Real Estate Attorney for Purchasing or Selling Commercial Property in Texas
Buying commercial real estate is not like buying a new family home. The costs are more, the funding is harder to get, and unless the property is 100 percent occupied, you must cover the expenses of marketing, identifying, and securing new leases. Buying commercial property for a new investment endeavor or a business is rewarding. It can be profitable if the process is undertaken strategically and complies with state, city, and local laws and sound business principles.
I handle commercial property transactions from start to finish. I will discuss your goals, negotiate and prepare contracts, review the survey, title commitment, and title exception documents, analyze how they relate to the survey, and negotiate and prepare closing documents. Email me at [email protected] or call me at (713) 984-9400 to discuss your situation.
Types of Commercial Real Estate in Texas
Commercial real estate (commercial property) is property used for business purposes rather than residential. Commercial property can be a mom-and-pop store or a shopping mall. It includes property an owner uses to conduct its business operations, property leased to others, and raw land held for future appreciation. Income producing commercial property is generally divided into five categories: industrial use, multi-family rentals, office space, hospitality, and retail.
- Industrial Use. Industrial use properties consist of businesses that make and store goods, like manufacturing facilities and storage warehouses.
- Multi-Family Rentals. A multi-family rental is generally a large property with multiple smaller units that families rent to live in as their primary residence. They can be small, housing only a couple of families, or large, housing hundreds of families.
- Office Space. Office space is another type of commercial property. These properties can be divided into different classes based on their condition and location: For example, Class A for the highest quality buildings, Class B for older but still high-quality buildings, and Class C for older buildings needing maintenance and care.
- Hospitality. Hospitality properties are meant for travelers and include hotels, entertainment sites, or restaurants.
- Retail. Retail properties include small stores, strip malls, and restaurants.
Commercial Real Estate Purchasing Process in Texas
Buying commercial real estate can prove a valuable investment if it is handled correctly. There are various steps to buying a commercial property, though the exact process may vary depending on the jurisdiction.
Identification of a Property
The first order of business is to locate the property to be purchased. While this may seem an easy task, many things must be considered, including:
- The history of the property and whether it has the potential to provide a steady stream of income;
- The location of the property and whether this type of commercial property is needed in that location;
- Any work that must be done to the property to prepare it for its intended purpose.
Decide on the Initial Offer Price
The property will have an asking price, but the purchaser must do its homework to ensure it does not offer too much. The industry uses different approaches, but two of the most popular are:
- Income Capitalization Approach: This approach requires dividing the net operating income of the rent collected on a property by the capitalization rate.
- Cost Approach: This approach requires looking at what it would cost from the ground up. The cost of the land combined with the cost of construction, less depreciation, will yield the cost approach value.
Purchase and Sale Agreement
The purchase and sale agreement contains the terms of the sale agreed upon by seller and purchaser. I negotiate, draft, review, and analyze these agreements on your behalf.
Financing and Inspection
Securing financing for the property can be complicated, but due diligence must be performed to ensure the best terms are found. You should compare several lenders before settling on one. You want to know what the interest rate is, what the fees are, and whether there are penalties.
Purchasers will typically be required to provide 20-40% of the purchase price and finance the rest through seller financing or a commercial lender.
Close on the Property
Once the purchase terms have been agreed upon, the parties will sign and deliver the purchase and sale agreement and the earnest money to the title company, which will prepare and deliver a title commitment and copies of all title exceptions documents for the purchaser's approval. I will review those together with either the existing survey or a new survey and advise you on their impact. If representing the buyer, I will prepare and deliver a title and survey objection letter describing all objectionable title exception documents and negotiate with title company regarding their removal. Once buyer has completed its inspections and due diligence and obtained the financing, and the title and survey objections have been resolved, the purchaser can move forward with buying the property.
Factors to Consider Before Purchasing Commercial Property
Before buying a commercial property, there are various questions to consider, including:
- Will this property suit buyer's long term needs?
- How hands-on is the buyer willing to be in operating the commercial property?
- How will local demographics impact this commercial property's success?
- What are the zoning laws of the area where the commercial property is located?
Commercial Property for Investment Purposes
If you buy raw land (land with no improvements) for investment purposes, several strategies exist that could benefit such purchase. Some of the most common real estate investment strategies include:
- Land banking, which requires owner to buy and hold land and is often used to protect and grow owners' money; and
- Development, which is probably the most common and is where an owner purchases raw land on which to build income producing improvements.
If you want to buy or sell commercial property, I can help you with the process.
Contact a Commercial Real Estate Attorney in Texas Today
I can work with you through the commercial property purchase or sale. Call me at (713) 984-9400 or email me at [email protected] to set up a consultation to discuss your purchase or sale of commercial property.
This informational article from the law offices of Thomas D. Solomon is provided as a courtesy to provide an overview of buying or selling commercial real estate. It is not and is not intended to be an exhaustive treatment of its subject matter but a presentation of some elements of such transactions. It is not intended to be legal advice or a legal opinion and should not be relied on in making legal or business decisions. If you have questions, please call or email.