Selling Commercial Real Estate with a Business

THE SALE OF A BUSINESS AND REAL ESTATE TYPICALLY REQUIRES THE BUYER OBTAINING FINANCE

Looking to sell your commercial real estate with a business in California?

If you own a business and the real estate it operates, it may be tempting to put the company on the market and worry about valuing and selling it later. However, this approach may result in unforeseen problems, which can cause delays and unexpected costs that damage the business.

Applying a strong risk management approach is important to avoid problems and ensure the successful sale of your business and/or real estate for the right price and terms. This involves conducting initial research to uncover potential issues related to any sale of the real estate. Examples include property conditions, environmental issues, title checks, flood risk, and a crime overview.

Factors to consider when selling a business with real estate

There are many factors to consider when selling real estate with a business in California. For instance, the sale of the business is typically kept confidential so employees, vendors, customers, and others don’t find out it is for sale. Additionally, many businesses in different industries in California require a special license or permit to operate, which can slow the process of finding a qualified Buyer.

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Other factors to consider are how critical the real estate is to the business’s operation, whether it includes buildings or structures that require repairs or maintenance, and whether any environmental issues or zoning ordinances could affect the sale.

Other considerations include whether the owner has been allocating rent and whether this amount is a market rate or one the owner is willing to accept. They also include who will be responsible for property taxes, building insurance, and maintenance after the sale. Finally, conducting an ALTA Land Title Survey and checking whether the property is part of a flood zone can help ensure a smooth sale.

The sale also typically requires the Buyer to obtain third-party finance, often an SBA or commercial loan, which adds to its complexity. To ensure everything is done correctly, the sale typically involves a California escrow company that follows a comprehensive checklist.

To read about finance when buying Commercial Real Estate, click here.

Some other factors to consider include how critical the real estate is to the operation of the business, whether it includes buildings or structures that require repairs or maintenance, and whether any environmental issues or zoning ordinances could affect the sale.

Other considerations include whether the owner has been allocating an amount for rent and whether this amount is a market rate or one that the owner is willing to accept, as well as who will be responsible for property taxes, building insurance, and maintenance after the sale. Finally, conducting an ALTA Land Title Survey and checking whether the property is part of a flood zone can also help ensure a smooth sale.

The sale also typically requires the buyer to obtain third-party finance, often in the form of an SBA loan or commercial loan, which adds to the complexity of the transaction. To ensure that everything is done correctly, the sale typically involves a California escrow company that works through a comprehensive checklist.

To read about Finance when buying Commercial Real Estate, click here.

By taking a thoughtful and thorough approach to commercial property sales with a business in California, you can increase your chances of a successful sale.

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IS RARELY EASY. THE REASONS INCLUDE:

The Sale of Commercial Property with a Business in California

The sale of a business in California, especially with commercial real estate, is rarely easy. The reasons include:

Typically, the sale is kept confidential, so vendors and employees don’t know the business is for sale. This approach to confidentiality protects the business owner from any damaging consequences, especially to the business’s value.
In California, many businesses in different industries require a special license or permit, which the Buyer must obtain before taking over the business. This can slow down the process of finding a qualified and motivated Buyer.
The sale of a business in California typically requires the Buyer to get financing, and it’s usually an SBA loan with all its complexities.
The sale typically uses a California escrow service licensed by the State. The escrow company must navigate a checklist to ensure everything is done correctly.

Click here to read about Finance and an SBA loan to buy Commercial Real Estate.

To learn about the different steps during escrow, click here.

HERE ARE SOME OTHER FACTORS TO CONSIDER.

When Selling or Buying Your Business with Real Estate

There is simply no “one size fits all” approach, whether selling or buying a business with real estate. Here are some other factors to consider.

Some California business owners who also own real estate prefer to keep the real estate and offer a lease to the Buyer of the business. Suppose a decision has been made to sell the business before a final decision is made about whether to offer the commercial property for sale. In that case, the following are important items to consider.
How critical is the Real Estate to the operation of the business? For example, if the business is a gas station or a car wash built on the real estate from which it operates, it may not be possible to sell just the business and offer a lease to a Buyer. This is because the business cannot be moved quickly and readily.
Is the Real Estate just land, or does it include buildings or structures? If it includes buildings or structures, are they in good condition, or do they need repairs and maintenance? If repairs and maintenance are required, is the Seller willing to pay those costs so the buildings and structures are brought up to the latest building code?
The Buyer will probably want a lease for the Real Estate. If the Buyer wanted a three—or five-year lease with options but only stayed for the initial lease and left, would the Real Estate owner easily find a replacement tenant? If the Buyer is getting an SBA loan, they will require a lease to match the loan’s length, typically 10 years.
Has the business owner or Seller been allocating rent? Is this amount a market rate or the amount the Real Estate owner is willing to accept? If there is no rent allocation or the rent is below the market rate, and the Buyer has to pay a higher rent, it will lower the value of the business, as expenses will be higher.
This also applies if the business owner has not been paying property taxes, building insurance, or maintenance of the Real Estate and now expects the Buyer of the business and Real Estate to cover these costs.
Are there any environmental issues on or near the real estate? If so, they may lower the Property’s and the business’s value.
When was the last time that local zoning ordinances were checked so if the Real Estate goes on the market, it is ‘smooth sailing’ to close the sale?
Local Use requirements are typically defined at the municipality level related to local zoning ordinances.
Is the Real Estate part of a flood zone?

How to Sell a Commercial Property Fast with a Business in California?

Are you looking to sell your commercial property and business in California?
A crucial first step is to get an accurate business valuation.
This is not only important for you as the seller, but also for potential buyers and lenders if the buyer needs financing.

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Andrew Rogerson; Sacramento, CA

is a business owner of 40+ years. This includes successfully owning and operating 5 businesses. Andrew is a Certified Mergers & Acquisition Professional (CM&AP), Mergers & Acquisition Master Intermediary (M&AMI), Lifetime Certified Business Broker (LCBB), author of 4 books, and he gives speaking presentations on request.

Andrew helps business owners with a business in California, value and sell their business in the Lower Middle Market or with Gross Revenue from $2 million to $100 million.

(916) 570-2674

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