Investor Checklist for Selling Commercial Space
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Busy, busy, busy: every investor is busy these days, especially in the post-pandemic era. But taking advantage of opportunities means striking while the proverbial iron is scrambled-egg ready. In this case, that means selling commercial space while the market is favorable.
Checklists are powerful, and researchers have found that giving ourselves structure leads to higher productivity.
If it’s time to sell some commercial space that’s outstayed its welcome, here’s a checklist to ensure that you don’t miss commonly overlooked details.
Beginners may find this checklist a little too heavy; check out these five tips on selling commercial property instead.
#1 – Traffic Flow
What does the traffic flow look like? Is all of the building signage visible? If you haven’t visited the property, now is the perfect time to get that out of the way.
The lighting should also be top-notch even before buyers check out the property. There are a lot of moving components within a commercial property.
Outside lighting gets overlooked often, even though it’s one of the first things visible about a property.
The building should be as accessible as possible, with all signage and lighting working properly. These are overlooked items that often turn off buyers, even if they don’t give you feedback about why they decided to go with a different property.
#2 – Let the Engineers Step In
Each inspection-type role in the commercial real estate ecosystem will study things just a bit differently.
When it comes to structure and possibilities, engineers often look at aspects that may go overlooked by a general contractor. Know your building well enough to put the right person to work for the inspection.
#3 – Mind the Valuation
The valuation is important, and seasoned investors understand its importance well enough. However, there are times when the valuation could be better presented.
Just looking at sales comparables isn’t enough. It also isn’t enough just to highlight a few sources of income. The valuation carries serious weight with buyers as well as lenders, so presenting the numbers in their full glory is critical.
Don’t skip this, and going the DIY route isn’t always wise either. If you feel your numbers aren’t lining up, turn it over to a pro to ensure that everything is in its best light. This is non-negotiable.
#4 – Tenant Leases
While the tenant doesn’t have to leave just because you’re putting the property on the market, the reality is that they still need to have some notice. The buyer will take on the tenant-occupied property, and the lease will still be in effect.
The notice doesn’t have to be complicated. The upside of giving notice that you’re selling the property is that you may find a seller without trying too hard.
The tenant could decide to buy the space themselves, or they may have someone in their network who would like to buy the property.
#5 – Tax Considerations
If you already have an accountant, then you can just let them know that you’re selling one of your properties.
Consulting a CPA for tax strategy in connection to selling commercial space is a good idea. If buying properties as an individual, there would be capital gains to address. If this is business income, then different strategies apply.
Either way, know where you stand.
#6 – Explore Creative Incentives
By the time you sell your space, you have collected a wealth of knowledge about that property. Don’t discount that; use that understanding to provide creative incentives to the buyer.
Sometimes the buyer isn’t fully sold on the expandability of the building or the viability despite seeing the financials.
Paint the picture of the potential in a way that’s accessible to get more offers on the space. It’s called sales for a reason, and sometimes presenting the deal in the best light is what’s necessary to go from start to finish.
#7 – Investigate Buyers
An often overlooked item on the checklist is the need to investigate the people interested in buying the space.
Are they equally seasoned investors? Are they buying the property as part of a syndication deal? Understanding who’s interested can definitely change strategy.
#8 – Make the Marketing Packet Meaningful
Even in a “slam dunk” market, the marketing packet is still important. The numbers should line up. Things should look clean, organized, and polished. Do you have enough data to present so you don’t have to fall back on platitudes?
No one likes platitudes, especially when they’re used to covering up a not-so-great property. Leading with honesty is much better, and there are ways to still highlight the silver linings of a distressed property.
#9 – Get Waiver of Contingencies
Newbie tip, or seasoned investor regret? Either way, getting the waiver of contingencies should absolutely be on the checklist.
The due diligence period isn’t a nail-biting experience if you’re prepared, and there should be little surprise even after the buyer conducts their research.
Once the waiver of contingencies is in place, there’s no going back without leaving the earnest money on the table.
However, if the buyer has been interviewed by you or the broker, there is often a deeper understanding of what type of buyer you’re working with anyway.
Putting the Checklist Into Action When Selling Commercial Space
Are there things that will come up during the sales process? Of course. The devil is always in the details, but following these steps will limit how much mayhem that devil can cause.
Once you know that there’s potential for obstacles, you can build real plans to overcome them.
Every sale is different, and every market has its own quirks. You know your market better than any guide; this checklist is just designed to cover things that might go overlooked otherwise.
As you work through these points, there will naturally come other insights. Follow your plan and don’t look back: the property will get sold in good time.
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