Buyers Closing Costs for Commercial Real Estate Purchases

Buying commercial real estate in Savannah, Ga. without the services of a broker? Here is an article you must read to have the best understanding of real estate closing costs.

by Daniel Doran - 25 September 2012 on http://realtybiznews.com
Closing a commercial real estate deal involves many of the same costs as you would find in a residential closing. The main difference is the costs are normally much higher for a commercial deal due to the additional research required in not only closing on the physical property but the financial aspects as well.

It is normal for commercial real estate closing costs, even for an inexpensive property, to run into the thousands of dollars. As a buyer you need to be aware of these costs and factor them into your overall price
for obtaining the property.

All of the closing costs are negotiable between the seller and buyer. As a buyer you can, and should, have it stated in the contract which party will be responsible for each cost at closing such as title insurance, deed stamps, surveys and settlement fees just to name a few. However, since RESPA (Real Estate Settlement and Procedures Act) does not apply to properties that have more than 4 residential units, your lender is not restricted in what they can collect from you at closing.

For example, in a residential closing the lender can only collect a certain amount of money to hold in escrow for expenses like real estate taxes and insurance. In a commercial real estate transaction there is no limitation and your lender could require you to put significantly more money into escrow or charge higher loan administration fees, points or any other cost they deem acceptable. Because of this it is critical you negotiate all of the fees for your loan with your lender well in advance of closing.

While there is nothing stopping you from closing a commercial real estate transaction on your own, it is highly recommended you use the services of a qualified real estate attorney. Although this presents an added expense at closing that can run anywhere from $1,000 to $5,000 or more depending on the size and complexity of the deal, it is money well spent. A mistake made at the closing table can cost you untold tens of thousands of dollars over your entire length of ownership of the property.

With all of this in mind, here is a basic breakdown of what you can expect each party to pay for in a commercial real estate closing.
Seller Paid Expenses

1. Title Policy covering the basic insurance requirements but if your lender requires specific endorsements to the title policy then the buyer can expect to pay for those endorsements.
2. ALTA Survey. Most lenders will require a new survey before lending on a commercial property. These surveys can cost anywhere from $800 and up depending on the property involved.
3. UCC Searches. These are similar to title searches except they are done on any personal property or equipment that is being sold as part of the transaction. The UCC is similar to a mortgage that is placed on property. The UCC search tells the prospective buyer if there are any remaining liens on the property and equipment being transferred.
4. State and County Transfer Taxes. This is normally the deed stamps required by the local jurisdiction to be paid whenever title changes hands on a piece of property. The rate collected is set by the state or county.
5. Pro-rated expenses up until the day of closing. For example any utility bills such as water/sewer or electric that are paid on a monthly or quarterly basis will be paid by the seller up to and including the day of closing. This is also true for any real estate taxes that are owed on the property. The seller is responsible for paying all taxes owed up to the day of closing.
6. Costs to clear title. This includes any amounts needed to pay off the sellers existing financing on the property, record satisfactions of liens or mortgages, payoffs to municipalities, or any other expense that must be paid in order for the seller to deliver clean title to the buyer.

Buyer Paid Expenses

1. Environmental Due Diligence. This includes a Phase I or Phase II environmental study on the property. However many times a contract will state the seller will reimburse the buyer for this expense if any undisclosed contamination is found in the report that causes the closing to be canceled.
2. Title Endorsements. As stated above, these are endorsements to the title policy such as an environmental hazard endorsement that the buyer’s lender requires in order to fund the loan on the transaction.
3. Municipal Transfer Taxes that may be required such as operating permits or pre-paid business licensing requirements.
4. Special Survey Additions such as a flood search or topographical contours of the property or aerial views required by the buyer’s lender.
5. Property Inspection expenses. These include the expenses you incurred as part of your due diligence to determine the status of the property both structurally and for its intended use.
6. Financing Expenses. These are any fees charged by the buyer’s lender to facilitate the funding of the transaction and can include the cost of recording the mortgage, assignment of rents, recording the deed, lender administration and closing fees.

