The ABC’s of Real Estate: LOI (Letter of Intent)

Posted on October 18, 2011 by admin

The process for leasing or purchasing commercial real estate space usually starts with the interviewing of adequate representation (commercial real estate brokers), followed by drafting a list of requirements for the new space, and finally a search of available spaces. Once one or two properties are selected as possibilities, negotiations begin on a “non-binding” level through the use of a Letter of Intent (LOI). The LOI is a precursor to a lease or sales contract and is usually completed by the chosen commercial real estate broker.

The reasons for using a LOI are multiple, with the most important being that it serves as a guideline for the attorney to draft and finalize necessary leases or contracts. Unlike residential contracts for homes, commercial leases and contracts vary each transaction. There is no set template to follow. Therefore it is necessary for these documents to be orchestrated by a knowledgeable attorney, as it is out of the realm of a broker’s duty and is essentially illegal. However, a broker’s role is crucial in that they outline the negotiated points the attorney will draft the contract on. This action saves legal fees as the attorney has less to negotiate through the contract.
Items that brokers include in an LOI are:

1. Names of the parties in the transaction including the buyer/tenant and seller/landlord.
2. The address of the sought after space.
3. Size of the sought after space in both rentable and usable square feet (if necessary).
4. Offer terms.
5. Signature and date lines.

You may be thinking to yourself, what are the offer terms. Great question…as this is the most fluctuating part of LOIs and contracts alike. Our next blog will cover a variety of items that can be negotiated through an LOI.

This entry was posted in Tenant Representation and tagged Lease Negotiations, letter of intent, office negotiations, Purchase Negotiations, retail negotiations. Bookmark the permalink.

Authored by O’Donnell Commercial Real Estate

Newcastle CRE 10 point Mentorship Program

1. Commitment (Professionalism)
2. Expectations (Goals & Objectives)
3. Rewards ($$$, Listing, Co-Listing)
4. Topics (ABC’s of Commercial Real Estate)
5. Schedule (Weekly)
6. Education (Commercial and Cross Disciplines)
7. Training (Shadowing, Inter and Intra Office)
7. Evaluation (By Paul and others)
8. Clients (Existing, Potential, Leads, Referrals)
9. New Business Development (Direction and Momentum)
10. Dynamics (Team, Industry)

Paul Martis

Newcastle Education Services

www.newcastlecre.com

#newcastlecre

Paul Martis-Broker

Real Estate Interview

Chicago Agent magazine

December 2011

Will condo values in Chicagoland increase, decrease or stabilize in 2012?     

I believe that they will stabilize late next year after foreclosures, short sales and unfinished developments are completed or closed.

Has pricing hit bottom?

I would predict a bottoming out in 3rd quarter 2012 but buyer confidence may not return until 2013 with credit being extremely tight.

Will mortgage interest rates start to increase in 2012?                                          

Not with a Presidential election in 2012.                                                                    

I believe the Fed’s will continue to control the supply of money and keep rates historically low through 2012.

What issues should agents focus the most on in 2012?                               

Technology and their CORE, (Competencies, Organization, Resources, Evaluation).

How will MORe help them do this?

Career Program Development, Cross Discipline Strategies for Residential, Commercial and International.

What are the top five things agents should prepare for next year?               

1. Continued challenges within the profession                                                         

2. New mobile based technologies                                                                                                         

3. Advanced Marketing tools                                                                                                     

4. Enhanced MLS resources                                                                           

5. Increase in international customer opportunities

What will be the best opportunities next year where agents can increase their businesses?

International buyers and commercial referrals

Where do you see opportunity decreasing?                                                  

Short Sales

Do you think there will be any more association acquisitions next year?         

No, I haven’t heard of any discussions regarding association acquisitions in 2012.

What is MORe planning for 2012?                                                                                    

The merger with RANWC was completed in October 2011 and the Board of Directors are likely working on several key areas as they move the association forward into 2012. I would expect they are very busy setting priorities to timely meet the needs of all their agents. 

What goals have you set personally in your business?                                                    

Continue to grow my Oak Brook team of commercial realtors and continue to develop my own CORE.

What are your company’s goals?                                                                                           

I expect they will continue to promote their expertise in National and International real estate markets and provide the resources we need to be successful.

Will there be any big changes next year?                                                               

Hopefully we are all meeting our 2012 goals.

What is MORe doing to help agents next year?                                                             

Videocast  feeds to all their offices for select live educational seminars.

