Published on March 20, 2023
Welcome to the South Florida Commercial Real Estate Guide, the ideal resource for those considering investing in commercial real estate in South Florida. Over the past few years, South Florida's real estate market has experienced substantial growth, making it an attractive destination for both local and international investors seeking profitable investments. Nonetheless, navigating the commercial real estate transaction process can be overwhelming without the appropriate guidance and knowledge.
As South Florida's top commercial real estate organization, Signature Commercial Real Estate is here to assist you. In this guide, we'll walk you through the commercial real estate transaction process step-by-step, providing valuable insights and tips to help you maximize your investment opportunities in South Florida. With the proper knowledge and guidance, you can navigate the commercial real estate transaction process with ease. So, let's dive in and explore the exciting world of commercial real estate!
What is Commercial Real Estate?
Commercial real estate (CRE) is any property used solely for business-related purposes. This can include office buildings, retail spaces, industrial warehouses, hotels and resorts, self-storage facilities, medical and healthcare facilities, developable land, and other commercial properties. Multi-family properties, like apartment buildings, are also considered commercial property.
The primary objective of CRE is to generate income through the rental or sale of the property. Typically, CRE investments are made by individuals or companies looking to generate long-term income and capital appreciation. These investors purchase properties and lease them to tenants who use the space for commercial purposes, such as retail, office, or industrial operations. The income generated from the rental payments is used to cover the property's operating expenses, such as taxes, insurance, and maintenance, and to provide a return on the investor's initial investment.
CRE can be a complex and diverse investment class with various subcategories and types of properties, each with unique characteristics and investment opportunities. Investing in commercial real estate requires careful analysis of market trends, property performance, tenant demographics, and the overall economic landscape.
Is Commercial Real Estate Lucrative in South Florida?
Short answer: A resounding YES!
In 2023, South Florida's commercial real estate (CRE) market is expected to continue its upward trajectory, driven by the region's economic growth, favorable tax policies, and desirable location. South Florida is an attractive destination for businesses due to its strategic location between North and South America, access to major ports and airports, and a skilled workforce. The area has a diverse economy with thriving industries such as finance, healthcare, tourism, and technology, creating a high demand for commercial real estate properties.
One of the most significant drivers of South Florida's CRE market is its population growth. The region is experiencing a steady influx of domestic and international residents, leading to an increased demand for office, retail, and industrial spaces. This surging demand has led to higher rental rates, increased property values, and many development opportunities.
Additionally, South Florida's CRE market benefits from favorable tax policies, including no state income tax, low property taxes, and tax incentives for businesses relocating to the area. These policies have attracted numerous companies to South Florida, driving demand for CRE properties.
Furthermore, the pandemic has positively impacted South Florida's CRE market. Many companies have realized the benefits of having a physical presence in the area, leading to an increased demand for office spaces. The pandemic has also spurred growth in e-commerce, resulting in a higher demand for industrial spaces such as warehouses and distribution centers.
With a diverse range of property types available, a growing population, and a thriving international business community, there are plenty of opportunities for investors to generate capital growth in this dynamic market in 2023 and beyond.
Commercial Construction in South Florida
As we move forward, construction activity in South Florida is expected to increase as developers undertake new projects and expand existing ones. The office construction sector is set to soar by 30% in 2023, while industrial construction is expected to rise by 20%. Although slower, retail and hotel construction will also see an increase.
What are Commercial Property Taxes in Florida?
As of 2023, commercial property taxes in the State of Florida remain at a rate of 1.35%. This tax is calculated based on the just value of a commercial property, which refers to property used primarily for business or investment purposes. The just value is determined by the county property appraiser and is equal to the property's market value as of January 1st of the tax year.
However, a new law may decrease the sales tax rate on commercial leases from 5% to 2%. If implemented, the reduction in the sales tax rate could result in significant savings for businesses leasing commercial properties. Businesses need to stay up-to-date on any changes to commercial property tax rates and laws to make informed decisions about property ownership and leasing.
The Four Steps of Commercial Real Estate Transactions
Commercial real estate transactions typically consist of four main steps: Escrow, Signing Authority Verification, Due Diligence, Signing and Processing Title, and other Closing Documents.
