Special Guest Blog Post by Joe Kireta: Appraisal Institute of Canada

As experienced commercial brokers, we work in conjunction with appraisers on many of our deals.  Naturally, we feel it appropriate to introduce our readers to this area of the real estate business.  Today, Joe Kireta AACI with Ray Bower Appraisal Services Inc, will provide us a guest blog post on the Appraisal Institute of Canada:

When the market's changing, who can you trust? Call the real estate experts, Appraisal Institute of Canada (AIC).  We are Canada's leading authority in real property valuation. Make wiser  choices with in-depth analysis, market insights and practical solutions - from acquisition and development to management and disposal.

Founded in 1938, AIC is the premier real property valuation association in Canada. As a self-regulating professional organization, AIC grants the distinguished Accredited Appraiser Canadian Institute (AACI) and Canadian Residential Appraiser (CRA) designations to individuals across Canada and around the world.

AIC members are highly qualified valuation professionals who undertake a rigorous program of professional studies, examination and experience before being granted a designation. The Institute also supports the principles of lifelong learning through a mandatory continuing professional development program and requirements to complete our professional practice seminar on a regular basis. These ensure that members have the most up-to-date education and skills to offer their clients.

The education, experience and life long learning requirements that  AIC has put in place ensure that the real value expert you hire will provide you with the most professional valuation expertise and opinions in the marketplace. Put your trust in the most highly regarded designations in the real property marketplace.  Get real property experts working for you; consult an AIC professional.

For further information on how a real estate appraiser can be of assistance to you, you can visit the Appraisal Institute of Canada website (AIC) http://www.aicanada.ca

Thanks to Joe for his contribution today.  To find out more about his appraisal services, call 519-981-8896 or email connect@joekireta.com.

For Sellers Only – Interviewing Brokers

Commercial property sellers need to review their options - AKA, interviewing the most qualified commercial brokers in your area.  Beyond having the right credentials and background in your market, their services should include much of the following.

Check list of services:

1)      A current analysis of market conditions/trends within the area

2)      Supporting data based on price/ft. and income analysis comparisons

3)      A marketing plan which targets the property to right users/investors

4)      Aggressive promotional plans – including website marketing, signage, flyers, video tours

5)      Financing options – including both institutional, private, and VTB

6)      Negotiation strategies utilized

7)      Working arrangement with the local broker community

8)      Ability to service premises tours/viewings

9)      Transactional/contract expertise (documentation prep)

10)  References that can be reviewed and called upon

Beyond the services, a discussion of brokerage fees involved is certainly appropriate.

Typically this will be % fee structure based on the selling price of the property.  It could also be flat fee based, depending on your area and based on what you are able to negotiate. Fees will and do vary from broker to broker, even within the same area. Best advice here - is interview a few of the best qualified brokers in your area and make your selection based on your specific needs. But as a caution, remember that old saying – 'you get what you pay for' - which certainly applies in the world of commercial real estate.

All of the above, although not necessarily a complete list of services you need to consider, gives you a solid basis to interview candidates. Bottom-line - a Seller must be confident in the ability of the broker to 'GET THE JOB DONE'.

Again, seek out experienced commercial brokers within your market, to best market your property.

Zoning - Permitted Uses

In purchasing a commercial building, you need to pay particular attention to the zoning bylaw, and how it applies to your use. Often times, assumptions are made regarding the zoning on a property – perhaps it is even zoned commercial – but at some later stage, you discover the applicable zoning bylaw does not permit your specific use. After the fact this can become very problematic and often costly to correct.

Best practice here is to confirm with the local municipality, that your USE IS PERMITTED WITHIN THE APPLICABLE BYLAW. If there is any doubt, second opinions are good. Best options then are with your solicitor or officials within the municipality itself.  Municipalities will typically want any requests for a zoning confirmation (or interpretation on a use) in writing – but will likewise respond in writing, which is obviously preferred.

Other factors which you may need to consider:

i)                    Does the existing bylaw allow for a change(s) in the business?

ii)                   Are there parts of the bylaw you cannot comply with (ie. parking)?

iii)                 Is the bylaw consistent with the neighbouring district?

iv)                 Is the bylaw marketable for purposes of re-sale?

v)                  Are there any pending changes (municipally) to the bylaw?

vi)                 Costs associated with obtaining a re-zoning should it be needed?

On the final point above, this assumes that the site does not allow for the use which you propose. Bear in mind that in order to amend the zoning, you are likely looking at months, not weeks, to go through the municipal process.  This in turn adds a further ‘major condition’ to the Offer to Purchase, which obviously has implications with both the Seller and likely your negotiation strategy. If it then becomes a reality with your deal - make sure you are clear on the costs, the process, and any other municipal requirements which apply.

