There are many issues to consider when buying or selling commercial real estate (CRE) in Florida. The considerations that buyers and sellers face are sometimes different and these issues may differ by asset class as well. This practice note focuses on general considerations for CRE transactions while noting some specific instances that may arise in different asset classes. While this note differentiates the considerations of the buyer and the seller, it is not possible to identify every situation that can arise in a CRE transaction.

No two transactions are alike and new issues confront real estate professionals every day. This note looks at a CRE transaction sequentially from inception through closing and can serve as a guide to help parties involved in a deal think about the road ahead.

For further guidance on the purchase and sale of commercial real property in Florida, see Purchasing and Selling Commercial Real Estate Resource Kit (FL).

Deciding to Sell a Property

Why Are You Selling?

Getting the sale process started is sometimes the hardest part. In evaluating a potential sale, a good place to start is to ask, “why are you selling?” Some possible reasons include the following:

  • The seller wants to cash out and use the equity invested in the property for some other purpose.
  • The current financing on the property is coming due. Has the seller exhausted refinancing options or considered bringing in investors?
  • The property is not performing. This could be for several reasons, including that the property has too many vacancies or needs extensive repairs.

If the sale is not a cash-out situation, the seller should consider how the difficulties it faces might affect the desirability of the property to a potential buyer. If the current financing is maturing and the seller has been unable to refinance or attract investors, will a new owner have similar issues? Are these issues property or market driven rather than borrower driven? A potential buyer might have to commit more equity in the purchase to obtain financing. In other words, a new buyer will likely have a low loan-to-cost ratio. Similarly, a nonperforming property will be unattractive, as is, to potential buyers. The sale will be considered a distress sale bringing low offers. These properties will be redevelopment targets and perhaps the use will be changed. The seller should set price expectations accordingly.

Use of Proceeds on Sale

Next, the seller should consider what it will do with its proceeds following a sale. Proper planning is essential for tax and estate planning purposes.

If the seller intends to reinvest the proceeds in another CRE project, consider a 1031 tax-deferred exchange which would allow a seller to defer paying capital gains taxes upon the sale of the property and reinvest the proceeds in a property of like kind and of equal or greater value.

There are strict time periods that must be followed to complete a 1031 exchange; if a seller is going to complete one, it must be ready to complete a purchase quickly. The process for purchasing the replacement property might need to begin even before the seller starts the process to sell the property. For more on 1031 exchanges, see 1031 Like-Kind Exchange Resource Kit.

Other tax considerations involve estate planning. Whether a seller holds onto the sales proceeds or reinvests through a 1031 or otherwise, it is good sense for a CRE investor to have an estate plan in place to protect against probate upon death and save on additional taxes, including estate taxes

Engaging a Commercial Broker

It is important to engage a broker who specializes in commercial property, not residential property. These are two different skill sets. Brokers who concentrate on commercial properties have experience dealing with the complicated aspects of a CRE transaction including the review of property financial statements, market studies, and commercial appraisals. They understand rent rolls and capitalization (CAP) rates and are skilled at negotiating issues specific to commercial real estate.

In selecting a commercial broker, look for one who specializes in the particular asset class being sold; a broker specializing in office buildings is not the right person to sell an industrial property. Some brokers also have better connections within the specific market where the property is located. Finally, it is important that the broker has the capability to market on all major outlets, such as MLS, LoopNet, and CoStar.

For more information on real estate brokerage, see Brokerage: General Issues and Relevant Topics.

Preparing the Due Diligence Package for Potential Buyers

Every prospective buyer will want as much information about the property as possible before making an offer, so the seller must assemble a comprehensive due diligence package for interested parties. A good broker will be able to assist. The due diligence package should, at a minimum, include the following information

  • Property financial statements. These should include income and operating statements for the last three years and, if possible, pro forma statements going forward.
  • Rent roll, if applicable. The rent roll should show the current rent and operating expenses (CAM) paid for each tenant, including escalations, security deposits held, original and remaining term of each lease, and whether there are any renewal options. Additionally, the rent roll should show if any tenant has expansion options, rights of first refusal, or options to purchase.
  • Maintenance reports. Maintenance reports for the property should include scheduled, planned, and recently completed maintenance.
  • Schedule of material contracts. Include those that can be cancelled on 30 or fewer days’ notice to the vendor or provider as well as those that must be assigned to and assumed by the buyer at closing.
  • Prior title policies. Prior title should show the seller’s insured ownership of the property. The buyer can use these as a base to order new title searches for the property.
  • Existing surveys. If available, include topographical and as-built surveys of the property.
  • Third-party reports. Include all environmental and geotechnical reports and prior appraisals prepared for the property.
  • Licenses. Include all licenses, permits, authorizations, and approvals relating to the property

For a sample due diligence checklist, see Commercial Purchase and Sale Due Diligence Checklist.

Non-disclosure Agreement (NDA)

Because much of the information in the due diligence package is confidential, the seller should ask its attorney to prepare an NDA for prospective buyers to sign.

This is a simple agreement where the buyers acknowledge that they are being provided with confidential information prior to entering a contract and they agree not to disclose the confidential information to third parties, except for attorneys, accountants, and other professionals necessary to help them to evaluate whether to enter into the transaction. The NDA provides that such professionals must agree to keep the confidential information private as well.

Getting Ready to Purchase Property


The process of planning to purchase a property begins long before site selection and differs if the purchase is for a land development deal or an existing, operating project. To read the full article click here