Purchasing commercial property for any use can become a nightmare if done improperly. To help buyers avoid undue costs and time commitments, Craft Commercial has created the top 5 things to be aware of when purchasing commercial property.
1. Land Requirements
First and foremost, a buyer needs to consider how much land is needed to successfully build and operate the infrastructure. The shape and size of a lot factors greatly into what can be developed and as a general rule, 20% of the land will be unusable due to various easements (e.g., environmental and storm water drainage, retention ponds and utilities like power, gas, and sewage lines).
Other environmental issues such as locations built on watersheds and wetlands, or streams running through the property, should also be taken into consideration. As a buyer, you should add an addition 20% to your land usage requirement to compensate for these setbacks.
2. Current Zoning Laws
After a buyer decides on land requirements, current zoning laws must be considered before choosing a lot. If the intended use of the land conflicts with current zoning (e.g., a commercial property placed in a residential zone), a buyer needs to find a new location or attempt to have the area rezoned.
If a buyer decides on rezoning, a request is made to the city/town. The request is followed by a public hearing before the city/town council and is either approved or denied. This adds time to the building schedule, so often a buyer will ask if the rezone is possible before submitting a formal request.
In the event the lot in question is zoned for a buyer’s intended use, a special permit may be required for business operation. If required, a public hearing is needed for approval.
3. Initial Site Plan
After a buyer selects a location, an engineering firm is hired to craft a site plan or building sketch of the envisioned property. There are 2 types of site plans, depending on the size of the building, and each require a different process to complete.
Major Site Plans are for buildings 100k square feet or more and require a public hearing before the city/town council for approval. Any revisions made to the site plan require additional public hearings. This process can take several months to complete.
Minor Site Plans are for buildings 100k square feet or less and do not require a public hearing. They can be approved by any city/town staff.
Before an official application, a buyer may request a pre-application meeting to submit the site plan for approval. Each revision to the plan requires roughly two weeks before possible resubmission, but pre-application increases the chances for official approval.
4. Building Plan and Permits
When the site plan is approved, it is time to draw up the official building plan or construction drawing. The building plan must be approved by the city/town council along with the procurement of all required permits (e.g. building, water and sewage, environmental, DOT, etc.).
Although length times may vary, a major building can take up to a year or more before breaking ground and a minor building can take 6 months to a year.
5. Due Diligence
The most important part of purchasing commercial property is making sure it is possible to build on the land before you close. To ensure this, a property is usually put under contract with a set amount of time for due diligence before closing.
During this time the buyer analyses the lot by taking soil samples, testing water, and searching for any potential eroding or flooding areas. Wooded and cleared areas, water sources, and encroachment are mapped. Any hidden items like oil drums, cemetery remains, abandoned mine shafts, or wells are also located.
There are three phases of environmental study and if something harmful to construction is found during this time, a buyer can decide not to continue forward with the purchase. If this is the case, the earnest money given to the seller for the due diligence is forfeited and any reports may be required to be given to the seller depending on contractual agreements.