Surviving a Multi-Offer Process in Commercial Real Estate

Surviving a Multi-Offer Process in Commercial Real Estate

Contributing Author: Cory M. Tyksinski

The process of buying commercial real estate (CRE) can be complex, long-winded and sometimes challenging, even if you are the only buyer negotiating to purchase a property.  The complexity increases when multiple buyers seek to purchase a property at or about the same time. While simultaneous multiple offers in CRE are rare, it will be helpful to keep the following tips and tools in mind if you find yourself in the middle of a potential bidding war.

A. The Seller always wins. If you are one of the potential suitors for a commercial property, a common misconception is that the seller always wins in a multi-offer process – logic being that if 2 or more buyers are desirous to purchase the property, they compete with each other and the price always increases. Not necessarily so. Most winning offers do not exceed the original list price for a property.

B. Proper Disclosure. Typically, the seller or seller’s broker should notify the interested parties that multiple offers have been received, but they aren’t required to disclose that fact – So ASK before you make your offer. The best approach would be to evaluate what your total budget costs are for acquisition and anticipated renovations and set your limit and mindset to that total cost. Unless you are a deep-pocketed developer or have a strategic and highly lucrative reason to purchase a specific site or property, do not allow yourself to overpay for a property, or pay more than you would have if you were the only buyer involved.

C. Your best foot forward first. If you are informed that a bidding process is going to take place and wish to proceed, make sure your first (and only) offer is as strong as possible, using your high limit budget number to guide your decision. You can turn the tables on this process. The seller needs to feel that you will “walk away” if the terms in your offer aren’t met. Some demands include:

  1. Require that the Seller make a response to your offer, in writing, within a short period of time. Depending on logistics it could be less than 3 business days.

 

  1. Require that the seller agrees to cooperate by producing written documentation for any sources of potential concern: oil contamination, asbestos, lead paint, easements, deed restrictions – any knowledge of items that they are aware of that may increase your cost to use the property the way you intend to use it. Alternatively, you make sure your offer contains a request for ample time (Due Diligence Period) for you to conduct the tests, inspections, investigations and approvals necessary to get a handle on all items that could impact your use or costs associated with renovations. Depending on the complexity of the property it is common to ask for 90 – 120 days in which perform all of your inquiries and tests.

D. Assemble your advisory team before you make your offer. Everyone knows someone who has sold or purchased a property without the assistance of an attorney. I have nearly 20 years of experience in commercial real estate sales and leasing and I still wouldn’t do it alone, but it is possible to complete the process unscathed. Most purchasers choose to rely on a team of trusted, experienced advisors comprised of the following experts:

  1. An attorney who has direct experience with drafting, reviewing and negotiating commercial real estate contracts. Their hourly rate may be higher than you are accustomed to, but their experience will save you time and money in the long run – Good agreements help to avoid disagreements down the line.

 

  1. A qualified structural inspector, preferably an architect or structural engineer. This person or team of folks should be well versed in all types of commercial construction so if a structural defect is discovered, they can quickly advise you if it is correctable and how much it could cost. This information can then be used to allow you to back out from the contract or help you re-negotiate with the seller if you feel it is solvable condition.

 

  1. A lender or commercial mortgage broker who has lent money for other similar assets in the area of your target property. Their prior experience with your asset type will allow them to underwrite your loan more quickly, which in turn will allow you to make your offer with more confidence.

 

E. Clean up your offer. Purchaser offers generally contain a multitude of contingencies or “outs” that a buyer may want in the event they cannot do want they want with the property or are unable to finance the acquisition. Shrewd sellers will not only look at the purchase price but will also give considerable weight to the purchaser’s contingencies. If your offer contains a multitude of contingencies, this may deter a seller from choosing your offer even if your offer is priced higher than the others.

 

  1. Shorten your Due Diligence period to the bare minimum that your advisors suggest you will need to conduct tests and inspections. Remember, the seller has to take their property off the market during the contract period and is counting the days until it closes. It is normally easier to request additional time once you are into the inspection process if you feel it is necessary.

 

  1. Mortgage Contingency. If you already have a pre-approval from your lender, or a strong, reliable relationship with the lender, consider removing your CRE mortgage contingency. You are not telling the seller that you don’t need a mortgage. You are indicating that you won’t use the mortgage approval as a method to cancel the deal.

 

  1. Cross the T’s and dot the I’s. Most sellers will review your offering before engaging their attorney, so be sure all of your paperwork is completed, signed, legible and submitted on time. Sellers can get frustrated if they need to chase a buyer for signatures or clarification on contract language.

 

  1. Make it personal. To the extent that this is possible, supply a personal note to the seller, describing who you are and why you feel that their property is ideal for your needs. This may sound hokey, and it doesn’t apply to all multiple offer situations, but you are looking for a leg-up on the competition and a chance to create separation in the seller’s mind between your offer and the others.

F. Remain polite and optimistic. Your offer is important to the seller and they know it’s important to you. They feel the pressure to make the right decision and it may be impossible for them to remove some doubt about the offer they didn’t choose. If you are informed that the seller chose to negotiate another offer, request that your offer be placed in a first back-up position. If for any reason the chosen offer fails to move forward, you want the ability to slide your offer into position to purchase the property. You may want to place a time limit on how long your offer remains a backup, in case you are actively seeking another site.

Multiple offer situations for commercial properties do occur in the Capital Region, but not nearly as frequently as residential sales can. Even so, failing to plan for this situation can be costly or result in a lost or less than optimal deal. The key, as with any situation, is to be prepared for as many variables as possible. One of the best ways to ensure you and your deal survive, is to work closely with a trusted CRE brokerage.

Our team at NAI Platform possesses extensive knowledge and experience across the intricate nuances of commercial real estate. We operate with the singular focus of working diligently to help our clients meet and surpass their goals.

For more information and expert guidance on your commercial real estate needs, please give us a call at NAI Platform or visit our website at www.naiplatform.com.

Cory M. Tyksinski, Principal Broker

NAI Platform

14 Corporate Woods Blvd.

Albany, NY 12211

[email protected]

Direct: 518-465-1400 Ext: 217

Mobile: 518 857 8396

Fax: 518 465 1441

http://www.naiplatform.com/