Commercial real estate deal making has been on the rise in the U.S. As tier one markets tighten, greater attention is being paid to secondary markets, such as the Greater Cleveland area, and even tertiary markets like the Greater Akron area.
Buyers, sellers and even landlords are in a position to benefit as the buying frenzy continues and vacancy rates drop. However, their ability to capitalize on the current situation in the commercial real estate market is contingent on how well they work a deal. Buyers and sellers stand to have a greater chance of success if they keep on top of the activity in the market, and have a good deal team on their side.
Smart Business spoke with Andrew Perry, Esq., a principal at McCarthy, Lebit, Crystal & Liffman, about what he’s seeing in the commercial real estate market and how to get the best deals.
How would you characterize the transactional activity in the greater Cleveland’s commercial real estate market?
With respect to the commercial real estate market in Greater Cleveland, it looks as if the industrial side of things has slowed down a bit. That’s likely because the vacancy rate remains under four percent and there has not been much new construction. However, once more product comes online, it’s expected that there should be more activity.
On the office side, there have been a handful of sales including 200 Public Square and Tower at Erieview. Additionally, because of the conversion of many properties into housing, the amount of office space has declined. That has prompted the announcement of a couple new projects, including phase three of the Flats East Bank and the new mixed-use project catty-corner from the West Side Market.
Nationally, the clients I work with have expanded their presence into new markets in the south. Additionally, I’ve been working increasingly with our clients in the southwest.
In this real estate deal-making environment, who is benefitting and why?
This has been a much better seller/landlord market than in the past here in Cleveland because of the conversion of old office space into housing and the lack of new construction, especially on the industrial side. However, a saying that sellers should keep in mind as they transact in this environment is don’t count the money until it’s in.
What should buyers be on the lookout for as they look to purchase property?
Due diligence is still critical. Have your structural inspections done, look at and understand the title commitment, get yourself a zoning report, check with the utility company, and check the demographics to make sure the area is one that works for you and your business.
What are the more common mistakes you’ve seen that derail commercial real estate deals and how can they be avoided?
Make sure you have a good lawyer and the right broker. Price isn’t everything. A good lawyer will be able to point out pitfalls in an agreement early on.
Additionally, having the right broker is a must. If you are looking to buy a retail property, make sure you get a retail broker. Similarly, with office or industrial properties, get someone who specializes in those markets.
Finally, make sure you understand the operating expenses of the property. A deal can go sideways pretty quickly if and when a buyer finds that the operating expenses, required repairs or taxes are not in line with expectations.
What advice would you offer to buyers and sellers looking to capitalize on the current real estate market?
Don’t go in with blinders on. Do your due diligence on the property and make sure that if you are going in with partners that you and they see eye to eye. Having a good partnership and documentation evidencing that partnership are critical.
Finally, stick to real estate areas you know. Don’t assume that because you did well as a home builder that you’ll do well as a commercial landlord. Too many well-intentioned business expansions fail miserably when confidence exceeds expertise.
Insights Legal Affairs is brought to you by McCarthy, Lebit, Crystal & Liffman