Question of the Month: What valuable info should every buyer interested in commercial/industrial properties know?

Purchasing a commercial or industrial property is wrought with pitfalls for the unsuspecting buyer. Circa 1975, (when I started) there were not as many obstacles as there are today. As in all industries the brokerage business has changed as well. However, armed with the right insights and information, a buyer can insure that the optimum transaction is secured, and the buyer to receive as many benefits that can be available. Unlike years ago, when a buyer shopped brokers, the buyer should align themselves with an astute experienced broker that can provide the most amount of value to the transaction. Following are some key principles that every astute buyer follows: Consider Your Business Cycle As the saying goes, "Timing is everything." Before you start looking for a new property, take the time to consider your present lease and your business cycle. You should time your purchase and subsequent move so that it does not interfere with peak season demands or disregards the terms of your current lease. Market Knowledge The best purchase will reflect a buyer's market savvy. Go out and see, feel and touch the inventory within the desired geographic region, and the building parameters. Discuss with your broker. Know what is available in your property category and in what price ranges. Take note of what properties are accessible to local roadways, transportation and in reasonable travel distance for your current workforce. Have your broker survey available properties and meet to review the selection before spending time on the road. Your understanding of market dynamics will enable your broker to more efficiently accommodate your requirements. Accounting 101 The next step is to make sure that ownership and not leasing is in your best interests. Ownership, of course, comes with many tax benefits (i.e., savings derived from accounting cost-recovery rules and mortgage interest paid), as well as the ability to change the property's appearance to best suit your needs. However, a lease option should be given careful consideration by any business for which: a large cash outlay could negatively impact its cash flow, relocation may be imminent, and/or the flexibility afforded in a lease arrangement may be more advantageous. Your broker can provide cash flow analysis to determine if ownership verses leasing is the right option. Another consideration is whose name will the property be held in and/or in what type of entity? This should be discussed carefully with your accountant who can advise on the most tax-efficient structure. Prior to Executing the Contract Once you have decided on a particular property, you must first establish that its current zoning allows for your intended use of the facility. If not, special use permits/ zoning changes must be secured. Once this requirement has been established, you are in position to start finalizing the terms and conditions of the contract. During the next phase of the contract period, an environmental study of the property should be conducted, that will be required by the lender for this purpose. It is advisable that you select a reputable environmental testing organization that is recognized by the bank providing the mortgage loan. A title search will be conducted, directly after the contracts have been executed to make certain that there are no liens on the property or encumbrances which could interfere with the purchase. Assure the Structural Integrity It should go without saying, but surprisingly there are some purchasers who fail to "kick the tires" of their building purchases. Your broker should negotiate as part of the terms a diligence period, that will allow the buyer to conduct a physical inspection of the building to determine the condition of the roof, mechanical systems including its HVAC, electrical system and capacity, and the building's overall structural integrity. Have High Expectations of Your Broker While "buyer beware" certainly applies here, real estate investors and purchasers should lean heavily on their brokers who they expect to bring a lot to the table. From the start of the purchasing cycle, the best brokers are armed with in-depth market intelligence concerning vacancy and absorption rates, prices, and other up-to-the-minute information from their own industry pipeline. They can help a buyer leverage market conditions to make the optimum purchase. Experienced brokers are also well-versed on building and construction costs and how previous uses of a facility can cause specific wear and tear on a structure and its various systems (i.e., mechanical, electrical, etc.) Equally important, they are familiar with local zoning codes and have relationships with the municipal entities. And let's not forget the broker's knowledge of available incentive programs. All of the tools I have mentioned will help pave the way for a long term, sound real estate investment that will provide a built in retirement fund. Stay turned! Ralph Perna is an executive managing director at Newmark Grubb Knight Frank, Melville, N.Y.