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Real Estate Focus: Summer 2017
Chuhak & Tecson Employment Focus

A reminder to “sharpen your pencil” when analyzing commercial real estate acquisitions​


Here is a fairly common scenario: a new client calls and wants us to draft a new contract to purchase a commercial property right away. Through their broker, the client has already found this property which perfectly fits into their purchasing criteria—right location, size, asset class and, more importantly, the right price for the returns they projected via the broker’s sell sheet and seller-provided information.

The well-prepared offering memorandum from the listing broker reflects a financial summary which meets the client’s goals: a six cap using the seller’s projected net operating income, an eight percent cash-on-cash return and 13 percent internal rate of return at year five, and a 1.2 debt coverage ratio, which should satisfy a lender should my client choose to debt on this new acquisition.

Upon further discussion with this new client, I recommended that we assist in preparing some additional in-depth financial analysis on this new target property beyond that provided by the seller and what was reflected in the offering memorandum. Not surprisingly, the listing sheet, while accurate in the operating data included, omitted some expense items which should have been very realistically expected by my client. For example, the seller had largely managed the property himself so the actual janitorial and management fees reflected in the listing were considerably understated.

To read more, click here.
Meet the Author
Shay Baldwin
K. Shaylan Baldwin,
Principal and
Practice Group Leader

sbaldwin@chuhak.com
Meet the rest of our Real Estate team!
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Our real estate attorneys are mindful of the knowledge clients need—information directly affecting their lives and businesses. To that end, we invite you to take a peek at what's going on with our Tax & Employee Benefits Practice GroupThey have numerous presentations on topics that may be of interest to you, including:
  • Tax disputes
  • Gift and Estate Tax planning
  • Retirement planning
If any of these interest you or to suggest a presentation that would be beneficial to your group, please contact practice group leader David Shiner.
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