Why do I need a commercial real estate agent?

Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes

5y

Hi @Prithvi Sri, if you understand the deal and the agent side of things well (as you seem to) and you are the one buying the deal then this seems like a no-reservations 👍.

What risks or liability would you be concerned about in this deal? How would this differ in a commercial deal compared to residential?

Most of what I find in commercial real estate is that the protection is all centered around residential real estate and the general consensus from the regulatory side seems to be "all you commercial folks are grown ups, so you can look out for yourselves."

0 Reply

Greg Dickerson

Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes

5y

Originally posted by @Prithvi Sri:

I am a real estate broker in CA and have been investing in residential RE for over two decades. Bought and sold a couple of dozen properties over the years using my own real estate license. Now I am planning to buy a commercial real estate (of approx value 2 million). It is a single tenant, absolute net, lease contract of a standalone building. The tenant is a retail establishment owned by a very large profitable listed company. The tenant is at the property for 20 years, and three months ago signed an extension for 5 more years. In all likelihood, tenant may extend it beyond 5 years too.

My question is, do I need a real estate agent? The commission seems to be over 60K so it is not exactly chump change. Since I found the property myself and have reviewed all the financial statements of the tenant store as well as the parent company to be satisfactory, what exactly would be the benefit that I get from the broker instead of my self representation? I did all the paperwork for my residential purchases in the past and kept the commission for myself. What are the risks that I will be exposed to, if I were to do the same for the commercial property too? If there are any risks, is there a way I can mitigate the risks (say by hiring a real estate attorney or an agent who will work for an hourly / flat fee? I want to be frugal and save money on commissions, but I also don't want to be stupid and expose myself to a risk that a broker/attorney can help save me from when I am risking 2M).

Any commercial real estate investor who tried going solo and lived to tell the story? Any inputs are greatly appreciated.

Thank you,

Prithvi.

If you feel confident that you understand the deal then you can definitely do this on your own and capture the buyers commission as either a discount on the purchase which is tax free as apposed to taking the commission which would be taxed as income depending on how you are structured. There is actually less risk in commercial a you do not have Fair Housing laws etc. to deal with.

You definitely want to have an attorney review the leases for you and the contract before you submit it.

1 Reply

Cason Acor

Real Estate Agent · Salt Lake City, UT · Member since 2018 · 247 posts · 247 votes

5y

From a commercial brokerage perspective, I know a lot of listing agents who won’t give fee to licensed principals, even if they self represent. You’ll obviously have to disclose that you’re licensed, if you haven’t already. So be sure to ask what the buy side fee is, and that they will pay it to you (assuming that’s what you want). I personally would ask for an equivalent price reduction as opposed to taking fee.

1 Reply

Ajay Sharma

Investor · Elgin, IL · Member since 2019 · 20 posts · 9 votes

5y

We have purchased from listing agents with no buyer agent. We have a go-to real estate, high experienced lawyer. Most deals we work on industrials we only rely on our lawyer to draft paperwork. We use a standard LOI we have developed over time. If you don't have one, the lawyer can draft one for you.

I agree with you. I only got a broker's license to receive split commissions; however, if we find a property on our own, we have not felt a need for an agent.

3 Reply

Tyler E.

Real Estate Agent · Austin, TX · Member since 2020 · 2 posts · 0 votes

5y

@Prithvi Sri. I specialize in single tenant net lease properties and I personally would not use a broker. Having said that getting a perspective from a trusted broker that truly understands the NNN lease market can be worth the fee in order to prevent buying a dud property. When I buy a home I use a real estate broker even though I am licensed because I don't know that market. I don't recommend people that buy NNN lease properties try to go at it on their own even if they are licensed. Obviously if you think you know that market well, then go for it.

0 Reply

Prithvi Sri

OP

Member since 2018 · 71 posts · 50 votes

5y

Thanks for the response @Ajay Sharma. Appreciate it. I found a sample LoI on this site from someone which seems pretty good - for a starter. If you don't mind, do you mind sharing the one you have (sanitized, of course). If I find anything else to add based on my research, I don't mind sharing the enhanced document. Thank you again for the response.

Originally posted by @Ajay Sharma:

We have purchased from listing agents with no buyer agent. We have a go-to real estate, high experienced lawyer. Most deals we work on industrials we only rely on our lawyer to draft paperwork. We use a standard LOI we have developed over time. If you don't have one, the lawyer can draft one for you.

I agree with you. I only got a broker's license to receive split commissions; however, if we find a property on our own, we have not felt a need for an agent.

0 Reply

Ajay Sharma

Investor · Elgin, IL · Member since 2019 · 20 posts · 9 votes

5y

@Prithvi Sri, i just sent you message asking for email. I have two I send over to you. One from attorney and one created by broker.

1 Reply

Courtney Duong

Property Manager · TX · Member since 2019 · 327 posts · 69 votes

5y

Originally posted by @Ajay Sharma:

@Prithvi Sri, i just sent you message asking for email. I have two I send over to you. One from attorney and one created by broker.

