By Trevor Clay
The key to success in a commercial real estate tranaction is assembling the right “transaction team.” Whether you are buying, leasing, or selling a commercial property, engaging the right consultants will add significant value and decrease risk.
Depending on the nature of the deal, the team may be comprised of any or all of the following: legal counsel, accountant, mortgage broker/lender, engineers (mechanical, structural, electrical, geotechnical, environmental), architects, interior designers, appraisers and a real estate broker.
The role of each of these groups is important to understand so that, as a client, you do not expect one to cover a scope that they do not have the expertise in.
Real estate broker — A qualified broker’s initial role should be to negotiate the business terms of the agreement, however, if the right broker is chosen, can add significantly more value in leading the transaction. The broker should be able to provide expertise and advice to their client as to what potential risks exist in the transaction and who to engage to assess these risks fully. Choosing the right broker for a specific transaction with the appropriate experience is of paramount importance.
Legal counsel — Not all lawyers are created equal as it relates to commercial real estate transactions. It is important to determine whether your chosen counsel, or someone in their firm, has experience in negotiating and closing property sale transactions or lease transactions, as each require separate experience. A lawyer with extensive experience in sale transactions may not know a great deal about what is reasonable in a commercial lease and vice versa.
Accountant — It is important to engage a professional accountant to review the financial implications of each transaction before entering into a negotiation and to determine whether there are alternative deal structures that can be beneficial to both sides.
Mortgage broker/lender — A commercial mortgage broker and lender can both provide financing options for a transaction, however, the primary difference is that a mortgage broker can “shop” the market through a wide variety of lending sources, while a lender can only speak to its internal sources of funds. A mortgage broker will charge a fee in the event it is able to successfully deliver the necessary financing, however, often the value they deliver is in excess of this cost.
Engineers, architects, interior designers — Depending on what is involved in the transaction, a combination of building and property consultants will likely be required. Some of these requirements are driven by information required by the lender (for example, environmental and building condition reports), and some are driven by a need to understand the costs resulting from the transaction. Choosing the right combination of these consultants is pivotal to reducing risk.
Appraiser — While the primary role of an appraiser is to establish value for financing purposes, the appraiser can also serve as an independent advisor to assess potential redevelopment value and prepare feasibility studies for a project. A quality appraiser will use relevant comparables to assess a property’s value, but will also be able to forecast what type of risk factors should be included in a long-term cash flow analysis.
Unless an existing relationship exists that has proven successful with a professional in each one of these areas, interviewing multiple people in each of these specialties to assess their abilities will be time well spent. A professional commercial real estate broker should be able to provide guidance in terms of what specialties are needed and who to speak with in each one.
(Trevor Clay is the chair of the Commercial Division of WinnipegREALTORS®.)