Some expenses are shared by both parties such as the settlement closing fee charged by the title company to perform the actual signing and recording of documents. Also any escrow fee charged by the title company to transfer the funds from one party to the other.


Daniel Doran is a 20+ year veteran in the real estate industry. He is a previous owner of a law firm, mortgage and title company. Daniel has also written several books on mortgage modification, short sales and real estate investing. He currently specializes in Commercial Finance and Real Estate Development and is a graduate of Manhattanville College and Brooklyn Law School. You can contact Dan at Buildings By Owner. Read the full article at Buyers Closing Costs for Commercial Real Estate Purchases


A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Q2 2012 AASU Economic Report

Armstrong Atlantic State University in Savannah, Ga. published the Coastal Empire Economic Monitor last week.

Summary: The Savannah MSA saw moderate growth in the last quarter and economic forecasts are positive. Poor national and international political and economic decisions could undermine this growth in Q3 and 2013. Click on each image to view in a larger frame.

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Principal Bets on Commercial Property As Bond Yields Fall

I understand that if Putin, Trump or Soros buy gold, even when gold prices are down, investors following that market also buy. And likewise if they sell gold, investors sell their gold, too. The idea is that even you aren't privy to the information Trump, Soros and Putin have, they are doing what they're doing because they have a good reason for it.

The same is true with commercial real estate investors. The big difference is that the information they have is available to all.

Summary: PFG "said it’s turning to real estate to increase investment income as near record-low yields pressure returns from bonds."

Key Quotes:

“The debt market is very strong, the equity market is growing” in commercial property, Chief Investment Officer Julia Lawler said in a presentation to investors today. “The fundamentals continue to improve, largely because there’s a lot of supply constraints.”

 Lawler said her firm has profited by acquiring real estate and attracting new tenants.

“We opportunistically buy distressed properties, lease them up and sell them,” she said. “It’s been a great performer for us.”

If huge multi-national companies are looking to add value to distressed commercial real estate to incease their bottom line, shouldn't you consider it, too?

Read the full article at Principal Bets on Commercial Property As Bond Yields Fall

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

QE3 – Pay Attention If You Are in the Real Estate Market

Catherine, News & Commentary on September 17, 2012 at 12:09 pm ·                            

 

By Catherine Austin Fitts

I used to have a deputy who said that the FHA mortgage insurance funds were where mortgages went to die. That was, however, before the creation of MERS, derivatives and the explosion of mortgage fraud during the 1990′s which in combination with the “strong dollar policy” engineered what I have referred to as a financial coup d’etat.

The challenge for Ben Bernanke and the Fed governors since the 2008 bailouts has been how to deal with the backlog of fraud – not just fraudulent mortgages and fraudulent mortgage securities but the derivatives piled on top and the politics of who owns them, such as sovereign nations with nuclear arsenals, and how they feel about taking massive losses on AAA paper purchased in good faith.

On one hand, you could let them all default. The problem is the criminal liabilities would drive the global and national leadership into factionalism that could turn violent, not to mention what such defaults would do to liquidity in the financial system. Then there is the fact that a great deal of the fraudulent paper has been purchased by pension funds. So the mark down would hit the retirement savings of the people who have now also lost their homes or equity in their homes. The politics of this in an election year are terrifying for the Administration to contemplate.

Various court squabbles over the MERS system for registering mortgages are also nipping at the Fed and Treasury heels. It is hard to win a presidential election in 3100 counties when multiple federal agencies are in the local courts trying to foreclose on half the county while supporting arguments that a national registration system is free to violate local property laws with impunity.

Why should the sheriff respect your rights if you take the position that the county has no rights and local property laws are meaningless? In fact, the Sheriff does not have sufficient staff time to process foreclosures and protect the local citizenry from the growing crime that results from hard times. The Sheriff is also running for election and the people who vote for him or her comprise a much larger group than the handful of local professionals on the big banks payroll, including those processing foreclosures for FHA, VA, Farmers Home and Fannie and Freddie.