Again, seek out an experienced commercial broker with strong local backgrounds, to assist you in the area of zoning compliance with respect to your purchase.

Deposits - Issues and Insights to Consider

Most offers on commercial transactions are accompanied by a 'good faith' deposit.

Typically they are viewed as ‘tangible consideration’ for the offer contract attached to it, thereby confirming the Buyer’s commitment to the transaction.  Upon receipt of it, the funds are normally held in a trust account – most often with the Listing Broker.

The amount of deposit varies from deal to deal, often times based on the parties involved or the type of market condition that exists.  There are no set standards, other than those as set by either the Buyer or Seller. But it is most important to note, that once the deal is struck (agreement signed) – the deposit belongs to the deal and jointly to the parties.

For the Buyer, issues to be considered may include:

i)                    Making the deposit sufficient, so as to appear as legitmate to the Seller

ii)                   In highly competitive markets, larger deposits can strengthen the offer

iii)                 Deposits are returned to the Buyer, if conditions are not met

iv)                 1^st & 2^nd deposit strategy ( 1^st - with offer, 2^nd  - @ condition  waiver)

v)                  Large Deposits can require placement in an ‘interest bearing’ account

For the Seller, issues to be considered may include:

i)                    Specify a requirement for deposits (ie. 5% - 10% of purchase price)

ii)                   Small deposits often indicate a less than serious commitment

iii)                 Term of sale can include a forfeiture of deposit in some cases

iv)                 Larger Deposits tend to create urgency with the Buyer to close on time

v)                  ‘Interest Bearing' can help the Seller negotiate the larger deposit

Upon a successful closing, the deposit simply forms part of the purchase price and is credited to the transaction.  However, if the deal does not close, the parties must agree

on the release of the deposit by written consent.  In the Province of Ontario, this is done through a Mutual Release document, and both parties must sign off on the deposit, which includes where it is to be directed/payable to.  Keep this in mind as you provide deposits, as any deposit will not be released to either party without a Mutual Release being signed by both parties.

As with every other term on a real estate transaction, deposits are something to be negotiated, to ensure that your interests are best served within the proposed deal . As always, consult an experienced commercial broker in your area to protect your interests in the area of deposits.

Special Guest Blog by Robert Iseppi: Intro to Commercial Property Inspections

Today we have another guest blog post.  Robert Iseppi, Civil Engineering Technologist and Certified Insepctor with Amerispec, servicing the Windsor, Chatham and Sarnia (Ontario) markets, will provide us with an intro to commercial property inspections:

Buyers and users of just about any commercial property can benefit from an inspection conducted by a qualified Inspection Company.  Even new construction can have physical deficiencies that could eventually require costly repairs.  Buildings targeted for renovation or reuse – such as office to residential or warehouse to retail—can also benefit from a review to determine if these facilities and systems function properly.

The goal of a Commercial Property Inspection is to identify and communicate observable, physical deficiencies of the material systems, components, and equipment within a commercial property.

A baseline commercial property inspection relies on a walk-through survey, to determine the property’s condition.  The report includes information about the property as well as opinions on probable cost for suggested remedies.

This information is valuable in helping owners and buyers understand operating and maintenance costs and helps to provide confidence to prospective purchasers that the transaction is solid.  Our professionals work together with clients to determine the scope of inspection services needed, and are committed to providing outstanding client service and satisfaction with the technical experience and knowledge to meet our client’s most specific needs

AmeriSpec’s professionals are experienced in inspecting a variety of commercial properties including:

·        Office Buildings

·        Industrial Buildings

·        Retail Stores and Shopping Centers

·        Apartment Building and Hotels

·        Hospitals, Research Centers

·        Warehouse Buildings

·        Condominiums

The scope of the inspection needed and the specific areas to be inspected are based on various factors.  Age, occupancy and type of construction are considered when determining how the property will be inspected and the performance criteria needed to complete the inspection.  Inspections can vary from a visual examination of the property to a comprehensive inspection of all technical components of the building.

