Negotiation, Funding & Acquisition

How does PRI negotiate an investment deal?

Unlike residential deals where a contract is issued with a purchase price by the buyer and - if the seller signs it - you are in-contract, commercial deals start with a non-binding LOI.

LOI spells out the following terms:

  1. Purchase price
  2. Amount of earnest money deposit being offered.
  3. Buyer's choice of the escrow agent.
  4. How the balance of the purchase price will be paid
  5. Within what number of days the buyer will execute a purchase contract after all terms are accepted
  6. How long the feasibility period is
  7. How many times and for how many days the buyer has an option of extending the feasibility period (if any)
  8. If there is any additional deposit being offered if the buyer exercises this option if the deposit is refundable
  9. Within what number of days the buyer will close after expiration of the feasibility period
  10. What the real estate broker commission is and who pays it
  11. What documents the seller will have to provide and within how many days
  12. How the closing costs are split between the buyer and seller

The LOI is drafted as a document that is sent to the sellers. From there, the sellers would "red-line" the document with changes that he/she wants and the buyers can counter these on the same document with their "red-line." If lawyers are involved, they will also add their own comments and changes to the same document. This can go back and forth a number of times until all terms are agreed on by both parties.

Based on the final version of the LOI, the buyer then submits a draft contract that will contain other legal terms. This too can go back and forth as a red-lined doc. Once this is finalized, we are in contract!

What are the phases of acquisition?

Identify property
Negotiate the deal
Identify and choose a lender
Procure from seller all documentation required by the lender
Get preliminary title commitment from the title agency
Negotiate remedies for any problems found in the inspection
Amend the contract if needed or anything changes
Ensure the appraisal is done and it is a proper one
Ensure underwriting is done on time
Set closing date

What steps are involved in securing funding?

Step 1
You start by getting pre approved (even before you start looking at properties). We help with getting pre approved by lenders.
Step 2
Get preliminary financial docs like rent roll, P&L statements, and lease summary.
Step 3
Analyze and start communicating with lenders. Negotiate loan terms, underwriting time, the time needed for the appraisal, appraisal process, etc.
Step 4
Determine the purchase price and issue an LOI and start negotiations.
Step 5
If all terms are agreed upon, collect:
1. Full copies of the last 3 year's property federal tax returns or profit & loss statements.
2. Year-to-date profit & loss statements.
3. Current rent rolls.
4. Copies of lease agreements.
5. Most recent surveys if available.
6. List of capital improvements with costs made over the last 3 years.
7. Taxes and assessments.
8. Copies of any leases or other documents relating to the property, including service and maintenance contracts, equipment leases, utility agreements, management agreements, parking agreements, and cross-access agreements.
9. Utility bills for the property from the past 12 months.
10. Any existing warranties on the existing mechanicals and/or building.
11. Copy of recent roof replacement/repair invoices, warranty, transfer documents, and all information pertaining to any roof replacement or repairs.
Step 6
Get a term sheet from the lender.
Step 7
Make sure the appraisal is done on time and confirm with the lender that the appraisal report is in, then set the closing date.