Purchasing Commercial Property (Part 6 Negotiation continued)

So in my last post in this series I placed the "best and final" on my target office building and and guess what happened? I LOST!

Okay, you may be thinking, you were asking for it since you didn't raise your price. But, I stuck to my guns because that's what I felt the place was worth. Remember, don't pay more that the property is worth! Bidding wars only satisfy your gambling needs, they don't make good scenarios to purchase property.

Anyway, I figured whatever was meant to be was meant to be. I started looking for other properties-- still keeping my eye on the one that I lost... just in case. I noticed that one week went by without it being listed in the MLS system as "pending" (which would mean a contract was signed). Then another week passed and another. I found out that the buyers still had not signed a contract after three weeks!

I then recontacted the Seller's agent and explained that I was an experienced investor who had other rental units. That I felt his deals were falling through because prospective buyers didn't realize that purchasing a commercial property was different than a residential property and restated my offer at $420K. He went back to the bank and guess what: this time they took the offer! The big lesson is PATIENCE is a hallmark quality of any successful negotiation.

There's more to the this story with regard to negotiation that I won't cover in this article due to length and privacy. Suffice it to say that by the end of the negotiating process, I was able to get the sellers down an additional $40K in price due to my ability to convince them that the condition of the property warranted the extra discount.

How long did it take to negotiate this property? Well, from the time that I had put in the first bid to signing the contracts it was about three and a half months. However, the time spent was well worth the discount to market value that I paid.

In the next article, I'll cover some aspects of contracts and governmental issues in which you need to be aware.

Steven Boorstein
Landlord & Author

review: www.bruce-germinsky-realtor.com

I was recently contacted by real estate agent Bruce Germinsky out of Monmouth County, NJ to do a sponsored review of his site. I don't normally do what I would consider "run of the mill" real estate agent sites, but it looks like Bruce concentrates on commercial properties. And, since my latest blog series has been on commercial property, I thought I'd take a look at the site and evaluate it for readers of this blog.

So, I made my way to http://www.bruce-germinsky-realtor.com/ and looked over the site. It seems like this agent concentrates on two major market segments:

1. Commercial real estate including retail, professional and medical class A office space and shopping centers. He has access to his listings, other listings and also authors a sparsely updated blog on his site regarding properties.


2. High-end residential real estate including oceanfront luxury condos, waterfront homes and such around the Monmouth County, Jersey shore areas.

There's not a whole lot of educational information at the site, but it does look like he is in the process of trying to build it up with some useful information for visitors. You can certainly use it to search for available properties and find out a little more about what is happening in that area. If you are interested in real estate in Monmouth County, you might find it useful to visit the site and see what's currently on the market, a bit about the areas being redeveloped and more info on Bruce Germinski and his firm.

Purchasing Commercial Property (Part 5 Negotiation)

Based on the factors we discussed so far with my target property, I decided that it was worth pursuing. I liked the location, the layout and the potential income from the multiple office units, so I decided to make an offer.


The next thing that I did was to contact the township and ask them some questions. However, because this process wound up involving multiple meetings and a whole layer of issues that I never considered, I'm going to discuss the next step that I took -- negotiating the sale price -- in this article.


In many cases when you are dealing with a property sold through a real estate agent, you have no idea who the seller is until you actually sign the contracts. One of the things that you can do is to ask your agent (although they may not know or want to disclose this information), talk to a neighbor at one of the adjacent properties, or even look the information up yourself in the tax records. In this instance, I looked in the tax records and found that it was owned by a mortgage company. It had been a foreclosure and had been taken back by the company which had originally financed the deal. The foreclosure was almost a year ago.


Now, of course, mortgage companies don't want to own properties. They are more than happy to lend money to buy them, but they don't want to have to take them back, manage them and sell them. To keep the deal private, I'm going to be making up the sale price for purposes of this article. However, I'll be keeping the percentages pretty much in line with how I actually negotiated the deal.


So, let's say the asking price was $500,000. This price, incidentally, was the price that the previous foreclosed owners had paid six years earlier. Knowing this, I made an offer that was approximately 20% lower than their asking price, or $400,000. Why? My feeling was that it had sat on the market for over 10 months and the mortgage company that owned it still might be getting to the point where they just wanted to get an offer that was interesting enough to let them dump the property and get it off their books.


They came back at $465,000. That was a pretty sizable decrease, and made me feel they were motivated to sell the property. I waited a few days. Then I went back in at $420,000.


The mortgage company rejected the offer and their agent called me to tell me that they had at least one other offer. By noon the next day they wanted a "best and final." Now "best and final" offer in real estate negotiations is really an non-defined term. It does not mean that the seller has to take ANY of the offers. And it does not mean that the deal can't be negotiated further. What it is... is a way to try to scare the buyer into bidding their maximum bid. In fact, I had no proof that there really were any more offers. And it was strange that after sitting on the market for all this time, someone would start bidding the same week as me. So I reevaluated my projected income and expenses and factored in the added costs of financing, attorneys, etc.

