Monthly Archives: September 2016

Commercial Real Estate Leasing Guide

Commercial real estate lease is a contract that creates and defines the legal relationship between the landlord or lessor and the tenant or lessee. In exchange for payment of rent and other considerations, the landlord grants to the tenant the right to possession and use of all or part of the property, subject to certain terms and conditions, for a specified period of time. In most types of commercial real estate, leasing provides the bulk of revenues available to service the mortgage loan; thus, understanding and accurate evaluation of lease terms and conditions is crucial to underwriting a loan. Lease obligations often require post closing management by loan administrators as well.

There are two primary considerations from the investor’s perspective:
Poorly drafted leases can create economic problems for the borrowers, which may put at risk his or her ability to make loan payments.
If the investor takes the property back, he or she will have to live with the terms and conditions of the lease, unless provision is made that the investor has the option to terminate it. In most foreclosure situations, however, tenants paying rent are a valuable commodity.
The rules and regulations should be understood before leasing the property, and an agreement should be drafted. There are some items to be followed.
It must be perfectly defined and include all details of the parties of the lease, including the correctly-spelled full name of each party, the nature of the legal form, and the state of domicile for the partnership, or corporation. Individuals may sign for themselves, any general partner for a partnership, and the president or secretary for a corporation. If there is any question on a corporation, a copy of the resolution of the board of directors granting signing authority should be attached. If the signer is acting as an agent for a principal, written authority from that principal should be attached.
Demised premises should be precisely identified, in terms of building address, floor number, suite and store number, and area in square feet to be leased. A floor plan or drawing of the space in relation to the entire property is very helpful. Inadequate identification can invalidate the lease. The lease should also state whether parking rights are exclusive or nonexclusive, and whether specific parking spaces are designated for the tenant. For parking, separate charges should be noted by the reviewer.
The term of the lease should be stipulated, in years and odd months. Lease commencement and termination dates should be clearly stated, as well as the date on which the first rent payment is due. Any renewal options should also be noted.
The tenant should clearly understand exactly how the rent and contributions for expenses are to be paid, because there are considerable variances, even within a given market.
The lease should define a number of conditions for maintenance, utilities, and equipment. The tenant’s obligations related to repairs should be clear to ensure they maintain the space in good order. The tenant’s rights to alter the leased space must also be carefully defined.
If the landlord abates rent during restoration and agrees to restore it in a reasonable time, the tenant cannot cancel the lease or sue the landlord for a breach of the lease if the tenant’s space is damaged.
The lease should be clear that it is retained by the landlord. In the age of sometimes-unnecessary lawsuits, the landlord may be sued because of external environment problems beyond his control.
The rules and regulations of the building should be attached as an exhibit to the lease.

Real Estate Auction Tips

Real estate auctions have seen a dramatic growth in recent years, in the United States. The advantages that an auction has, like a quick and an efficient way of getting cheap properties, has made it a preferred mode of buying and selling real estate. According to 2004 data, land and agricultural real estate witnessed the fastest rate of growth in sale through auctions (14.7%), followed by residential and commercial real estate with a growth of 14.1% and 11.1% respectively.

Successful Bidding Tips

Research
Gather as much information as you can about the property you are interested in buying. For example, get specific information like the size, amenities, location, and the opening bid. Then, research the area in which the property is located. Find out about the benefits of living there and its drawbacks, and compare the prices in that location as compared to those in the other parts of the city or town. Also, look at properties similar to the one you are planning to buy. This will help you to evaluate the property against your needs, and also plan the bidding strategy.

Attend Local Auctions
Attending local auctions will help you to better understand the value of the property in that area, and will also provide you an idea of how an auction is conducted. Observe who all attend the event, and how they bid. You may be up against the same people when you plan to do so, and hence, knowing their bidding pattern may give you an edge.

Set your Budget
Real estate investments involve huge financial transactions. Hence, it is very important to arrange your budget well before the vendue date. If possible, set an uneven bidding limit. For example, instead of setting the limit at USD 610,000 keep it at USD 611,000. Sometimes, a bid higher by USD 500 might help you to outbid your fellow bidder and win the auction. While deciding on the budget, take into consideration extra costs like stamp duty, legal expenses, and the fees of realtors or other agents that you may employ to help you with the purchase.

