Your Guide to the Commercial Real Estate Closing Process
- By seoserviceusa93@gmail.com
- •
- 02 Nov, 2018
Commercial real estate closings are very different to closings of residential real estate since they are comparatively more extensive in procedure. They consist of many more parts and negotiations can take up to a year and sometimes longer.
Commercial real estate contracts don’t have as many protections for buyers which means there is more room for negotiations.
Here’s a quick layout of the various steps in closing a commercial real estate sale:
Escrow
During this phase of the process an impartial external party will hold the money until all the conditions of the escrow have been met or until one party decides back out of the deal.
The escrow is essentially an extra measure taken to address possible trust issues between the buyer and the seller. Until the terms of the seller and buyer are met, the escrow does not release the money.
Because the money in a commercial real estate transaction usually comes from multiple sources, the escrow is more controlled. In most commercial real estate dealings, the title agent is also the escrow agent.
Prior to capital being credited to the escrow account, both parties need to decide on the terms and conditions that need to be fulfilled in order for the escrow to release the payment.
Legal Entities and Authority
It’s normal for commercial real estate transactions to involve multiple entities as opposed to just two; these deals are also much more expensive than residential real estate transactions. Because there is so much money involved in these transactions, all parties aim to limit liabilities by creating legal entities solely for the purpose of commercial real estate transactions.
LLCs and LLPs take major risks when purchasing commercial real estate so it’s important to protect the buyers and sellers from losing personal assets or other properties.
Since specific people will be signing on behalf of authorities, documents will need to be handed in to prove that the papers are being signed by the correct individual. If either party fails to submit the needed documents, the escrow capital should not be released.
Due Diligence
In commercial real estate dealings buyers are usually looking to extend the time they are given to get out of the deal, while sellers are looking to limit this time.
These measures will be finalized in the due diligence process.
Buyers should check the following when purchasing commercial real estate:
·All tenant estoppels are delivered
·Confirmation of zoning compliance
·Outstanding taxes and or liens are paid off
·Review the seller’s books and records
·The contract is executed properly
·The due diligence deadline and termination notice conditions are correct
·They are given a receipt for the most recent title insurance policy
·They have a copy of the environmental review report
·They have an updated survey report
·They have true copies of all leases
Sellers will have to look out for the following:
·Assignment and assumption of leases were completed by the buyer
·Objections of the survey report and title have been addressed
·The conditions of the contract have been executed
·The down payment is delivered on time
Title & Closing Work
Both parties will have to agree on the title report and meet the terms of the closing documents (assumption of leases, environmental reports, deeds, warranties, zoning disclosures and assignment of liability).
Once all issues have been addressed and resolved, the final title report is generated and given to both parties for approval.
Because the closing process is so complex, it’s advised that buyers have a reliable commercial real estate agent to guide them through the paperwork.
If you’re looking to buy commercial real estate in Toronto, contact Pivotal Commercial Realty.
Before you go ahead and sign any papers to purchase commercial real estate in Toronto, spend some time learning and understanding the market.
Investors in commercial real estate have to consider the following before they decide where they want to put their money:
Interest Rates
For the first time in 7 years, the Bank of Canada increased its interest rate in 2017. The interest rate set by Bank of Canada has a direct impact of the on the cost of taking out a variable rate mortgage as well as other loans.
Fluctuations in the Bank of Canada interest rates also influences the growth of corporations and consumer spending, which impacts the demand for both residential and commercial real estate.
Investors all over the globe think of Canada’s commercial real estate market as a safe haven. Even though there is some uncertainty about the rise of interest rates, the contrast between tight supply and growing demand for real estate in the country has been a driving force in the real estate market.
The commercial real estate market continues to be viewed positively by international real estate investors with Toronto and Vancouver being the most popular destinations. In 2018, Toronto was considered one of North America’s major real estate markets to invest in. In 2019, both Toronto and Vancouver are expected to be in the continent’s top 3 destinations.
The growth in commercial real estate is being pushed by the increased sales in office buildings. Even the political uncertainty between US and Canada did not hamper the success of commercial real estate in the country.
Major Markets
In 2018, Canada’s commercial real estate sector hit a record breaking $36.2 billion. This growth can be attributed to the increasing demand of industrial, office, retail, multi-family units and ICI land.
Those looking to invest in commercial real estate in Canada should consider Toronto, Vancouver, Calgary, Montreal and Ottawa. In 2017, most of the growth in the sector was driven by office buildings but in 2018, industrial real estate led the way.
In the near future, the demand for industrial real estate is expected to rise due to the increase of e-commerce business in the country that are looking to build fulfillment centers nearby for fast and easy delivery.
The commercial real estate market in Canada is continuing to flourish. However various factors are expected to make bring changes to the landscape in the future.
2018 proved to be a record-setting year for the commercial real estate sector in Canada due to an influx of new projects and high occupancy rates. With that being said, property owners are advised to monitor fluctuations in the market. Like all real estate, the commercial real estate sector of Canada is prone to disruption.
Let’s take a look at the key disrupters in commercial real estate in Canada:
Shared Workspaces
There has been a dramatic shift in the way people work in the country. Canada is experiencing a boom in the start-up community , many of which are led by Millennials.
Traditional office spaces are being replaced with co-working spaces that are designed to enhance collaboration, allow for greater flexibility and lower operational costs at the same time. Open offices are much cheaper than conventional cubicles. Younger professionals have found a way to work with limited office space.
Landlords can’t just lease out their building to select tenants, they have to redevelop their office space so it caters to the demand of the modern workforce. This can involve offering flexible suites or open concept office spaces.