Do you mind share it with me too? I just sent you a PM. Thanks.

0 Reply

Steve Morris

Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes

5y

"My question is, do I need a real estate agent?"

If it is just to do a transaction and you've done all the leg work already - No.

How a broker would help is if you don't understand the basics of your NNN deal you're buying. If you don't understand the lease totally (as in tenant outs and rent payments), GET SOMEONE THAT UNDERSTANDS IT!!!

You're paying a premium for lease NOT the value of the building - Unless it can quickly be re-leased if the tenant leaves, but usually not. Kinda worries me that you're paying a premium for 5 years on a lease - PROBABLY doing a re-up is not comforting.

0 Reply

Prithvi Sri

OP

Member since 2018 · 71 posts · 50 votes

5y

Thank you @Steve Morris, I agree it's important to understand the lease document - basically that's what we are paying for. So, the shorter duration worries me, but it is also a problem I have to deal with after 5-years - a decent enough time for me to acquire three or four more commercial properties so I can wither the storm if I can't rent it out. And a good local real estate attorney probably helps with translating the lease into plain english for me to make an informed decision.

That said, do you really think 5 years is a short term? What do you mean by re-up? Renovation? What do you suggest I do for getting the property inspected for renovation after 5-years? Would that be a job for a inspector or a general contractor?

Originally posted by @Steve Morris:

"My question is, do I need a real estate agent?"

If it is just to do a transaction and you've done all the leg work already - No.

How a broker would help is if you don't understand the basics of your NNN deal you're buying. If you don't understand the lease totally (as in tenant outs and rent payments), GET SOMEONE THAT UNDERSTANDS IT!!!

You're paying a premium for lease NOT the value of the building - Unless it can quickly be re-leased if the tenant leaves, but usually not. Kinda worries me that you're paying a premium for 5 years on a lease - PROBABLY doing a re-up is not comforting.

0 Reply

Steve Morris

Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes

5y

That said, do you really think 5 years is a short term? What do you mean by re-up? Renovation? What do you suggest I do for getting the property inspected for renovation after 5-years? Would that be a job for a inspector or a general contractor?

Usually people buy these at a premium for a long (ie 15-20 years) lease. The lease has a NPV, so 5 years vs 20 years is easy to calculate

Re-up = exercise option to extend, which may/may not happen. Problem is a lot of these NNN deals are walking a knife's edge - Do well and you want to move bigger, do worse and you want out. So you need to understand the outs.

Renovation means what happens after (if) tenant leaves? Worse case is burger joints are pretty much going to be burger joints (maybe SBUX) by design.

Again, you're not buying these on a $/SqFt basis - You're buying a lease and stream of payments. UNDERSTAND WHAT YOU'RE BUYING AND YOUR RISKS.

0 Reply

Prithvi Sri

OP

Member since 2018 · 71 posts · 50 votes

5y

Cason,

Thanks for the inputs. Totally agreed about the reluctance of some brokers to not share the fees with buyer/broker. With residential real estate, it is easy to know what the buyer's side commission is. How do we know what that percentage for commercial real estate is - other than the listing broker's word over the phone?

Originally posted by @Cason Acor:

From a commercial brokerage perspective, I know a lot of listing agents who won’t give fee to licensed principals, even if they self represent. You’ll obviously have to disclose that you’re licensed, if you haven’t already. So be sure to ask what the buy side fee is, and that they will pay it to you (assuming that’s what you want). I personally would ask for an equivalent price reduction as opposed to taking fee.

0 Reply

Charles Kao

Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes

5y

@Prithvi Sri

That is dependent on you. I’d read a commercial real estate investing book and if you find you know most of material you are ready if not then you don’t know what you don’t know.

0 Reply

Jonathan R McLaughlin

Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes

5y

no broker? Fine if you are confident in your analysis. You NEED a good attorney. You can sum up the legal situation as "buyer beware" and you are dealing with companies that have lawyers and the willingness to use them. And the details of the lease matter a great deal.

0 Reply

Cason Acor

Real Estate Agent · Salt Lake City, UT · Member since 2018 · 247 posts · 247 votes

5y

The listing broker’s word is all you have to go on in commercial. There is a lot less broker cooperation because there’s no NAR to mandate it. The fee is paid by the seller to the listing brokerage, and it’s the listing brokerage’s discretion to share the fee with the buyer broker, and how much. It’s not uncommon for a listing brokerage to secure a 6% fee from the seller, but only offer 1-2% to the buyer broker.

Originally posted by @Prithvi Sri:

Cason,

Thanks for the inputs. Totally agreed about the reluctance of some brokers to not share the fees with buyer/broker. With residential real estate, it is easy to know what the buyer's side commission is. How do we know what that percentage for commercial real estate is - other than the listing broker's word over the phone?

Originally posted by @Cason Acor:

From a commercial brokerage perspective, I know a lot of listing agents who won’t give fee to licensed principals, even if they self represent. You’ll obviously have to disclose that you’re licensed, if you haven’t already. So be sure to ask what the buy side fee is, and that they will pay it to you (assuming that’s what you want). I personally would ask for an equivalent price reduction as opposed to taking fee.

