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Buying Commercial Real Estate? Think Beyond The Price

Whether you’re looking to bring in rental income from tenants or expand your operations, buying a commercial property can be a smart way to support your business or investment goals.

As the economy and commercial real estate market recover from the pandemic, businesses like yours may be especially motivated to move forward with their real estate plans.

And there’s a vast array of potential lenders out there. Along with well-established commercial real estate lenders like banks and business-savvy credit unions, there are a variety of less-regulated alternatives too, including private equity and online platforms offering commercial real estate lending. As you explore your commercial financing options, you may find some lenders offering better rates or more flexibility, such as a reduced equity requirement.

When considering which commercial property and which lender is the best fit, you’ll need to think beyond the purchasing price and cost of commercial real estate financing. Here are three other important factors.

1. Risk of Re-Trading

A re-trade is the practice of renegotiating the purchase price of real estate after initially agreeing to a higher price. This can occur after a buyer (your chosen lender) has the property under contract during the due diligence period. The buyer can raise a due diligence issue and demand that the purchase price be lowered to the re-trade price. The seller can choose to accept the lower price or seek a new buyer.

While re-trades can be legitimate – based on an issue with the property or deal that increases risk for the lender/buyer – re-trades have often been used as an aggressive negotiating tactic to get more favorable sale terms late in the process. For buyers, however, a re-trade can also create a risk that the deal will be derailed or the buyer will face different loan terms.

2. Whole Transaction Financing

Commercial properties are expensive, and this can lead to more complex financing arrangements. That is why it’s important to consider if a commercial real estate lender has committed to financing the entire transaction, or if it requires you to find additional financing for the second half of your commitment or only promises “best efforts” in obtaining necessary debt financing.

For your maximum transaction security and peace of mind, you should choose a lender with the financial strength to cover your entire commitment.

3. Timely Closing

Timing is an essential factor in successful commercial real estate transactions. A smooth transaction that closes on time is best for everyone involved – buyers, sellers, agents, and lenders. To achieve a timely closing, lenders must demonstrate expertise in credit structures and risk management.

Timeliness also demonstrates a lender’s focus on serving the needs of their client. As a business owner who’s counting on professionalism and expertise from their financing partner, this is something you should hold in high regard.

Choose a Lender You Can Count On

As you can see, the sale price and interest rate on a commercial real estate loan aren’t the only things to consider when buying commercial real estate. Working with a partner that provides a transparent, straightforward financing process is also crucial, helping you keep your commercial real estate plans on track while avoiding headaches.

Ready to buy your investment or owner-occupied commercial property? Work with a local lender you can trust. Learn more about Royal Credit Union’s investment and commercial real estate loans.

 

This information is for general informational purposes only and does not constitute tax, legal, or business advice. Business and commercial loans are subject to credit review and approval.