So, I found a property that I think I'd like to own; What's next?
So maybe you've be scouring the internet, or driving around town in search of your "perfect spot"...
Your Commercial Realtor (not a residential realtor), YES, THERE IS A SIGNIFICANT DIFFERENCE! Will put together a Letter of intent. An "LOI" is used in commercial real estate to put the major points of a proposed purchase or lease into writing. The party presenting the letter of intent should research and tour available properties on the market before submitting an LOI to the owner or landlord.
Typically, the commercial real estate broker will draft a letter of intent representing the buyer or tenant after touring the property and conducting informal discussions with the owner. The LOI will outline key deal points such as price, due diligence period, financing, and close of escrow or date of possession.
Even though a letter of intent is non-binding, providing one demonstrates that the buyer or tenant is committed to moving forward on a deal and intends to proceed in good faith. Of course, sometimes, a party may change the terms of the initial LOI or withdraw from the deal entirely based on new information when conducting due diligence and verifying information provided by the parties.
An LOI should include the following items:
Parties
• Name of the seller, buyer, or tenant
• Address and contact information
• Responsible parties authorized to execute a final sales or lease agreement
Property
o Address, and suite number of a lease is being negotiated
o Building description including lot size and square footage
o Amount of parking and signage
o Property gross income, operating expenses, and NOI based on seller's representations
o Type of rent such as FSG or NNN, including any CAM charges, if the LOI is for a lease
Offer
• Purchase price including earnest money and terms of financing
• Due diligence period and general description of documents seller or landlord will provide
• Lease terms including rent and annual increases, rent abatements or tenant improvements (TIs), length of lease, occupancy, and rights to sublease
• Target date for signing the purchase contract or lease agreement
• Expiration date of the LOI, usually between 5-10 business days after being presented to the seller or landlord
Brokers
• Name of any commercial real estate brokers involved in the transaction
• Disclosure of which party each broker represents
• Sales commission or leasing fee paid to each broker if the transaction closes
Disclaimers
• Notice that the LOI is non-binding
• Pre-conditions to signing a purchase contract or lease, such as approval by shareholders in a partnership or city permit approval
With no disrespect intended to residential agents, a commercial transaction is different than a residential one, and should not be handled by someone who does not possess the transactional, time-tested skills that a good commercial agent has learned and honed! These skills and their related contacts will prove invaluable when transacting commercial business!
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