How do you plan to grow your business?                                                             

Increase my marketing reach to include international and commercial.   Using best practices for social media, monitoring business website activity and re-evaluating Team strategies each quarter.

Paul Martis-Commercial Realtor®

Co-Chair MORe® Commercial Investment Committee

Coldwell Banker Residential Brokerage     Oak Brook, IL

Free app for Commercial Real Estate Education http://newcastleteam.isites.us/

WordPress Blogs, Tips, Checklists, Useful Commercial Websites.

January 13, 2012 Commercial Seminar at Main Street Organization of Realtors in Downers Grove,  IL.

www.morecommercial.org.

Instructor is Paul Martis- Broker with Coldwell Banker-Newcastle Team  Oak Brook, IL

Here is a link to the  the education resources page at Newcastle Team to review a pdf of the seminar online.

http://tinyurl.com/cre2012

Industry Highlights:

Some Effects of the Disappointing Economy

Different segments of the CRE sector are being affected by disappointing economic results in Q2 and Q3, following what was hoped to be a year of greater economic recovery.

CRE Funding Report

The CoStar Group reports a significant drop-off in CRE fundraising in the 3rd Quarter for real estate-related deals and refinancings. In Q3, $23.18B was raised as compared to $35.48B in Q2.

-Of the $23B raised in Q3, about $20B was to be used primarily for

investments and acquisitions, and $3B targeted for repaying debt.

-Of the $20B used for investments and acquisitions, $5.69B was used for

non-property related investments, including debt, mortgage, or security

purchases, leaving $14.48B for property investments.

-Of the total $23B raised in Q3, $12.1B was from publicly-offered shares

in REITs and real estate operating companies. The other $11.08B came

from private fundraising efforts including pooled investment funds, private

equity, and hedge funds.

-2011 year-to-date, $89.89B was raised from approximately 1,489 funds

and firms.

The highest percentages of funds raised fall into the following categories:

27% Debt, Mortgages & Mortgage Securities Investments

20% Multifamily

17% Retail

13% Office

9% Industrial

Potential Office Sector Slowdown

With uncertainty in the US economy running high and unemployment remaining relatively constant, many research firms are downgrading their 2011 projections for the Office Sector.

Nationally, office vacancies peaked at 17.6% at the end of 2010 and, to date, have only moderately improved to 17.4%. This very modest recovery appears to be at risk for several reasons:

1. National absorption increased 15.7 million SF through September

2011, improving from 17 million SF of negative absorption in 2010.

2. Employers, however, have been more cautious about leasing new

space amid rising concern that a potential second downturn may

inhibit further leasing plans.

3. Through September, the US economy has added 1.1 million jobs, 1/4

of which are office-using. This equates to less than 60 SF of new

spaced leased per each job created. In the past the number varied

from 100-200 SF of space per job.

4. New data indicates a slowdown in absorption of space since August.

The above factors indicate a slower recovery in the near term, and most sources are forecasting tempered expectations for the medium term, continuing through 2015.

Excerpts taken from CRE Fundraising Plummets, by Mark Heschmeyer, CoStar Group News, October 5, 2011, and Has the Slowdown in the Office Sector Begun? by Victor Calanog, Contributing Columnist, National Real Estate Investor, October 11, 2011

Agent Relationships-Building Better Referral Bridges

http://wp.me/pzXV5-8

Commercial Real Estate Education

“Has the Process Changed”?

Considering that there are always new challenges in a changing real estate environment, education is key. In its most basic definition, it is the process of distributing knowledge to those who are prepared to learn.

This changing environment in the commercial industry is at the local, regional and national levels and encompasses the four primary specialties of Office, Retail, Multi-Family and Industrial.

As a former real estate pre-license instructor, I was amazed at the number of students who would ask me how they could get a license in commercial real estate. They clearly expected that there would be a separate pre-license curriculum and licensing requirements.

My response has always been the same. Find a good introductory course in Commercial Real Estate, become familiar with the basics, immerse yourself in the specifics and search for brokerages that offer resources, flexibility and support.

Brokerages vary widely so do your research. Some brokerages offer you commercial signage, access to commercial websites for searching and marketing, intra company referrals, networking opportunities, mentoring, office seminars and commercial CE classes.

Find a brokerage that is growing their business because you will be expected to grow yours.

As you look to move your commercial career forward, pursue education that will build your confidence, competence and clarity. Your clients will place more emphasis on what competencies you display, than what designations you’ve earned.

