Stan Mullin specializes in the sales and leasing of industrial land and buildings in southern Orange County, California. His areas of expertise include: entitlement, contract language, construction schedules, development, assessment district and community facility district bond financing.  

Characteristics To Expect In Your Real Estate Consultant (Part 2)

Author: Stan Mullin, CCIM, SIOR

On of the largest economic investments individuals and corporations make is in the acquisition or leasing of commercial real estate.  To help us identify and distinguish between the alternatives, eventually leading to a commitment on the property, individuals and industry can benefit from skilled assistance.

The traits you should expect in a real estate consultant differ based your level and area(s) of sophistication.   An experienced property owner may only want a “rainmaker” to identify prospective properties or tenants.  A busy client may wish to “outsource” many of the responsibilities that he or she typically addresses due to time limitations, but the vast majority of consumers have a small to moderate level of experience in commercial real estate and would benefit from an advisor that was equipped with a broad range of skills.

This is the 2nd part of a series on the characteristics that most clients should expect in their real estate broker/consultant.  Last month’s article addressed the importance of market knowledge, integrity, contact with the client, communication skills and your broker’s understanding of the provisions to include in or remove from lease and purchase contracts.

Access to Information

Your real estate consultant should have access to numerous sources of information that will help you determine your best alternatives.   It is likely that his market is served by at least one multiple listing service.  In Orange County, the Industrial Listing Service and The Smith Guide both provide detailed information about space that will be or is available.  As well the services offer building photographs, site and floor plans along with summary information on completed transactions.  Your consultant should be able to provide detailed information about real estate transactions which are similar to the property that you are attempting to dispose of or acquire.  This data will allow you to see the trend of prices and rental rates, the properties that compete with yours (disposition) or your alternatives (acquisition).

As well, your broker should be able to easily obtain information on a) the company that is considering your property, b) the ownership of the property your firm plans to lease or purchase and c) the cost and time involved for any design, entitlement and construction issues.  You should know a prospective tenant’s credit, a buyer’s history of closing escrows and references from people that have dealt with them in the past.   Your broker should be able to put you in direct contact with construction managers and architects that can outline how the property should be configured, the requirements of the municipality approving your plan and the cost to construct or modify the building. 

The more you know about the other side of the transaction, the better your capacity to achieve the best terms.  If access to this information is difficult, it is unlikely that your broker will take the time to get it, leaving you without information that could save you a large amount of time, grief and money.

Analytical Strength

Any transaction should be analyzed before you make a commitment.  Your accountant will tell you the tax implications of your transaction, legal counsel will mitigate your liability and your broker should be able to analyze the financial aspects of the deal.  If you are considering a lease, your real estate consultant should be able to reconcile the differences between multiple proposals so that you know the best alternatives.  He should be able to summarize differing rents, dates and amount of rate adjustments, free rent, tenant improvement allowance, operating costs and other expenses and concessions and provide a numeric and graphic comparison of your alternatives.

If you are considering a sale, sale lease back or other transfer, he should be able to show how your yield differs with each alternative.   He should show you the differing types of yield (cash flow, cap rate, internal rate of return, financial management rate of return, etc.), the meaning of each, how each type of yield differs in each transaction and insure that the assumptions used in the analysis are accurate to your circumstances (i.e. investment base, tax rates (corporate and personal).   If your advisor can interpret the financial statements of your prospective buyer or tenant, it will help you even more.

Elements of Design & Construction

Briefly mentioned earlier in this article, your broker should be familiar with the terminology used by architects and contractors and the process for each aspect of the transaction.  The more your agent can articulate your desires to your vendor (or the vendor for the other party), the greater the chance that your expectations will be met.  Your real estate consultant should be able to actively direct discussion in any meeting that you have with your trade professionals.   A key role of the broker is to bring up issues in the design, entitlement and construction process, early in the negotiations so that you a) avoid problems later with the property (i.e. delays), b) mitigate your liability (he should recommend issues that counsel can include in the documentation) and c) insure that your project is as cost effective as possible.  Too often the broker can do little more that listen during meetings in which you need an advocate.

Entitlement & Financing

“I’ve been told that I can get my plans approved over the counter and financing should not be a problem” is a comment brokers often hear from their clients.   You should have a broker that knows the permit process, the time frames and procedures that are realistic to expect for your project.  For tenant improvements, construction documents (“CD’s”) will invariably receive comments from the city or county with jurisdiction, which require design modifications (i.e. delays).  For new construction, it is not uncommon for it to take three (3) months before you can pull your building permits and begin your foundation.  Your architect as well should be familiar with the design and submittal requirements of the city requiring the approvals.  Your broker should keep an eye on how your approval process is proceeding and check with your architect or the contact at the city to insure that your documents are not “sitting” on a planners desk.

If you are a seller, you broker should help you determine the steps that the buyer has taken to obtain financing and should be able to speak directly to the buyer’s lender or loan broker.  He should be able to ask questions that will give you answers about the true date that a financing commitment is given and the milestones required by the parties to receive the commitment.  If you are buying property, your broker should be able to introduce you to a selection of lenders and loan brokers and help you through the process.  When your broker creates a timeline of the financing, design, entitlement and construction process, you will see one of the many examples of how a knowledgeable broker can help you save time, mitigate risk and profit from commercial real estate.