Orange County commercial real estate (CRE) investors have been told to expect delays when it comes to completing their transactions. While there are occasions of completion happening in a week or less, some can take as long as a year depending on the circumstances. Because there are so many factors involved it is incredibly difficult to truly predict how long it will take overall.
Sales usually involve a 30 day due diligence, 45-60 day financing contingency, and closing 15 days after all contingencies have expired. Total time is 75-90 days on average. Leases have a negotiating period which is typically 1-3 weeks depending on sophistication variables. Leases are drafted in a matter of days, excepting landlord and their lawyer delays. Terms negotiation can be none existent to several weeks, again depending on sophistication level. Total time on average 2-3 weeks.
Brokers often like to provide their clients with a prediction on how long it will take for the deal to close. Sometimes, they get it completely right. However, at other times, they are so far off from the actual figure that they may as well have picked a date out of thin air. The reality is that it is impossible to truly predict what will happen, because there are a number of time killers that may or may not happen in each deal. For every time killer, more time is added to the overall completion data. Let’s take a look at those time killers.
1. The Structure of the Transaction
Whether you want to buy or lease, the process starts with you looking for a property and ends with the occupant actually moving in. Between these two points, there are many different hurdles that you have to overcome.
2. The Search for a Property
If you are looking to lease a property, you are likely to be able to find something quite quickly. There are many different types of properties available, particularly in Orange County. However, if you were hoping to buy your property, the search can take much longer. This is because you will look not just for an available building, but one that meets your particular requirements as well. For instance, you may have an issue with the zoning type.
The availability of parking may affect the type of commercial zoning that is permitted. Additionally, there can be rules regarding the proximity of certain types of businesses to others. Many zoning laws prohibit or restrict adult entertainment establishments to a certain geographical area. Others bar such establishments within a certain distance of existing schools or churches.
3. The Negotiation
Unlike residential tenancies and residential property purchases, there is a lot of negotiating room in both lease and purchase of CRE. There are so many different points that can be negotiated on, that it can take a very long time before an agreement is reached. In the case of a CRE purchase, you may be lucky to find sellers who are desperate to get rid of the property, meaning that they will be more likely to accept your offers. However, in most cases, you will have to enter into some tough negotiations with a number of different professionals, which can reach a deadlock at some point.
4. The Execution of the Deal
Once you are ready to proceed, there are a few other things to think about, not in the least finances. If you are not able to pay for the property in full, you will need things like environmental reports, appraisals, and more. If the agreement is a lease, there are legal issues that you will have to deal with as well.
5. Moving In
Last but not least, moving in takes time. You may need to make changes to the building itself, and you are likely to have to decorate. This will take even more time.