Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Initial Screening

So far in this chapter, we have discussed focusing on a specific real estate product in a specific geographic area. We have also mentioned the need to establish buying criteria that delineate a range for project size and any other feature that is deemed a required element. Furthermore, we have seen that an acquisition philosophy that focuses on yield should be established. Clearly defining what type of real estate you seek to buy in terms of product type, geographic location, size, tenant mix, and number of tenants, aids the elimination process. It is additionally important to have a methodology to cull out from submitted projects those that are likely to work on an economic level. Accordingly, it is necessary to set economic guidelines for what kind of potential returns you will need in order for you to move forward with a project.

It is important to spend time on your initial screening because, to a large degree, up to this point you have had a free ride. You have spent time attempting to learn about the project, but you have not spent any serious money. In the event buyer and seller agree on the price and the other terms of sale, the process starts to get expensive. A purchase and sale agreement must be drafted, which usually means attorney fees. The buyer then enters the due diligence phase, which translates into spending money on an appraisal as well as on a Phase I and possibly a Phase II environmental report, a property condition report, a seismic study, ...