A baseline commercial property inspection includes:

·        Site Characteristics (Paving, Landscaping and Utilities)

·        Structural Frame and Building Envelope

·        Roof Surface Areas

·        Mechanical and Electrical Systems

·        Plumbing Systems

·        Heating Systems

·        Air Conditioning and Ventilation Systems

·        Vertical Transportation

·        Life Safety/Fire Protection

·        Interior Elements

·        Opinions of Probable Costs

·        Recommendations

Additional services that may be available include:

·        Elevator Inspections

·        Fenestration Inspections

·        Fire Safety Inspections

·        Lead-Based Paint Inspections

·        Wood-Destroying Organism Inspections

·        Phase I Environmental Site Assessments

·        Sewage and Treatment Systems Inspections

·        Asbestos Inspections

·        Indoor Air Quality (IAQ) Assessments

·        Radon Inspections

Depending on the type of property and the needs of the client, inspections may require specialists, consultants or a TEAM (Technical Experts and Management) approach.

THE TEAM APPROACH

The TEAM approach allows specialists or consultants to assist in the commercial inspection by providing their expertise in areas where it is required.

The specialists or consultants that can assist in a property inspection include:

·        Structural Engineers

·        Environmental Specialists

·        HVAC (Heating, Ventilation and Air Conditioning) Specialists

·        Electrical Specialists

·        Fire Protection Specialists

·        Elevator Specialists

·        Roof Specialists

·        Paving Specialists

·        Wood-Destroying Organism Specialists

Special thanks to Robert for his contribution.  To learn more about his services or to book your next commercial property inspection, email amerispecwindsor@gmail.com or call (519)739-1010.

Operating Cost Review (Owner-Occupant or Landlord)

Whether you are the prospective Owner-Occupant or Landlord of a commercial property, a review of the operating cost/ft to run the property, is an important analysis to consider.  First to understand the concept, let’s look at the terms which exist within the industry - COMMON AREA MAINTENANCE (CAM), COMMON COSTS (CC), TAX MAINTENANCE INSURANCE (TMI) – all of which commonly are referred to as ‘Additional Rent’ within a typical lease document (to view our related post, from a leasing perspective, click here).

Regardless of how they are labelled, they consist of the cost/ft to operate the property in a given year. Typical costs include – property taxes, building/property insurance, maintenance/repair/management costs etc. They will vary from year to year, as the input costs (ie. taxes) will change on an annual basis.

In the case of an owner occupying a property for his own commercial purposes, this

review will reveal his cost/ft to operate out of this location. Beyond your mortgage

payments and equity contribution (downpayment), this represents the additional cost in operating your business at this property.  You almost look at it from the perspective of a tenant – as in lease terms, this would be viewed as ‘additional rent'.

In the case of a landlord (investor owner), this review will indicate how competitive

this property is against the overall market. Using an example of a typical retail plaza

center with an operating cost/ft of $8.50 – it is easy to see where you might be at a disadvantage in marketing space, when competitive sites reflect operating costs/ft at $7. A word of caution here though, as the “the devil is always in the details” – and more specifically, look closely at the budgets (line by line) provided, overall condition of the plaza, areas of deferred maintenance etc.

Remember that the costs for operating a plaza or business premises are either covered

by the tenants or the owner-occupant of the business. These are real dollar items that

need to be factored in as you analyze any transaction, and a sound per/ft analysis of

operating costs is simply good due diligence.

As always, consult with an experienced commercial broker in your market, to assist

in evaluating the operating costs on commercial properties which you are considering.

Closing Costs - Intended for (Ontario) Canada Only

This post is targeted to Ontarians and directed towards Buyers within the Province of Ontario. Those in other jurisdictions should consult with officials within their own markets, to determine all relevant closing costs. Suffice it to say, these costs need to be projected at the outset, to avoid a cash requirement ‘surprise’ come closing date.

Potential Buyer costs summarized as follows:

Land Transfer Tax - Paid at closing and as % of the purchase price (see your lawyer for exact calculation at the time).

Survey/Title Insurance - Lender generally requires this and survey costs can be significant, if it is a larger site. Title insurance may not be an option, depending on the property/lender.  Canvass your lender on whether title insurance is an option.

HST - If applicable, HST is additional to the purchase price.  See earlier blog here on HST – but if due, it becomes closing cost.

Legal Costs/Disbursements Fees for lawyer expenses in preparing the title deed, preparing the mortgage, & conducting title searches.  Disbursements are considered out-of-pocket costs incurred by the lawyer – such as search costs, supplies,
registrations/preparing discharges etc.

Legal Costs (Lender) Depending on the size of the financing, lenders can often require independent counsel to oversee the the mortgage process and look out specifically
for their interests. If necessary, it’s an additional cost.

It is well worthwhile to arrange a meeting with your lawyer in advance of closing,
and request a “Cost to Close’ estimate. Even if its approximate subject to certain
unknowns, it is a budget figure you need to plan for.

As always, consult with an experienced commercial broker in your market to assist you in the Purchase of Commercial Properties.