that isn’t critical to making the deal so that perhaps you can trade this item away for something more important to you.
  10. Negotiations are a process. It doesn’t matter how quickly you want things to move, the process will move based upon the comfort level of your Client. Maintain focus, but keep in mind that the process will most likely not move as fast as you want it to.
  11. Stay away from high pressure tactics including ultimatums, demands or anything that sounds final and/or threatening. Most of the time it doesn’t help and it can lead directly to emotional responses that then creates animosity.
  12. Work towards a win / win. In order to have a successful negotiation, both sides need to win on some points. Give and take. Strive to achieve most of your goals understanding that the other party is trying to do the same.
  13. Present all of the facts to your Client. It’s your fiduciary duty as a Realtor to apprise the Client of all related facts to the negotiations – good and bad. Don’t push for the higher dollar offer if other terms of the offer put the Client at undue risk.
  14. Remember who you are negotiating with. Sooner or later you’ll be back at the table again with the same Agent. Don’t burn any bridges by transacting in a less than professional manner.

Smooth Real Estate Transactions: 4 Tips to Consider When Selling or Buying a Commercial Property

No one would invest in a piece of commercial real estate without investigating it’s resale value, income generating potential, building structure, etc. However, there are a couple of things that seem to get overlooked, even by the savviest investors. Following are the four most overlooked items that you should consider when you are selling or buying a commercial property:

Has the building been unoccupied for more than 180 days?

Collier County has an established Land Development Code (LDC) that governs things like a building’s architectural standards, setbacks, landscape and parking requirements. These requirements vary based on the district where the property is located. The LDC is reviewed and updated twice a year and new projects are required to comply with the codes. Existing buildings are usually “grandfathered” in, however, there are certain times that a building is subject to review for compliance with the current land development code.

One reason a building is subject to review is if it is unoccupied for a period of more than 180 consecutive days. To bring newer buildings into compliance with the LDC may be as simple as revamping the landscaping with extra trees or buffer shrubs. However, with older buildings it can be very costly. A local businessman purchased an older building with the intention of using it as a warehouse-showroom. When he tried to get a permit for a renovation, he was informed that he would have to change the front facade of the building to include among other things, a 75% glass storefront. To bring this building into compliance, it would have meant serious structural changes that increased the renovation costs by tens of thousands of dollars. The project proved infeasible and the building was subsequently resold and developed.

Will the occupational license require a change of use for the building?

Another reason that would make the building subject to review for compliance with the land development code would be if there was a “change of use.” Change of use doesn’t necessarily mean a zoning change. It can mean going from a jewelry store to an office supply store, or a retail store to a restaurant. The reason for this review is to make certain that the new use is in compliance with the permitted uses of the specific zoning area. This review also ensures that there is adequate infrastructure (ie parking) to support the new use.

Will the building need alterations to the fire alarm or sprinkler system?

Another overlooked item is the fire safety system, which includes the fire alarm and fire sprinklers. By adding sprinklers or changing out a fire panel, you open the whole fire safety system up for review and it will have to be brought up to current code. Depending on the age of the building, this can include relocating the fire alarms on the wall; adding fire sprinkler heads; or replacing an entire control panel, which can add thousands of dollars to a project. If you are in doubt, get a consultation with a qualified general contractor or architect during your due diligence period.

Have you allotted enough TIME for planning and permitting?

Permitting is frequently the place where owners don’t allot enough time. According to the City of Naples Building Division, it typically takes three-four weeks for a permit application to be reviewed and a permit issued. However, if your permit application is rejected it can take another two-four weeks after your plans have been revised by the architect. According to the Collier County Building Department, it typically takes six weeks for a permit application to be reviewed and permitted. Depending on the complexity of the project and allowing for a couple of rejections, it is more realistic to plan on three to twelve months for a permit to be issued. A renovation might be three months and a building under 10,000sft might take six-nine months. Unfortunately, there are NO short cuts in getting through the permitting process.

With proper planning, your commercial real estate transaction can go smoothly and provide you with a profitable investment. If you have any questions about the process, it would be wise to consult with a reputable commercial general contractor and an architect.