When you are considering purchasing an existing industrial real estate property, there are many strategic considerations. There is no one-size-fits-all strategy, so it is critical to develop a plan that will work for your specific situation.
Assemble advisory team
Surround yourself with a team of experts that will help you determine the right time to buy or sell, identify important pitfalls, critical negotiating points, and the crucial details of closing the deal.
- a Commercial Real Estate Attorney
- Mortgage Broker
- Commercial Real Estate Broker
- General Contractor
Develop your needs analysis
Define your target and develop your High Value Target List. Pull together your key advisors to form your steering committee and make sure to include all stakeholders able to impact discussion and decisions in a meaningful way.
Some discussion topics should include:
- Your growth plan over the 5-10 years
- Your projected facility needs to support your growth plan (geographic, functional, capacity, size)
- Your corporate values/image and how your facility can/should support them
- Your exit strategy from the company
- How acquiring property impact your financials (cash flow, balance sheet)
- Impacts if you do not acquire the property
- Potential acquisitions or mergers with other firms
- The impact on transportation and logistics costs
- The impact on suppliers, customers, and staff
Tax impacts (economic incentives, municipal tax changes, depreciation, and other implications)
Conduct market research
By knowing the market and submarket property values, inventory projections, and current vacancy rates, you will be in a better position to evaluate available properties and ultimately negotiate the very best purchase agreement for your company.
Tour available space/conduct space planning
When the time comes to physically view the available properties that meet your criteria from the market survey, try to tour them all within a day or two so you can reasonably compare your impressions of each. Prior to your visits, put together a comprehensive tour package to evaluate and compare your options. Begin by defining what is and is not working in your existing facility. Include any components that you believe are important in your summary.
Prepare letters of intent
In its most basic form, a letter of intent (LOI) outlines the important terms and conditions of your proposed acquisition. In most situations, agreement on the basic terms helps facilitate agreement on the remaining terms. A signed LOI is an indication from both parties that a preliminary agreement has been reached on most major components of any potential deal.
Negotiate contingent purchase agreement
If you have an opportunity to provide the initial draft, jump on it. Write an initial draft with terms and conditions that benefit your situation. The other side can always negotiate for what is important to them. If you don’t ask for it, you probably won’t get it. So, if you have a chance to ask for everything you want out of the gate, go for it. If you don’t already have your “perfect” draft contract developed, ask your trusted commercial real estate attorney or broker for one.
Conduct due diligence
Many sellers convey property on an “as-is” basis, which makes it exceptionally important to systematically inspect everything related to the property and ensure you are getting the deal you signed up for. In the contract, ask for as much time as needed, and make sure your deposit is fully refundable if, in your sole discretion, you find the property unsuitable. Remember, everything is negotiable as long as you are still in the due diligence phase. Timing is important because you will lose leverage once your deposit becomes non-refundable. Due diligence checklists [hyperlink to Million Dollar Mistake article.] provide a simple framework to help you make sure you’re not buying someone else’s problem.
Once these first 7 Steps have been properly executed, you move into closing and title transfer. Following these steps will allow you to confidently execute the occupancy plan and grow your business to the next level!