Step 1: Escrow
The transaction process begins with a purchase agreement. The agreement and the title, along with the buyer's good-faith deposit, are used to open an escrow account. An escrow account is a neutral account held by a third party (usually an attorney or title company) to ensure that all parties in the transaction fulfill their obligations. Once the escrow account is open, the process of getting a Preliminary Title Report will begin.
What is a Preliminary Title Report?
Essentially, it’s a document that officially establishes legal ownership of a property. Before issuing a title insurance policy, a preliminary report is prepared that indicates the ownership of a specific piece of land, along with any liens and encumbrances that won't be covered under a subsequent title insurance policy. Following a title search by a Florida real estate attorney, you'll receive a preliminary title report. This report identifies any potential title defects which can be brought to the seller's attention. Examples of common title defects include inaccuracies in public records, undisclosed liens, undisclosed encumbrances (when a third party has a claim to a real estate title), and inaccuracy of ownership.
Step 2: Signing Authority Verification
The next step is to verify the signing authority of all parties involved in the transaction. This is important to ensure that the transaction is valid and legally binding. Verification of signing authority typically involves confirming the identities of all parties involved and ensuring that they have the legal authority to sign the necessary documents.
Step 3: Due Diligence
Due diligence is the process of investigating and verifying the property's legal, financial, and physical condition. Due diligence is a critical step in commercial real estate transactions, as it ensures that buyers are aware of any potential issues with the property before finalizing the transaction. Due diligence typically involves reviewing leases, financial statements, environmental reports, surveys, and other relevant documents. Buyers may also conduct physical inspections of the property.
Step 4: Signing, Processing Title, and other Closing Documents
Once due diligence is complete, the final step is to sign and process the title and other closing documents. These documents include the Deed, Bill of Sale, Assignment and Assumption Agreements, and any other documents required to transfer ownership of the property. The seller will receive the purchase price, and the buyer will receive the keys to the property.
How Long Does a Commercial Closing Take?
Typically, it can take anywhere between 75 and 90 days to close on a commercial real estate transaction. However, this time frame could be reduced or extended due to many factors.
Commercial real estate deals take longer to complete than buying or selling residential properties because the process is much more complex. To begin with, more steps are involved in commercial transactions than in residential real estate, and each one takes more time.
Unlike residential real estate sales, which are usually standardized, purchase contracts in commercial real estate sales are tailored specifically to each sale. Plus, many commercial contracts also include bills of sale and other contracts, including equipment service contracts, bills of sale of equipment, and leases for existing tenants.
The first step in a commercial real estate transaction is negotiating and drafting a purchase agreement. This can take anywhere from a few days to a few weeks, depending on the complexity of the deal and the level of negotiation required between the buyer and seller.
Once the purchase agreement has been executed, the due diligence process begins.
Due diligence involves a thorough inspection of the property and the review of all relevant documents, such as leases, zoning regulations, environmental reports, and financial statements. This process can take anywhere from a few weeks to several months, depending on the complexity of the property and the amount of information that needs to be reviewed.
Once the due diligence process is complete, the parties can move forward with the closing. The closing process involves the preparation and execution of all necessary documents, such as the deed, bill of sale, and financing documents. This process can take several weeks to complete, depending on the complexity of the transaction and the number of parties involved.
In addition to these factors, several external factors can impact the timing of a commercial real estate closing. For example, obtaining financing can take longer than expected if there are delays in the underwriting process or if the lender requires additional information. Similarly, obtaining necessary permits or approvals from local government agencies can cause delays in the closing process.
To ensure that the commercial real estate closing process runs smoothly and efficiently, it is essential to work with experienced professionals who understand the complexities of the transaction and can help navigate any issues that arise.
Navigating Commercial Real Estate Transactions in South Florida
Navigating commercial real estate transactions in South Florida requires knowledge of the local market and regulations. Signature Commercial Real Estate is South Florida's premier commercial real estate organization, with years of experience helping clients navigate the transaction process.
Conclusion
Commercial real estate transactions can be complex, but with the proper guidance, they can be profitable and rewarding. By following this guide, you can navigate the process of purchasing commercial real estate with confidence. Whether you are buying your first commercial property or adding to your existing portfolio, our elite team at Signature Commercial Real Estate is here to help. As South Florida's Premier Commercial Real Estate Organization, we have the experience and expertise to help you achieve your commercial real estate goals. Contact us today!