0 Reply

Prithvi Sri

OP

Member since 2018 · 71 posts · 50 votes

5y

@Charles Kao,

In residential real estate, the buyer's agent commission is listed on the MLS listing itself. So my question was about where does such information posted for commercial real estate? Also, I am confused by your response that it is dependent on me. How? I understand I don't have a lot of experience in commercial real estate, but it has nothing to do with where buyer's commission info is usually posted.

Originally posted by @Charles Kao:

@Prithvi Sri

That is dependent on you. I’d read a commercial real estate investing book and if you find you know most of material you are ready if not then you don’t know what you don’t know.

0 Reply

Charles Kao

Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes

5y

@Prithvi Sri

Your question is asking do you need a commercial real estate agent? So why did you ask that?

0 Reply

Surya Basava

Real Estate Agent · Mason, OH · Member since 2020 · 8 posts · 3 votes

5y

As other suggested hire attorney who specializes in commercial real estate to go over your purchase contracts,lease agreements,SNDA and other tenant related documents.

0 Reply

Prithvi Sri

OP

Member since 2018 · 71 posts · 50 votes

5y

Agreed.Hiring an attorney is definitely something I will do. At least for the first property, I will learn something from this.

Originally posted by @Surya Basava:

As other suggested hire attorney who specializes in commercial real estate to go over your purchase contracts,lease agreements,SNDA and other tenant related documents.

0 Reply

Sam B.

Member since 2019 · 106 posts · 32 votes

5y

@Prithvi Sri

With only 5 years left, I hope you are getting a good deal. Lot of risk with that short a term

0 Reply

Prithvi Sri

OP

Member since 2018 · 71 posts · 50 votes

5y

@Sam B. I too was concerned but the offer I'm making is at CAP rate 9%. If it goes through, I will get almost half of the property value by then. I'm using 1031 exchange to buy it with cash now and will refinance it after six months to a year later - basically the equity in the property is my capital gains from previous sale. I feel 9% CAP rate with a successful national brand deserves some risk taking in terms of timing.

1 Reply

Sam B.

Member since 2019 · 106 posts · 32 votes

5y

@Prithvi Sri

I recently bought a 14 cap with a national tenant with two years left on the lease. The cap is sometimes relevant sometimes not with short duration. In my purchase it wasn’t relevant. The other thing you need to ask is what will the property be worth with the tenant gone?

To refi a property like this you’ll need a solid balance sheet and offer a personal guarantee is my guess, unless the ltv is super low. Happy to discuss over phone if interested. DM me for details

0 Reply

Ryan Seib

Attorney and Real Estate Broker · Madison, WI · Member since 2016 · 265 posts · 100 votes

5y

A good lawyer can handle it from here. If you want another person working for you see if any buyers agents will take a much lower fee since the deal is already lined up. Best wishes!

0 Reply

Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

5y

A commercial agent who will work for an hourly flat fee???....lol

As years go below 7 with remaining it is very hard to get financing for these properties so most are all cash purchase or very little debt. The lender wants to know the dark value is higher than the mortgage balance at end of primary lease term.

This is why cap rate is around 9 cap. If it was 15 year lease likely cap rate in the 6's.

Have to look at IN PLACE rent per ft. If when developed landlord in exchange for high TI the tenant agreed to above market rents for that box size you could have an overvalued property.

Example purchase price at 2 million at 9 cap. 180,0000/ 5,000 sq ft building NNN NOI rent = 36 a foot.

Market research shows rents for that box size and quality location now average 30 a foot or 150,000 NOI value

150,000 NOI / 2 million 7.5 cap now.

So I look at not what is in place cap rate alone but dirt value. In some urban core areas they are paying 3 million for 2 acre land with old retail building. Tearing down the building and building high rise multifamily. So it's all about the dirt.

I do not get out of bed unless the deal is making me at least 50,000 these days. Anyone wanting to be cheap I tell them to go pound sand. My clients are already multi-millionaires in their chosen profession so pay a premium for service.

The do it your self types need TO OWN their choices. Find a great commercial retail attorney but most do not know the markets like the brokers do.

Good luck

Podcast Guest on Show #47

NNN Invest53 Reviews

Website View Page

2 Reply

Prithvi Sri

OP

Member since 2018 · 71 posts · 50 votes

5y

Thanks for the hard hitting response. Agreed on almost all the counts. Especially the point about figuring out what the rent for it if I were to go to market today to rent it out.

Here's how I did my math though. By going for 9% CAP, I am making probably an extra 12% total over the next four years. At 6% CAP, that is almost two extra years of rent - something I can afford to keep the unit vacant while scouting for a replacement tenant. I checked the comparable sales in the neighborhood and other active listings around. They all are slightly above the subject property on a per sft basis which gives me some confidence that I can rent it out should the tenant leave after 4 years. I could be wrong but that's what I am going to find out.

1 Reply

Why do I need a commercial real estate agent?

Why do I need a commercial real estate agent?

Most Popular Reply

30 Replies