Considerations in commercial real estate purchases

Investors in New York and around the country are drawn to commercial real estate because it offers passive income, growth potential and consistent returns. Individuals who are interested in buying commercial real estate in New York should keep in mind the common mistakes, risks and pitfalls associated with investing in commercial real estate. More specifically, it is important to be aware of differences among property types, area market dynamics, market cycles and due diligence practices.

The expected yields, demand and profitability varies widely over different classes of commercial real estate. The five major classes are office, retail, special purpose, industrial and multi-family. Some classes perform better than others generally, but it is important to know how values may vary based on New York supply and demand specifics. Industrial property has been consistently among the top-performing classes, while retail has suffered due to online shopping and other factors.

In making supply and demand determinations, a good place to start is market supply in the relevant areas of New York, taking into account rentable space and any planned additional square footage. Market cycles may also provide useful information. Economic health, GDP numbers and unemployment rates are directly correlated to commercial real estate profitability.

Due diligence occurs prior to purchase. It includes a thorough review of financial documents, potential liabilities, profit and loss statements, feasibility studies, tax returns and other relevant information. Due diligence on the seller is as important as due diligence with regard to the asset.

Investors who are interested in commercial real estate in New York might want to schedule a consultation with an attorney. An attorney may be able to help by drafting necessary sale and purchase documentation, negotiating the terms of the deal with the other side or assisting with the process of due diligence. Once the property has been purchased, an attorney might help by drafting lease agreements or ensuring compliance with relevant zoning restrictions.