Focus on the Legalities
It is best to be clear about legal issues in case of real estate. Try to read through all the paperwork related to the property. Get your attorney to go through the contract of sale. Contact the agent beforehand and get a copy of the related documentation. In case of any confusion, get the agent to clear your doubts. If possible, also get the building and pest inspections done for the property before the day of the auction.

Be a Confident Bidder
Although, most bidders shy away from being the first one to raise their voice, for an auctioneer, the person who starts with the bidding process always comes across as one who is genuinely interested in buying the property. Such a person has an edge over the others in case the property does not reach its estimated value through bidding. In case there is a possibility of negotiation, an auctioneer may always turn to those, he thinks are seriously interested. It is very important to verify that the contract for sale obtained by you, is the same one being used on the day of the vendue. Also, be careful about any recent changes in the contract.

Control your Bidding
Don’t get carried away with the process. Always be within the bidding limit you have set. There are instances when people feel emotionally attached to the property. In such a scenario, they may send their attorney or a family member to the auction, as they fear that they may get into a bidding war and well exceed their limit. If such a need arises, ensure that the person representing you has a clear understanding about the process and your priorities.

A confident demeanor goes a long way in sealing the deal, as it should be remembered that it is not just about the money, but also the approach and attitude of a bidder that can tilt the scale in his favor.

How to Sell Commercial Property

Selling a product is all about making a convincing case about its merits to potential buyers and creating marketing channels to bring buyers and sellers together. Commercial real estate sale requires systematic efforts on part of the seller to reach a wider set of potential buyers. Marketing is the key aspect that needs to be focused upon.

How to Sell

Selling anything is about matching supply with demand. You need to identify people and businesses that would be interested in buying a particular piece of commercial property, which you are selling. Here are some marketing ideas for you, which will definitely help you clinch a deal.

Do Your Homework
Making a sale is all about tapping the right sales channels and reaching your target group of buyers. Before you can sell, you need to do your share of homework and research. Firstly, study the property which you plan to sell. It may be a shop, office space, or a piece of land, which is ideally suited for a commercial complex. Make a list of pros for a buyer, who would buy it and also list out the cons. Consider the location and identify the niche businesses that could take advantage of such a commercial space.

If it’s a shop in a business district, would a fast food chain be interested in buying it or would a clothing brand prosper there? Thinking on these lines will help you decide your marketing strategy to reach niche buyers who would be interested in it. Make an information brochure with all the details about the property, including square footage, amenities, and the nearest landmarks to its location. Lastly, you need to research the market prices in the area, which will help you determine what would be a reasonable price for the property.

Advertise in Newspaper Classifieds
One of the best ways to get the word across, about your commercial property is to advertise in a newspaper. Provide all the vital details, along with the location details. Let the advertisement be well designed and have a catchy line like ‘Ideal Space For a Boutique’ or ‘Prime Location For a Fast Food Joint’. This advertisement will definitely get you some serious inquiries. Expect a lot of calls and arrange for somebody to take them for you.

Post Ads on Real Estate Portals
Another way of advertising your commercial property on sale is to post information about it on real estate portals that have a national and international exposure. Provide detailed information about the property site, along with photos, with contact details. This is bound to generate a lot of inquiries.

Publicize Through a Sales Billboard
One of the most conventional ways of advertising your property is to put a ‘For Sale’ billboard near it, which can catch the eyes of people visiting the area. You will be surprised to know how many properties have been sold through inquiries generated through simple billboards.

Create a Brochure and Pamphlets
If you want, you can even create brochures and pamphlets which can be mailed to prospective businesses who might be interested in them. This can net in a lot of potential buyers from niche businesses.

Find a Real Estate Agent
You always have the option of leaving the whole job of advertising and finding buyers to a real estate agent, who will do it for a commission. In case you don’t have the time or energy to go through the entire property advertising and follow-up campaign, agents can handle it all for you. They can handle all the paperwork involved in closing a deal. Research the track record of an agent before handing over your property to him for sale. You don’t want your time to be wasted.

