Types of commercial property: Office buildings: This category includes single-tenant properties, small professional office buildings, downtown skyscrapers, and everything in between. Retail/Restaurant: This category includes pad sites on highway frontages, single tenant retail buildings, small neighborhood shopping centers, larger centers with grocery store anchor tenants, "power centers" with large anchor stores such as Best Buy, PetSmart, OfficeMax, and so on even regional and outlet malls. Multifamily: This category includes apartment complexes or high-rise apartment buildings. Generally, anything larger than a fourplex is considered commercial real estate. Land: This category includes investment properties on undeveloped, raw, rural land in the path of future development. Or, infill land with an urban area, pad sites, and more. Industrial: This category includes warehouses, large R&D facilities, cold storage, and distribution centers. Miscellaneous: This catch all category would include any other nonresidential properties such as hotel, hospitality, medical, and self-storage developments, as well as many more.
Commercial buildings are buildings that are used for commercial purposes, and include office buildings, warehouses, and retail buildings (e.g. convenience stores, 'big box' stores, and shopping malls). In urban locations, a commercial building may combine functions, such as offices on levels 2 to 10, with retail on floor 1. When space allocated to multiple functions is significant, these buildings can be called multi-use. Local authorities commonly maintain strict regulations on commercial zoning, and have the authority to designate any zoned area as such; a business must be located in a commercial area or area zoned at least partially for commerce.
Typically, a broker will market a property on behalf of the seller. Brokers representing buyers or buyers' representatives identify property meeting a set of criteria set out by the buyer. Types of buyers may include an owner-user, private investor, acquisitions, capital investment, or private equity firms. The buyer or its agents will perform an initial assessment of the physical property, location and potential profitability (if for investment) or adequacy of property for its intended use (if for owner-user).
If it is determined the prospective investment meets the buyer's criteria, they may signal their intent to move forward with a letter of intent (LOI). Letters of Intent are used to outline the major terms of an offer in order to avoid unnecessary costs of drafting legal documents in the event the parties do not agree to the terms as drafted. Once a Letter of Intent is signed by both parties, a purchase and sale agreement (PSA) is drafted. Not all commercial property transactions utilize a Letter of Intent although it is common. A PSA is a legal agreement between the seller and a single interested buyer which establishes the terms, conditions and timeline of the sale between the buyer and seller. A PSA may be a highly negotiated document with customized terms or may be a standardized contract similar to those used in residential transactions.
Once a PSA is executed, the buyer is commonly required to submit an escrow deposit, which may be refundable under certain conditions, to a title company office or held by a brokerage in escrow. The transaction moves to the due diligence phase, where the buyer makes a more detailed assessment of the property. Purchase and sale agreements will generally include clauses which require the seller to disclose certain information for buyer's review to determine if the terms of the agreement are still acceptable. The buyer may have the right to terminate the transaction and/or renegotiate the terms, often referred to as "contingencies". Many purchase agreements are contingent on the buyer's ability to obtain mortgage financing and buyer's satisfactory review of specific due diligence items. Common due diligence items include property financial statements, rent rolls, vendor contracts, zoning and legal uses, physical and environmental condition, traffic patterns and other relevant information to the buyer's purchase decision specified in the PSA. In competitive real estate markets, buyers may waive contingencies in order to make an offer more appealing to a buyer. The PSA will usually require the seller to provide due diligence information to the seller in a timely manner and limit the buyer's time to terminate the deal based on its due diligence review findings. If the buyer terminates the transaction within the due diligence timeframe, the escrow deposit is commonly returned to the buyer. If the buyer has not terminated the agreement pursuant to the PSA contingencies, the escrow deposit becomes non-refundable and failure to complete the purchase will result in the escrow deposit funds to be transferred to the seller as a fee for failure to close. The parties will proceed to close the transaction in which funds and title are exchanged.
When a deal closes, post-closing processes may begin, including notifying tenants of an ownership change, transferring vendor relationships, and handing over relevant information to the asset management team.