San Antonio Commercial Real Estate Buyer’s Checklist – Making the Offer –

Commercial Real Estate Transactions can be difficult to navigate. This is the first article in a several week series regarding the Commercial Real Estate Buyer’s Checklist aimed at simplifying your next commercial real estate purchase.

San Antonio Commercial Real Estate Buyer Checklist – Week One – Making the Offer

San Antonio Commercial Real Estate Checklist Item #1 – Letter of Intent (LOI) – Buyers typically submit an Earnest Money Contract drafted by their agent (state form contract) when they are ready to make an offer to purchase a home. In commercial real estate (improved or unimproved), a Letter of Intent (LOI) is the common tool used to initiate an offer. A letter of intent is a document that summarizes the major deal points of a proposed transaction, including the purchase price, payment methodology, target dates, and other important terms. In most cases, the letter of intent is not legally binding, but it is definitely regarded as a useful tool in commercial real estate. Most seasoned commercial real estate brokers are prepared to draft a LOI when the buyer is ready to make an offer to purchase a commercial property. Unlike residential contracts, Commercial Real Estate Contracts typically involve significant language negotiation. The legal expenses associated with hiring a commercial real estate attorney (we recommend that our clients hire board certified CRE attorneys) to review/negotiate contractual language can be substantial. Due to the legal expense, a non-binding (for either party) LOI is typcially negotiated to spell out all of the major deal points by the brokers prior to the contractual negotiation. Once a letter of intent is fully negotiated and accepted by both parties in a commercial real estate transaction, then the contractual process typically begins. LOI’s are commonly used in commercial lease negotiation as well due to the legal expenses associated with commercial lease document language negotiation.

San Antonio Commercial Real Estate Checklist Item #2 – Purchase Contract – EMC/PSA (Earnest Money Contract or Purchase and Sale Agreement) – There are two regular methods used in drafting purchase contracts for commercial real estate acquisitions. One method involves the buyer’s commercial real estate broker drafting a standard state regulated (TREC/TAR in Texas) form contract. As long as the commercial real estate broker is licensed in the state where the transaction is occurring, he or she can draft the contract for purchase. The second common method is for the buyer’s attorney to draft an attorney written contract. The state form contracts are typically more “neutral” than attorney drafted documents. In many instances, attorney drafted contracts favor the party paying to have the contract created. Due to their more “neutral” nature, the state form contracts typically require less “back and forth” between the buyer and seller’s attorneys during negotiation. If the buyer has an experienced commercial real estate broker representing them, since broker’s fees are normally based on a percentage of a “closed” transaction versus hourly compensation from other advisers (hourly paid adviser are paid whether a deal closes or not), they can often save in legal expenses by choosing to have the broker draft the purchase/sale agreement. I prefer to recommend a “hybrid” solution between the two options to most clients. My preference is for the commercial real estate broker to draft the contract on a state form (to save the client in legal expenses) with the buyer’s attorney reviewing the contract and adding any addendums/exhibits necessary to protect the buyer’s legal interests before submission to the sellers. This “hybrid” solution accomplishes several goals for many of my clients. 1) It can save in legal expense. 2) It allows the broker to spell out the agreed terms from the LOI in the contract so that deal points are not changed. 3) The timeline is typically shortened. 4) It focuses the attorney’s contractual efforts (read next week to hear how attorneys play a role in due diligence) on language protection for the buyer instead of distractions from deal points.

Next Steps—-Please understand that every commercial real estate transaction is different so it is important that you hire seasoned commercial real estate advisers (brokers and attorneys) to help you navigate through the transaction. Although the LOI and PSA processes spelled out above are common, I am regularly involved in transactions that differ from these processes. For example, one of my clients that acquires property on a regular basis uses a standard attorney drafted contract on all of their deals. A client of mine that regularly sells properties prefers for us to prepare state form contracts once an LOI is agreed to…with his attorney and the buyer’s attorney adding exhibits/addendums before execution. I look forward to following up with you next week to go over the due diligence process and important advisers that can aid you in your decision to close or terminate the contract that you just negotiated.

Stay tuned for Next Week’s Article…..Commercial Real Estate Buyer’s Check List – Due Diligence Team

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Contact a San Antonio Commercial Real Estate Expert today:

Link LeGrand, CCIM 210-789-5465

San Antonio Commercial Real Estate Buyer’s Checklist – Week One – Making the Offer