The Essential Checklist for Successful CRE Closings

Note: Article updated in May 2024.

The commercial real estate market remains dynamic, facing challenges like fluctuating interest rates and inflation, yet offering opportunities for adaptable investors. The focus has expanded beyond industrial and multifamily assets to encompass niche opportunities in response to evolving market conditions.

To that end, successful CRE deals require a heavy emphasis on convenience and strict adherence to key steps such as a detailed plan for portfolio building and management, analyzing the local market to determine the right price and the financial viability of a property, open and clear communication between all parties involved, accurate budgeting and working with trustworthy, experienced professionals.

Map Out a Clear Plan

Property owners, operators and asset managers need a comprehensive investment strategy to navigate the ever-changing CRE landscape. The key to a successful transaction is a secure investment strategy that builds on a foundation of flexibility and adaptability upon which all next steps are centered. That adaptability involves factoring in potential delays into timeline estimates from the start.

Similarly, after the asset types that align with portfolio and performance goals have been identified, CRE players need to strategize not only for a primary plan of securing their target deal but also line up several contingency plans should the original investment fall through.

Leverage Precise Comparables

Accurate comparables are an essential part of making data-driven CRE decisions, such as researching and analyzing transaction opportunities and estimating financing needs and options for a deal.

Running comprehensive comparables can involve a host of valuation methods and requires comparative analysis of a variety of data points and property specs, including:

• Asset class and location tier
• Building square footage and lot size
• Year built, past and potential renovations
• Property characteristics and lot details
• Zoning type and nearby area designations
• Recent deals in the area involving similar properties
• Most recent sale prices
• Occupancy and turnover rate

Essential valuations are also needed before committing to a CRE deal and must include comparable net operating incomes and gross income, cash flow details, cap rates and cash-on-cash returns, among others.

Analyze the Target Asset’s Financial Viability

Before committing to an investment opportunity, it’s vital to assess a property’s past and current revenue, as well as its future revenue-generating potential.

Considering that any new owner will be contractually bound by in-place leases, a thorough analysis of current rent rolls is vital, as is securing copies of all existing leases and proof of currency on payments — usually done through estoppel certificates.

Would-be buyers also need to track down maintenance and service records to evaluate potential expenses for repairs and upgrades and review income and expense statements as well as tax returns.

Dedicate Time for Budgeting

While investors should always draw up financial and planning contingencies for unexpected expenses, accurate budgeting is nevertheless vital for a successful CRE deal and a positive ROI.

Estimating and budgeting for renovation, upgrade or additional development costs will afford a solid basis for determining overall expenses, especially since these costs tend to represent the lion’s share of expenditures in a sale outside the actual sale price. Moreover, these estimates play an essential role in securing financing for a deal, as well as the size, type and channels for financing that can be secured for a deal.

Employ Skilled CRE Professionals

Working with an experienced CRE broker smooths out the entire deal-making process from setting up a solid investment plan to confidently navigating the negotiation process. Skilled brokers can also establish realistic deadlines and smoothly adjust timelines to unexpected delays and complications. Additionally, experienced brokers have a vast network of connections and industry players and can bring off-market assets and deals to the table.

Prioritize Timely Communication

With a multitude of moving parts that include not only sellers, buyers and brokers but also third parties like appraisers, lenders, surveyors, architects, contractors and various other vendors, clear and timely communication is essential to a smooth deal-making and closing process. All involved parties need to be current on a deal’s status, details and any potential adjustments, changes and delays.

As such, all involved parties need to prioritize clear and timely communication. Not only does this minimize the chances of complications, miscommunication and delays, but also provides an avenue to exchange innovative ideas and observe new strategies to enhance not only the deal in question but also upgrade future deals as well.

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To successfully and profitably navigate another year of shifting market dynamics, owners, asset managers, portfolio managers and investors will need to continue to work on identifying unique opportunities and exploit them with tailor-made, precisely planned strategies to secure successful CRE deals.