Do you find that the closing process can be too drawn out in commercial real estate? Here are 4 rules to help wrap up commercial real estate deals.
More often than not, closing a commercial real estate deal is a long, tedious process. Various issues are to be expected, and multiple delays are considered "normal".
However, it's easy to lose your zen during the process as the success of your project also depends on how you can respect your deadlines. So how can you wrap up the deal rapidly? Or at least how to not waste more time than necessary?
Today we're discussing four rules to abide by when closing a commercial real estate deal.
1. Make a Transaction Plan
It may sound obvious, but many don't realize just how detailed the plan must be. You should include every aspect playing a role in every phase of the plan, from the preliminary talk to the deal conclusion. There are several things you need to do in building a transaction plan.
First, define your goal. Whether you want to build a shopping center from an abandoned warehouse or high-end flats from a factory, you need to be able to visualize your end product.
Based on your objectives, mark down every necessary step to achieve them in your plan. Also, include all the requirements needed.
Will you need to terminate Party Wall rights? What kind of environmental and municipal rules do you have to follow? Are there other regulations you must be aware of?
These are only a fraction of the many details which must be present on your plan. They will serve as your guide through the transaction negotiation and the purchase agreement drafting process.
When it's not clear if all the requirements are complete or not, the plan must include a prediction of time necessary to investigate. As you can see, the complexity of your plan will depend a lot on what you want to achieve with the property.
2. Identify All the Issues
You should expect multiple bumps on your way; there's no such thing as smooth sailing in a commercial real estate closing. Not knowing how to anticipate for and solve them could result in the failure to wrap up the deal.
However, issues are not all bad, as they may also turn into opportunities. But to do this, you need to be able to identify them. Then, there are various deployable "risk-shifting" methods.
One of the most common techniques is by redrafting the title insurance using available endorsements for commercial property. You'll need a highly skillful lawyer and an excellent title underwriter to do this.
As you progress in the closing phases, there will be other issues to tackle. Identify them so that you know how to deal with each and every problem. And always be ready for multiple negotiation sessions with the people affected by the issues.
3. Solve the Third-Party Related Delays
The truth is, closing a commercial real estate deal doesn't only include a buyer and a seller. There are many other people or entities whose signatures or approval you'll need!
They can be public agencies, semi-public organizations, or vendors without whom your deal just can't happen. You need to understand that your deadlines are not theirs. For them, your deal is just a random folder on the piles.
It can be highly frustrating as you feel there's nothing you can do about it. One way to solve this is by hiring an attorney experienced in commercial real estate closing.
Someone who's been in the business for long may know some people involved in the process of your deals. By tapping into his networks, he may be able to move your folder along to ensure you meet your deadlines.
What's more, an attorney specialized in the matter knows when to put pressure and when to leave the third-party entities alone. This expertise is highly useful during a commercial closing. Do note that some states require you to get an attorney for real estate closing deals.
4. Stay Coordinated to Wrap up the Deal
There will be last-minute frenzies; it's just the nature of commercial real estate transactions. As a matter of fact, near the end, you'll almost exclusively deal with tight deadlines in the paperwork.
This happens because you'll have many documents with an expiration date. Signatures that are issued too early in the process may be void near the end. When this happens, of course, you will need to redo them, resulting in headache-inducing delays.
So you need to keep your coordination game strong. Reverify all of the closing requirements and the dates that go with them. Go through the documents to ensure they will still be valid when the deal reaches its conclusion.
The closer you are to the end of the transaction, the higher is the chance for new issues to arise. That's why you and every other party involved must stay in touch. Everybody needs to remain contactable and present to avoid further delays.
The Bottom Line
A commercial real estate closing involves a lot of people and money. It's an intricate process, so it's only normal that it takes a long time from start to finish.
As you can see, there are multiple factors that you need to take into consideration, which include technical, legal, and even the factor of human interaction.
In the majority of cases, how you negotiate with the other parties can break or make the deal. A buyer or seller who's open to communication helps in accelerating the process or at least avoiding delays. That said, be tactful and ready to negotiate.
Dealing with issues that are not within your expertise and outside of your control is stressful. As there is a lot at stake, hire an experienced lawyer who's specialized in commercial real estate deals. Hopefully, he/she can help wrap up the deal without too many headaches.
Have you had any bad experience with a commercial real estate deal? Do you have any tips to share so others can avoid the same mistakes? Tell us in a comment below.
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