It is good to have a clear idea about the price which you, as a seller have in mind, before you start negotiating with a potential buyer. Be decided on what your first selling price is going to be and how much are you willing to climb down if the buyer plays hardball. That is, be clear about the bargain price which you are willing to settle for. Bring your negotiating skills to the fore, be reasonable and close the deal on your terms.

I would suggest that you try selling the property on your own first and if you don’t find any suitable buyers after persistent effort, go to an agent. If you manage to sell it all by yourself, you can save on the commission fees that are normally paid to agents. The key to selling is persistence and using as many sales channels as you can to reach the target pool of buyers.

How Do Real Estate Auctions Work

Contrary to popular belief, real estate auctions are actually quite simple to carry out, and prove advantageous to the seller as well as the buyer. Until a few years ago, the only way to sell a home was through a foreclosure sale, and this was a very lengthy process and it also involved paying a large amount of commission (around 10% of the value of the home) to the real estate agent who carried out the sale. Auctions soon came into public notice, and have been growing at a steady rate ever since.

A home seller will find an auction useful because the process is very quick. Moreover, the popular misconception that an auctioned off home will sell for a very low price has slowly been eradicated as well. The seller can set a minimum price that he expects for the home and then invite bids, and in most cases he will be presented with a price that is far greater than what he expected in the first place. Additionally, the sales commission that needs to be paid to agents is also absent in this case, and the seller really does not have to do much more than simply be present at the auction, and at open houses for potential buyers to see the home.

Home buyers also find auctions beneficial for the same reason. The quickness with which a transaction can be completed is a major advantage, but this is often overshadowed by the fact that closing costs are very low for buying homes in this manner. Closing costs include the costs that need to be paid to the agent, and this is something that is absent in real estate auctions. The closing costs are also shared equally between the buyer and the seller, and this further reduces the amount of money that the buyer would have to contribute towards the closing cost of the transaction.

Working of a Real Estate Auction

It is important to remember that just because a home has been put up for auction, it does not mean that extremely high bids will fly in from every direction. These are unrealistic expectations, and the seller should simply expect a bid and a price around the minimum price that has been specified by him. This price is also referred to as the Comparable Market Value (CMV) sometimes.

Primarily there are 3 different types of auctions, and each of them have their own subtleties and details that an individual must look into. These are the Auction Without Reserve (or Absolute Auction), where there is no minimum bid amount set by the buyer; the Minimum Bid Auction; and the Reserve Auction (or Confirmed Bid Auction), where the minimum bid is not made public and bids are then invited from interested buyers. Since auction sales come under the category known as As-is sales, the seller will find that there is no risk with the nature of the buyers that arrive, there are no future contingencies to be met and the home will definitely be sold on the date of the auction itself. The buyer will also get a rapid sale with immediate effect, and will have to spend considerably lesser on closing costs and other details. It is also the responsibility of the buyer to ensure that the property is in good shape. This can only be achieved by inspecting the property with the help of a specialist. The buyer must also remember that his finances should be in order, because if his bid is accepted, he will have to make the payment pretty fast. Usually a hefty deposit sum is demanded by the seller, and the buyer must have this amount ready. If he backs out of the transaction at a later date, this deposit will be non-refundable.

Sellers have pretty easy access to auction specialists, either through the bank or from online sources, and it is pretty easy for them to set up the auction. The announcement of the auction date will have to be released well in advance, and potential buyers must also be given an opportunity to inspect the home on open days. In most cases, an auction is aimed towards a specific market segment with assured demand expected, so the auction specialist will handle the advertising processes to inform this market about the sale. In other special cases, the seller himself may function as a sales agent and thus save the money that he would be required to pay auction specialists. These are known as FSBO (For Sale By Owner) sales.

As already mentioned, a seller should not have unrealistic expectations from a home auction, unless he is selling a really hot property (for instance, an ocean facing property) or he is selling at a time when the industry is booming. Either way, learning all about buying and selling real estate at auctions is not a difficult task at all.