Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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FINANCINGFOCUS Retail Therapy t 14 Stop and think before you buy that shopping center. by Lisa Loften, CPA The climate for retail real estate deals is improving around the country, as pricing stabilizes and it becomes somewhat easier to forecast the performance of a retail center. With more sellers realizing that now might be a good time to put a property on the market, companies going into acquisition mode often need to address preliminary questions: Are we ready to take on an acquisition? And if so, what do we need to do to ensure we can get favorable fi nancing? Retail Considerations As the chief fi nancial offi cer of a company that has made two shopping center acquisi- tions in the past year — and is looking for more opportunities — I have been work- ing with my company's senior management team to answer questions such as these. Here are fi ve considerations to think about as you work toward the answers. 1. T ink about worst-case scenarios as you consider if you are ready to take on debt. Certainly, the outlook for the economy, and in turn, consumer confi dence, is unclear, as the slow U.S. recovery and Europe's eco- November | December | 2012 nomic problems continue to have an impact around the world. So be pragmatic. What if occupancy falls at your existing properties? What if you have to reduce lease rates? You want to be com- pletely comfortable with your company's fi nancial wherewithal going into a deal. 2. Cash is king, and it can help you get favorable fi nancing. Some companies are using cash to fi nance real estate deals, then securing fi nancing aſt er the fact, which can provide more options in seeking favorable terms. T is can also make closing a deal much simpler, and may even be the factor that helps you win a deal over other poten- tial buyers who have fi nancing contingen- cies in their off ers. My company took this approach with the past two acquisitions. In each case, aſt er clos- ing the deal with cash, we were able to then secure the exact type of fi nancing that fi t each specifi c deal. One of our acquisitions was a value-add deal that was not yet ready for permanent fi nancing, so we secured interim fi nancing through one of our banking relationships. Meanwhile, because the other property was fully stabilized, we went straight to the per- manent life company market for fi nancing on that deal, putting long-term fully amor- tizing debt in place in less than 45 days. 3. Be proactive in defi ning what you want from a lender. Lay out the terms you want when you fi rst make the ask for fi nancing. And if you aren't well versed in reading and understanding loan documents, ask ques- tions. Don't simply rely on your attorneys, who may not be looking at all the business points of the documents. Commercial Investment Real Estate PayPhoto/Veer