ROB FINLAY

Moving Fast in Commercial Real Estate Decision-Making

Moving Fast in Commercial Real Estate Decision-Making

With the dynamic economic conditions we’re experiencing, we must be fleet-footed to capture time-sensitive opportunities. Moving fast while making well-formed decisions that reduce our exposure is the linchpin of CRE growth.

Even in a ‘slow moving’ market, plenty of opportunistic investors compete to acquire deals. And when you’re selling an asset or contemplating and preparing to do so, you don’t want to miss out on the ideal buyer to another seller. If a refinance is on the table, particularly with rising rates and the FED getting more conservative, prompt decision-making is crucial to lock in today’s relatively low rates.

In this article, I’ll share a few tips to speed up your time to action and achieve the best outcome on the purchase, sales, and refinance sides of commercial real estate.

1. Acquisitions

The opportunity to acquire an asset in commercial real estate is always available in only a narrow window of time. From the point at which we find an opportunity to the day we’re ready to make an offer, much can change.

And though commercial real estate transactions happen on a longer time scale than other types of assets, including residential properties, nothing is static in our sphere. While some assets may, on the surface, appear to be hidden gems and give us the sense that we have ample time to consider them, we can be sure that once a seller or broker realizes the gold they’re sitting on, they’ll be looking for the highest-bidding and most prompt buyers.

Consequently, the speed with which an owner or operator can form the purchase decision will make or break a potential deal. Buyer credibility is vital, too, but all things being equal, the winning bid will go to the investor that leaps first and puts cash on the line.

All that considered, what can you do to be ready to strike?

  • Request property financials upfront and insist on their completeness.
  • Line up capital — equity and debt — and get your financials together in advance.
  • Know the market before evaluating the property.
  • Have a plan for the asset, and be ready to demonstrate your intent to the seller and community stakeholders.
  • Get familiar with local regulatory requirements and trends (zoning, permitting, etc.)

2. Selling

Of all the individuals and entities considering buying your property, only a few prospects are the right fit and qualified, capable, and willing to follow through.

So, when that ideal buyer comes along, everything needs to be in order on your side so you can say ‘Yes!’ Hesitation or unpreparedness will keep your property on the market and start to wear on the perceived value of the asset.

Additionally, it’s not just about accepting the offer but also providing the prospective buyer with everything they need to evaluate your property and make a confident purchase decision — and convince their finance partners of the deal’s viability.

With that in mind, here are a few tips to hasten the move on both sides:

  • Develop realistic pricing and return expectations based on market data.
  • Leverage a data management platform, so you immediately have all the data and organized information the buyer needs.
  • Provide complete financials, including a detailed rent roll.
  • Get a commercial appraisal and inspection in advance.

3. Refinance

With rates on the rise and the FED tightening monetary policy, you can count on increasing lending costs over the next few years. To reduce your long-term economic risk, it’s best to secure a new loan while you’re able. Even if we’re not heading for a cataclysmic reset, we’re certainly going to experience an upward trend in rates that will adversely affect your NOI.

Fortunately for investors and operators, increasing lending profitability will mean expanding availability of capital. To take advantage of this situation, we need to quickly ascertain each of our properties’ loan details and statuses while also considering market data to determine if now is the appropriate time to refinance.

And besides holding onto a relatively low rate, the conditions in your market may create good opportunities to allocate any cash you pull out to make property improvements that will better position the asset to attract tenants and maximize NOI and valuations. Alternatively, you can put that cash to good use in acquiring emerging under-valued opportunities generated by the fluxing economy.

Here are a few recommendations to be ready in advance:

  • Implement data management tools to quickly understand your assets’ financial performance, value, and loan details, so you know if and when it’s the right time to refi.
  • Have the financials and a post-refi plan available to make the underwriter’s job easier and faster.
  • Get a commercial appraisal and inspection in advance.
  • Analyze the market to determine if continuing to hold the asset is the best choice or if it may be an opportune time to reallocate to higher-performing assets.

Move with certainty

Acting fast in commercial real estate is a matter of starting your data collection and due diligence as early in the decision-making process as possible. When you have all the property, loan, and market data ready to go and you’ve done your analysis beforehand, your team will be able to move with certainty toward the ideal path in acquiring, exiting, and refinancing. Start preparing today by optimizing your data management strategy and practices.