Consider these building blocks for your commercial real estate business and education strategies.

Education: Take several commercial courses, seek mentors

Target: New Business Opportunities, Commercial Specialties

Build: Client Relationships, Referrals, Systems, Teams

Communicate: Your direction, Marketing, PR, create articles

Always analyze the market, be willing to adjust your priorities and be prepared to act on what you learn.

Remember, the process hasn’t changed, just the Challenges, Insights and Opportunities.

Paul Martis-Broker Associate

Coldwell Banker Commercial NRT

Commercial deals for realtors®, is it music or just a lot of noise?

For those interested in moving their residential real estate careers to a new level, i.e., to include a commercial mix, requires an understanding of the marketplace, its challenges, insights and opportunities.

The residential agent needs to identify what segment of the commercial industry is right for them and in many cases; it will be determined by their sponsoring broker.

Some residential brokerages will require their agents to be 100% in the residential arena with commercial agents in their own commercial division and others may allow their agents to participate at some level in what I refer to as “getting their feet wet”, letting their residential agents work some commercial deals but with little or no commercial mentoring available.

Much is also dependent on the agent’s psyche, level of commercial education and competence.

The following commercial understandings, should be a “need to know” for realtors® looking to enter the commercial industry.

1. The structure of a commercial lease, terms and considerations
2. What are environmental pitfalls, identifying and mitigation
3. Best practices for evaluating income producing properties
4. Know your limitations, team building and mentoring opportunities
5. Locating useful commercial websites for research and marketing

For years, many realtors® have been moving closer to what I will call the “New Hybrid Agent”- or what others refer to as a Commercial Realtor®, focusing on commercial business but with tools and best practices associated with the realtor® community available to them.

Just take a look at the surveys and programs recently developed by the Realtors® Commercial Alliance (RCA) and other associations nationwide.

In an effort to work with realtors® interested in commercial representation, my business partner and I, developed a Multi-Family evaluations seminar for real estate professionals and lenders.

The plan several years ago was to create a 1 hr seminar for lead generation and when we received some great feedback from realtors®, to include, a request for more content, we expanded the program.

Capturing those commercial deal opportunities once lost but now paying off has been music to residential agents who are prepared for the challenges of commercial real estate.

The trend continues, as more full service realty brokerages incorporate commercial opportunities into their real estate business strategies.

And the beat goes on!

Paul Martis-Broker Associate

Coldwell Banker Commercial NRT

Agent Relationships-Building Better Referral Bridges

There is no question that as realtors®, our ability to gain the trust and respect of our clients and obtain their much sought after referrals, is paramount to our success as real estate professionals.

 While treading in our client’s emotional waters is what residential agents are expected to do, selling a home full of memories and with high expectations can be a real challenge in a changing economy.

Yet, this is what we are trained for, be friendly, be honest and be flexible.

In the commercial waters, although the same level of professionalism is expected, life can be much different for the practitioner here.

Weekend Showings, Agent Open House, Broker Tours, Visual/Virtual Tours, Standardized Forms, MLS, Real Property Disclosures, Radon Disclosures, these are not the norm and agents are not usually “cross disciplined” to understand the differences.

I believe that as more real estate agents educate themselves for an ever changing real estate audience, “Cross Discipline Networking” will grow both domestically and internationally.

There is no question that although both residential and commercial agents require a level of sales competence, each has its own sets of challenges and rewards.

In-vision a professional referral bridge, on one side is a community of residential agents and on the other is a community of commercial agents.

Unfortunately, many times the bridge is closed or traffic is moving in only one direction.

To that end, I would like to suggest to those who are strictly residential agents, consider passing on commercial referrals to competent commercial practitioners and ask for residential referrals in return.

When a residential agent represents the buying or selling of a home for a business owner,   outbound commercial referral opportunities for a commercial lease, commercial sale or commercial purchase should not be overlooked, pass them along and collect some extra income.

Conversely, for the commercial agent, a commercial investor or business owner may need to relocate to another residence because their business needs have changed and there are many realtors® who are capable of working those residential referrals.

Finally, consider attending a real estate mixer or business networking event to polish your communication skills and take the time to meet agents of various disciplines who share your interests in real estate, whether it be residential, commercial, domestic or international.

We need to build better referral bridges by developing stronger agent relationships and those new bridges should always be open and moving in both directions.

Paul Martis-Broker Associate

Coldwell Banker Commercial NRT