Today, I must get my David Letterman on and discuss the Top 10 reasons commercial real estate deals fail to close.
As I have discussed in this column, ad nauseam, commercial real estate transactions are simply leases or purchases. We differ from our residential brethren, in that a large percentage of our transaction volume is leases.
Specifically, some agents ply their entire trade negotiating leases either in renewal, direct or sublease fashion. These professionals are known as “tenant rep” brokers because the majority of their work is on the occupant side of the table.
Notably, as interest rates have risen over the past year and a half, we’ve witnessed a reduction in sales, to the benefit of leases. Fortunately, a commercial occupant has a choice! Also, present in the industrial arena this year is a plethora of sublease business: an occupant no longer needs the space from which they operate and must locate a surrogate to fulfill their obligation.
Today, I’ll illuminate the Top 10 reasons these deals — sales and leases — fail to consummate.
Financing issues: Difficulties in securing financing or unexpected changes in lending terms can jeopardize a deal. Issues such as insufficient funds, a spike in interest rates, or stringent lending requirements can lead to deal termination.
Due diligence concerns: Discoveries made during the due diligence process – that free look period occupants have to study a property – such as environmental issues, zoning violations, or property defects, can cause buyers to walk away from the deal or renegotiate terms.
Title problems: Title defects, unresolved liens, or disputes over property ownership can delay or derail a commercial real estate transaction.
Appraisal shortfalls: If the property appraises for less than the agreed-upon purchase price, buyers may struggle to secure financing or may seek to renegotiate the deal terms.
Environmental issues: Environmental contamination or concerns about potential liabilities related…
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