Commercial Real Estate At A Glance
Typically, the process of purchasing a commercial property is more complex and can often take longer when compared to residential properties. The purchase of a commercial property involves more tedious steps before and during the transaction. Some aspects that lead to a longer closing process can be attributed to intense due diligence, securing the commercial loan (different than a typical mortgage), sheer length of the contract, continued negotiations, the use of more professionals (appraisers, brokers, attorneys, planners, etc.), the number of parties involved in the transaction, and more.
Due diligence: The process of finding the correct property in a commercial transaction is much more involved than in a residential purchase. During this period, a potential buyer will be diving into property records, past performance, cap rates (a figure to help measure return), market competition, the local area, population, property condition, environmental factors, possible liens, and more!
Inspection: The property inspection process for a commercial space can be much more advanced than residential, often taking several weeks depending on the property. This part of the due diligence period determines feasibility of the site, review of title and survey, structural issues if any, building engineering, equipment inspections, and more.
Securing the loan: Typically when purchasing a commercial property you will be required to obtain a commercial real estate loan. This type of loan differs from a mortgage in multiple ways, most notably requiring a higher interest rate and sometimes taking longer to secure if there are multiple purchasing parties.
Complexity: In short, the contract for a commercial property is more complex versus a residential sale, often with more sections and provisions. Commercial deals typically involve more due diligence, computations/figures, negotiation, and time to conduct the proper research and contract adjustments/amendments.
Professionals: In certain cases commercial deals involve more professionals such as; attorneys, appraisers, brokers, planners, builders, etc.
Number of parties: Often commercial buyers do not act alone and either have investors, partners, or family that are involved. The addition of other partners, as you can imagine, could lengthen the process.
Tenants: Many times during the sale of a commercial property the current owner has a tenant in the property. The new owner will need to honor the lease until the end of the term (unless there is a legal mutual agreement between the new owner and current tenant). The old owner will need to transfer all details, future payments, and other relevant info to the new owner.
Miscellaneous: There are many other reasons a commercial deal could take longer when compared to residential. Some other common situations would be: lengthy contingency periods, usage concerns with the town, construction approvals, and other certain negotiations.
Luckily, many of the properties on the island are simple in terms of size, building style, allowed use, and price. As a result, the process on LBI could move along a bit faster when compared to a typical commercial sale.