So, it looks like the Fed decision last week to buy $40 billion a month in mortgage paper is the ultimate plan to clear the market once and for all of fraudulent mortgages, mortgage backed securities and related derivatives. This means Fannie and Freddie will be bailed out and winding down through the back door. This means the big banks may be paid in full for your mortgage. It also means your pension fund assets will not be marked to market – at the price of debasing the purchasing power of your assets and benefits.

The Fed is now where mortgages go to die. Thousands of mortgages on homes that do not exist or on homes that have more than one “first” mortgage are now going to the Fed to disappear. Thousands of multifamily and commercial mortgages will be bought up as well. As this happens, trillions of dollars that have been amassed offshore will be free to come back into the US to buy up and reposition land, farmland, residential and commercial real estate and other tangibles.

With documents shredded, criminal liabilities extinguished and financial institutions made whole, funds can return without fear of seizure.

QE3 proves beyond any shadow of a doubt that the extent of the fraud was as bad as I said it was. You can count up the bailouts and QE1, QE2, QE3 the numbers speak for themselves. The fraud was indeed in the many trillions of dollars. It was intentional. It was a plan.

Now, the $64,000 question for those whose house is underwater or whose mortgage is in default is whether or not you still owe on your mortgage. Certainly, you still do as a legal matter. If the bank has been paid off, arguably in some cases several times, why not you? Let’s see if Fannie, Freddie and the big banks are under orders to quietly pass through a portion of their largesse to troubled homeowners in amounts sufficient to unfreeze the market. If you are in a workout situation, you need to take notice. If enough mortgage write-offs flow through, the Democrats will quickly amass a lock on the elections in November.

If you are in the market to buy a home or other real estate, you also need to pay attention – a major turn is now underway. Watch to see how much the banks pass through to homeowners and property owners to see how fast and big the turn may be. Watch to see the inflow of funds from offshore. This is not only funds returning but investors around the world looking to exchange their dollars for tangible assets to protect themselves from debasement of the dollar denominated deposits and securities they hold. Watch to see what the renegotiation of federal tax policy and the reengineering of the federal budget in response to the “fiscal cliff” do to reposition housing and real estate prices and cost of financing for an inflow looking for large accumulations.

Finally, the way the Fed has engineered the Slow Burn to date is to continually offset monetary inflation with labor deflation. It is worth contemplating how much labor deflation will be required to offset QE3 and how sufficient additional labor deflation might be engineered. Ben Bernanke was quite clever to tie QE3 to unemployment. The problem has become the solution, which is the basis for QE-Infinity.

Read the full article at QE3 – Pay Attention If You Are in the Real Estate Market

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

In commercial real estate, the other shoe(s) are falling

Portland Business Journal by Rance Gregory, Morrison Street Capital

Date: Tuesday, September 4, 2012, 10:57am PDT - Last Modified: Tuesday, September 4, 2012

Yes, we've all been reading about colossal 1 ton shoes that will fall on the commercial real estate market. And yet it hasn't happened the way we've been expecting it. Rance Gregory explains why.

Summary and Key Quote.

Commercial real estate simply does not mark-to-market as quickly as do stocks and bonds, no matter how many derivatives the industry puts in place to make bets on the direction of the market or how badly some wish it would be so. In reality, commercial real estate has been a slow-motion train wreck for the past five years. There has been real damage and pain, but it has occurred largely out of view, in loan workouts, consensual foreclosures and complex recapitalizations, resulting in paper writedowns and real losses.