The numbers are important. Realize that commercial properties are generally not as easy to rent as residential properties. Although the average tenant may lease longer, the amount of time that you have a vacancy may also be much longer. If you don't evaluate your income and expenses carefully, you may wind up going bust on a commercial property more easily than a residential one, in my opinion.

What I can tell you, however, is that negotiation of a commercial property is much more businesslike than trying to buy a single family home or duplex. There is much less emotional attachment from the seller and the price is based more acutely on the cash flows, financing and fix up costs.

With all this in mind, my "best and final" was $420,000. I had decided not to move in price.

Guess what happened...

...something interesting. But, I'll wait and tell you that in my next installment to this series.


Steven Boorstein

Author and Landlord

Purchasing Commercial Property (Part 4 Research)

So, at this point in the story, my quest for real information begins. What could I pay; what's involved in a commercial property contract for sale; how do I finance it; and what's the process to occupy the building?

The first thing I did was a little income and expense calculation. For income, I took the square footage of the building and multiplied it by the average rent per square foot for similar types of office properties in the area. How did I find that, you ask? Three ways. I called my real estate agent and asked her how much office rents were going for in the area. I call my commercial mortgage guy at the bank and asked him. I also looked online real estate like http://www.loopnet.com/ and searched for commercial rentals in the area to see what they were charging per square foot.

The range in my area turned out to be between $12 and $18 per square foot. A very wide range and it depended on the age of the building, what it included (utilities, CAM charges, etc.) I settled on low balling it a little and figured on $14 per square foot.

For expenses I looked at vacancy, taxes, insurance, owner paid utilities, common area maintenance inside and outside (cleaning service and professional landscaping), licenses, potential repairs, reserves for capital improvements.

Subtracting the expected gross income from the estimated expenses gave me the cash flow that would be left over to pay the mortgage. I called my mortgage guy at the bank to find out what the commercial rates and terms were and then arrived at the final price I felt that I could comfortably pay for the property. Some of the big differences that you may find with a commercial loan is that they usually require a personal income statement and balance sheet. Even if you didn't have to do one, the process itself provides you personally with a wealth of information and I highly recommend it (even if you only do it for yourself).

Commercial loan terms are usually 20 or 25 years instead of the 30 years you find in residential property purchases. The interest rate is also different. Not necessarily higher, but often it is fixed for say on to five years, and then is reevaluated/renegotiated at that point in time. Also, the amount financed by the bank is usually only 70-75% of the purchase price.

Of course, I'm not covering the financing in great detail because it varies. But, if you are considering buying a commercial property, I would suggest you call a few local banks and talk with them about the terms. You need to know the specifics before you begin to negotiate the building!

In the next posts we'll move forward and discuss the negotiation, contracts, and what needed to be done with the governmental powers that be in order to purchase and occupy the property.

Steven A. Boorstein

Author & Landlord

review: ProFundRealEstate.com

HOW TO BUY FORECLOSURES. A topic that used to be reserved mainly for conversations amongst other real estate investors. But of course, with the recent mortgage debacle and economic downturn, "everything you have ever wanted to know about foreclosures" has been a daily part of media coverage. So, when I was contacted to do a sponsored review on ProFundRealEstate.com, I though it might serve some readers well to give my initial impression of the site. It appears to be run by two real estate agents and offers access to Point Loma real estate, and real estate listings in San Diego , as well as, various other areas throughout California.

That in itself isn't all that interesting, but a good portion of their site is dedicated to foreclosures. They've hooked up with a company called ForeclosurePoint to provide access, according to the website, to free lists of San Diego foreclosures. Clicking on that link shows that you will also have access to foreclosure information for many other counties throughout California, too.

The site's layout is easy to navigate and informative. Although I don't own properties in California, if I did, their section: Monthly Market Trends would be interesting to follow. Overall, I'm a proponent of real estate agent sites that focus on specific niches in the market. Too many sites are generic and provide little or no benefit over industry sites like Realtor.com. This site, however, looks like it does cater to investors interested in the foreclosure market. So, if you are interested in this area, you might want to check the site out for yourself.

Purchasing Commercial Property (Part 3 Initial Evaluation)

My agent emailed me over the listing information on the new prospective commercial building. It seemed to fit most of the criteria that I would want to see in a commercial property, at least from my general lack of experience with this type of real estate:

1. It was large enough to hold multiple units (4 or 5 units currently).


2. It had good visibility and location with regard to traffic and signage.


3. The building looked like it was relatively new-- built within the past 20 years. (Although this may not seem new to many of you, I live in an area where many if not most of the existing buildings are often 50 to 100+ years old.

What initially caught my eye was that the property had been on the market for about nine months. I was also able to find out from my agent that the initial price had been over $50K higher than it was currently being listed. This, of course, started to get me excited.

Next I checked the tax records. Now, one of the beautiful things available in the great State of New Jersey is the availability of online tax records. Type in an address and BAM! You have the current owner. In many cases you also have the price they paid, the assessed value and other valuable information. Well, what did I see with this property? BANK FORECLOSURE! Yes, the property was taken back by the bank over nine months prior and this REO still had not sold.

My agent made an appointment for us to see the property which, of course, was vacant. Driving up, I noticed right away that the building had a major lack of curb appeal and almost screamed "abandoned eyesore!" There were also a bunch of issues that I was able to identify on the first walk through. Namely, a leaky roof, damaged siding, rotting wood, previous interior leaks, well and septic system and a few other potential problems. It also appeared that at least part of the property existed much longer than other parts of the building. So, I although I may have been generally right that the age of the building wasn't all that old, some of it was probably much older. Unfortunately, the electric and gas were not on and the well and septic were winterized/currently nonfunctional. I estimated the necessary repairs at somewhere between $35K to $50K. That would include the rehab necessary to outfit my new office.

So, why did I feel it was worthy of pursuing? Well, there were also a lot of things right with the property. Wiring and pluming looked up to code, it had a fire suppression system and an alarm system which looked like they were in very good shape. The interior, overall was in very good condition. The layout of the building was well planned and the floor plan overall was flexible. Combine that with the factors that I noted in the beginning of the article and I was convinced that it was at least something to continue doing my due diligence on.

Some of the questions that I had to now answer were:

• what needed to be done to purchase a commercial property (ie. what was different than buying a residential property which I had lots of experience in doing) and
• what kind of cash flow could the property generate to support the expenses, which would directly affect negotiating the deal.

But that's a lot to digest in one segment. These questions and more will be answered on the next episode of "Purchasing Commercial Property".

Steven Boorstein
Landlord & Author

Purchasing Commercial Property (Part 2-Lost & Found)

Phase I test, Planning Board, zoning district, conforming use, variance, site plan, 200 ft notification, engineering...


This story really begins with a barrage of terms that I never had to deal with when buying residential rental properties. Until one day, when the following occurred to me:

Even though I own rental properties, I am currently renting office space for my business. That just doesn't seem right. Actually, I hate it. Not that the commercial unit I rent is bad. Actually, it's very nice and in a good location. But, I OWN rental properties. I AM the landlord. So, since I own residential rentals, why not own my own office unit? Why give rent money away each month and not build any equity? Yes, as a renter it's nice that maintenance issues are taken care of for me, but it's also frustrating when my rent goes up three times in 18 months. I want the control and benefits of owing my own commercial unit. The same benefits I get by owning my own home or my other rentals.

Well that may not have been my exact thoughts, but you get the idea. So, I started my search about two years ago. I wasn't in a big rush. Every once in awhile there was a single unit commercial property that peaked my interest and I'd go see it. Unfortunately, I just couldn't get the numbers to work on single units. That lead me to migrate to looking for a multi-unit professional office building. Now, I'm not talking about a huge commercial building with elevators and a lobby. I was hoping for just a small strip of four to five offices.


Finally, I found one that might work. It was a historic building that was mixed use (residential apartments and a commercial unit) in my town. The commercial part of the building had been vacant for years and it was a diamond in the rough. Lots of potential, but lots of work. I started to negotiate it and after several months of going back and forth... the deal fell through. Hey, this is real life-- it happens. I just couldn't provide the sellers with what they wanted and get what I needed, too. (As of the time I am writing this post, that property is in pre-foreclosure-- so they probably should have taken the deal I was offering, which had been more than fair! Unfortunately, they were simply "stuck" on a certain sales price even though the market had moved away from them-- apparently, to their own detriment.)


A couple of months later, I found another building. Fortunately, this one might work even better! With my negotiating skills still sharpened from the last deal that fell through, and feeling a little pumped based on my initial projections, I contacted my real estate agent to get information about the listing. This is where the fun part began. Looking at properties, evaluating them and negotiating them is often a lot of fun. In fact, it's usually the most fun. After that, it's much more business than pleasure. So, it's still a little while until the frustrating aspects of my story start to set in...

Remember, I'm writing this story before the final outcome... so if you are reading these posts as I publish them, you're getting closer and closer to knowing what's happening in real time. Learning with me and finding out the outcome of the deal almost "live" as it occurs. Any comments or suggestions? Feel free to post them using the comments link after this article, or email me using one of the links on this page.

But, I digress. And it's getting late. So, in the next story of this series, I'll tell you what I was able to uncover with just three pieces of information:

1. The MLS Listing


2. Online tax records


3. A tour of the property.

-Steve Boorstein, Author & Landlord