Buying an industrial or commercial property - ten top tips for property acquisitions
Why buy a commercial property? There may be a simple singular reason as to why you are looking to acquire property or it may be multifaceted; business occupation, investment immediate or future development and any combination of these. Knowing what you hope to achieve sets a good foundation for actually finding it.
Which commercial property to buy? Know and be able to articulate and distinguish between what you need and want from your property purchase. Having an ordered list of priorities will be extremely useful in the event you need to decide on compromise. – This may sound like a very simple thing but 99.9% of the time the ideal property you have in your mind does not exist
How much to spend? Know your budget: we frequently hear that ‘there isn’t a budget’. Whilst this is the case for some people, the vast majority will have a limit on how much they are able to and/or are prepared to pay, in order to satisfy a specific property requirement. This is not always clear cut, especially where the requirement is rolling for developments or investments but we find that typically, people have a budget comfort zone, which they can acquire property without syndicating.
Which vehicle to use to acquire the property? Think about what kind of structure/vehicle you might want to use; personal name, limited company, SIPP, LLP. Get advice from professionals, who have been recommended to you from trusted advisors, with your interests in mind.
Think about finance. How are you going to fund the purchase. Clearly, the strongest position a prospective purchaser can have is to have cash funds available to complete on the acquisition. Not everyone is lucky enough to be in this position but optimising your strength in respect of finance will enhance your negotiating power. Speak with your bank, mortgage broker or investor and be in a position to demonstrate your funding ability at the appropriate moment without delay. With development opportunities, depending on the nature of the lender and vendor you may also need to demonstrate the ability to finance the construction cost.
Timing. The importance of this varies depending on the purpose of the acquisition. For occupation, if you are moving premises: (i) think about when you are leaving your existing property - is this flexible, or fixed (by virtue of a lease break or expiry)? (ii) plan your move 6-12 months in advance - it is wise to have a property overlap; being in possession of both the new premises and the existing at the same time, for a short period to enable the smooth transition of your business operation. For investment and development, in many respects these acquisitions are less time sensitive but this is not always the case. Think about (i) have you sold a property recently and need to purchase another property to benefit from rollover relief? (ii) is there an auction backdrop to the property you are looking to buy - can you purchase prior? (iii) is there development potential or has a planning application been made - can you get an edge on the market committing to purchase unconditionally as opposed to subject to planning? Whatever the nature of your property purchase, timing has potential for great benefit or huge losses. Whist acquisition agents can’t predict the future they are normally better placed to assess the market sentiment and tone.
Keep your options open. The perfect property for you may be identified but you should where possible have alternative property options. The reason for this is twofold: (i) your negotiating power is optimised, and (ii) you have a ready made contingency property in the event that your first choice property is withdrawn from the market and/or let or sold to an alternative tenant or buyer. This has potentially critical implications when you link this to timing pressures. If you have to vacate an existing premises at a certain point in time and miss out on a property without a contingency plan, your negotiating power could be dessimated and in the worst case, you may have no premises to operate your business from or be forced to take a lease or licence on expensive short term space, both of which have negative and/or cost implications.
Where are you lookng to buy? If occupational, this will be determined primarily by your area of business operations and staffing requirements. For investment or development, this will vary depending on your risk profile, what your primary aim of buying property is, how involved in the day to day management of the property you want to be and where you feel comfortable. If you are represented by a reputable acquisition agent, with the backing of a multidisciplinary property consultancy company your horizons may broaden to locations you previously haven’t been able to consider whilst feeling comfortable that your investment is safe.
Get a full structural survey – You, your bank or your funder will want to know that the value of the property you are buying relates to the price being paid. A valuation will make certain assumptions as to the soundness of the structure so in most cases it is wise to instruct a reputable building surveyor to carry out a full structural survey. The cost of remedying serious structural defects can be substantial, so it’s better to spend a little on a survey than to spend a lot if the effect of defects begin to show at a later date.
Trust your instinct and trust your acquisition agent.