Why then hasn’t the crash been loud and sudden? Why do many have the feeling the industry is recovering or has recovered? It seems many industry veterans were expecting to fight the last war, remembering a saving and loan collapse and a consolidated government-sponsored (RTC) fire sale of troubled assets. Instead, the actual mechanisms involved provided banks with additional capital (TARP), or worked on healing the background credit markets (CMBS) through programs such as TALF, PPIP, etc, in the hopes of stabilizing the system and providing time for the industry to work through its problems in a more organized way.

The answer is that it wasn’t one giant shoe, rather many thousands of smaller shoes, dropping one loan at a time, scattering across a diverse commercial real estate landscape, leaving behind alternating spots of utter destruction and patches of renewal.

 You can read the full article at In commercial real estate, the other shoe(s) are falling

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

CarMax to open Savannah store in spring 2013

I've gotten two phone calls about this in the last few days, so I'm posting the article that appeared on SavannahNow.com

The article is short and here in its entirety.

Posted: June 22, 2012 - 12:19am

By Adam Van Brimmer

Used car retailer CarMax announced plans Thursday to open its first Savannah location next spring on Abercorn Street.

The Richmond, Va.-based company will build its store on the 8.2-acre vacant lot owned by the Backus family located just south of Montgomery Cross Road. The CarMax location will share that stretch of Abercorn with several other car dealers, including Hoover Chrysler, Savannah Mitsubishi, J.C. Lewis Ford, Vaden Chevrolet, Fairway Lincoln and Southern Motors Honda.

The CarMax site was listed for $3.8 million by Rhett Mouchet and Michael Bone of local commercial real estate firm Kulp Mouchet. Mouchet declined comment for this story, citing a confidentiality agreement.

The Backus family has owned the property since the 1960s, when they bought it as a future home for their Cadillac dealership. The Backuses never built on the site, keeping the Cadillac dealership at their East Victory Drive location instead.

CarMax’s planned Savannah store is one of 10 the company will open in the next 12 months. CarMax announced a Columbus store as well.

CarMax is the nation’s largest used-car retailer with 112 stores in 27 states with approximately 30,000 vehicles in its inventory. The company was developed by executives of defunct electronics retailer Circuit City and opened its first store in Richmond in 1993.

CarMax did $10 billion in sales in 2012, with net earnings of more than $413 million.

CarMax is unique among auto dealerships in that its sticker prices are non-negotiable and sales associates work on flat commissions. Additionally, any vehicle on any of CarMax’s lots nationwide can be purchased from any store location.

Or you could read the full article CarMax to open Savannah store in spring 2013

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Investing In Real Estate As “Tenants In Common” in Georgia

Here's a good article by Donna S. Robinson written on 03 September 2012. She is a real estate investor and investing coach located in Atlanta, Ga.

Summary: Purchasing property as tenants in common is a way to own and enjoy a property with the freedom to sell your portion of the investment (based on total invested by group) without permission of the other investors.

Key Quotes:

An example Donna gives:

"For example, let’s say that you wish to purchase 100 acres of land, but you do not have enough cash of your own. However, you do have a couple of friends who would also like to invest. You and your friends agree to purchase the property. In addition, each of you will be investing a different amount of money.

The price of the 100 acres is $100,000. You will invest $25,000, your friend Bob will invest $25,000 but Paul will be investing $50,000. As tenants in common, you and Bob will each own a 25% undivided interest in the property and Paul will own a 50% undivided interest in the property.

An undivided interest means that you can’t pick out 25 acres of land and resell them as a separate piece of property, but you can sell your 25% interest to another buyer, and you won’t need Bob or Paul’s permission to do it. Each tenant in common can sell their entire interest in the deal, but the property remains intact. The new buyer simply becomes a tenant in common. In the title, each owners share of ownership is expressed as a percentage, so in our example the deed would actually state that you own a 25% interest, Bob owns a 25% interest, and Paul owns a 50% interest."

To pursue ownership as a tenant in common, I suggest you call TJ Hollis, with Lee, Black, Rouse and Hollis.

Read the full article at Investing In Real Estate As “Tenants In Common"

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga