Acquiring commercial space is often stressful and complex. However, it may be a smart business investment and integral to your business plan. Therefore, it is critical that you do your due diligence prior to sealing the deal. This involves planning, researching, and ensuring that your choice of space and acquisition method meets your needs as well as maximizes your investment.
Below you will find a list of components to consider when acquiring your commercial real estate space. They may help you in examining factors such as the risks and benefits involved and how to finance the property. As a result, you can avoid unwanted costly and stressful surprises.
What to Consider
Whenever you purchase anything, chances are that you consider who you’re buying from. As a result, you generally get a glimpse of the product quality to ultimately gauge whether you’re getting your money’s worth. The same mentality applies when purchasing commercial property.
Get to Know the Property
- Understand the local real estate market. Whether you’re acquiring residential or commercial space, location is key. In terms of commercial real estate, prospective owners should be aware of factors such as the local market’s tax rates, environmental issues, growth plans, and supply of skilled labour.
- Technical Safety BC. Technical Safety BC holds records of various systems and equipment on properties. This includes electrical equipment, boilers, natural gas, elevators, etc. As a result, you will want to search whether there are any outstanding non-compliance issues or fees.
- Title search. You want to be aware of any encumbrances that may be tied to the title of the property. Skipping this step has the potential of decreasing the property’s value in the future, leaving you to handle the consequences.
- Municipal search. Similar to the points made above, you will want to have information and records of the buildings on the property. For example, zoning and development information, heritage statuses, outstanding permits, etc.
Get to Know the Seller
- Corporate search. If you’re acquiring property from corporate sellers, understand the company’s current and historical financial standing. In turn, you will mitigate risk moving forward. In the event that the seller is undergoing bankruptcy proceedings, creditors may have a right to the property even if you have already purchased it.
- Litigation search. Take the time to find out whether the seller is being sued or has been sued. Ultimately, you will save yourself time, money, and effort in the future.
- CRA search. Similar to the abovementioned searches, this step will help you determine the financial viability of your seller.
Prior to going through with your commercial real estate acquisition, review your business plan and financial statements. It is vital to your success that you know what you can and cannot afford. Therefore, seeking guidance from an accountant or financial expert is recommended. In turn, experts will help you account for projected growth and borrowing habits. You will then better understand your future borrowing capacity and whether the acquisition of a large real estate loan is rational.
Furthermore, seek advice from your lawyer. Consider involving a lawyer when making agreements with your lender. These discussions typically involve factors like interest rates and repayment options.
Owning a property always carries risks that can outweigh the potential benefits. However, taking the time to conduct your due diligence can significantly reduce these risks. Should you require further assistance prior to acquiring commercial real estate, Sodagar & Co. can provide you with the resources and advice necessary to move forward confidently.