Keys to closing commercial real estate transactions

Anyone who thinks that closing a commercial real estate transaction is a clean, easy and stress-free task has never closed a commercial real estate transaction. Expect the unexpected and get ready to deal with it.

 

I have closed real estate business transactions for almost 30 years. I grew up in the commercial real estate business.

 

My father was a "man of the earth". He collected land, put infrastructure in and sold it for profit. His mantra: "Buy per acre, sell per square foot." From an early age, he drilled into my head the need to "be a negotiator, not a deciding factor." This was always accompanied by the warning: "If the agreement is not closed, nobody is happy." His theory was that lawyers sometimes "kill difficult deals" simply because they don't want to be blamed if something goes wrong.

 

Over the years I learned that commercial real estate closings require much more than simple informal care. Even a typically complex commercial real estate closing is a very intense task that requires creative and disciplined problem solving to adapt to ever-changing circumstances. In many cases, only focused and persistent attention to every detail will result in a successful closure. Commercial real estate closings are, in a word, "messy."

 

A key point to understand is that commercial real estate closings don't "just happen"; they are made to happen. There is a time-tested method of successfully closing commercial real estate transactions. This method requires compliance with the four CLOSING KEYS detailed below:

 

KEYS TO CLOSE

 

1. Have a plan: This sounds obvious, but it's remarkable how many times a specific plan for closing doesn't develop. It is not a sufficient plan to simply say, "I like a particular property; I want to own it." That is not a plan. That may be an objective, but that is not a commercial cafe.

 

A plan requires a clear and detailed vision of what, specifically, you want to achieve and how you intend to achieve it. For example, if the goal is to acquire a large warehouse / light manufacturing facility with the intention of converting it into a mixed-use development with a first-floor retail, a multi-story parking garage, and level condos or apartments Above, the Transaction Plan must include all the steps necessary to get from where you are today to where you need to be to achieve your objective. If the intention, instead, is to demolish the building and construct a shopping center, the Plan will require a different approach. If the intent is simply to continue to use the facilities for warehousing and light manufacturing, a Plan is still required, but it can be substantially less complex.

 

In each case, the development of the Transaction Plan should begin when the transaction is first conceived and should focus on the requirements for the successful closure of the conditions that will achieve the objective of the Plan. The Plan should guide the negotiations of the contract, so that the Purchase Agreement reflects the Plan and the necessary steps for the use of Closing and after Closing. If the implementation of the Plan requires particular zoning requirements, or the creation of easements, or the termination of party wall rights, or the confirmation of structural elements of a building, or the availability of public services, or the availability of municipal rights, or environmental remediation and regulatory authorization, or other identification requirements, the Plan and the Purchase Agreement must address those issues and include those requirements as conditions for closure.

 

If it is not clear at the time of negotiating and entering into the Purchase Agreement whether all the necessary conditions exist, the Plan should include an adequate period for conducting a focused and diligent investigation of all matters important to complying with the Plan. The plan should not only include an investigation period, but the investigation should be carried out with due diligence.