Top 10 mistakes in commercial real estate (CRE) transactions

  • Understand the tax implications: First, before you even go to market, you need to be prepared for a sale of the property from a tax and exchange perspective. Understand expected capital gains obligations on the front end and decide whether a 1031 exchange should be pursued before listing. For an exchange programme, a qualified intermediary needs to be in place before closing the deal, along with a general idea of what type of property has to be purchased. The very last choice in a sale is between paying taxes or finishing an exchange.
  • The deal team matters: Focus should be on getting the right team on board. This includes a CRE attorney, a broker and third-party service providers such as environmental engineers, title companies and surveyors. Transactions are complex and a number of factors could make a deal fall apart. A high-quality broker could get the highest price in the market while ensuring your interests are protected at all stages of the deal. As new problems arise, as they would in every transaction, an experienced broker can navigate them to keep the deal moving forward. Similarly, hiring the right CRE attorney — an expert in the particular type of property — is crucial.
  • Competition yields the highest price: Avoid over-pricing the property. There may be factors unique to your particular investment that theoretically allow it to command above-market pricing. If you list a property significantly above the market value, provide room for negotiation. No activity helps no one. As a seller, you would want multiple offers, creating competition to push up the price. Be realistic when setting your list price if you want to sell for the highest price.
  • Compile due diligence material early: All due diligence material should be compiled and reviewed by the deal team before going to market. This includes the full lease and all amendments. Do not rush to market — get all due diligence material together and make sure your deal team has reviewed it thoroughly and all marketing clearly reflects all elements of the deal.
  • Disclose material facts upfront: Ensure you disclose any property-specific issues upfront, so there is no conflict later. These issues could include late rent payments, disputes with townships, deferred maintenance and unexpected Reciprocal Easement Agreement (REA) obligations. Waiting to disclose such issues until well into due diligence would almost always cause a buyer to re-trade the pricing or cancel the deal. Most issues could be worked through if disclosed in a timely manner and presented properly. It may be a seller’s market at present, but this does not mean you should ignore the abovementioned points. Give yourself the optimal opportunity to achieve maximum pricing from a buyer by being prepared for your sale, hiring the right deal team and disclosing all material facts in a timely manner.

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We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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Acuity Knowledge Partners

Acuity Knowledge Partners

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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