There is no silver Bullet when it comes to commercial property transactions

The decision to sell commercial property is generally made on the basis of meticulous internal audits in advance. Every sale of commercial premises is unique, the circumstances are often extremely complex and differing goals of the participants are often only reconcilable after a lenghty negotiation marathon. Experienced realities produce many different scenarios. Here are the outlines of three real life examples:

Participation and more sustainabale value creation

The sale of a business property proved in the end to be a process lasting a number of years and document in many discussion reports. At times there were even doubts about whether it would be possible to reach a successful conclusion at all. However, a site with a total area of several thousand square metres in a good innercity location with a relatively flexible mixed use designation under building regulations remains consistently attractive, even if there are a number of adversities to be overcome. The owners original plan to sell the whole property changed in the middle of the negotiation process in favour of a wish to participate in the building development and achieve longerterm value creation. This in turn increased the requirement criteria to be fullfilled by potential buyers. Now it was not only the level and payment security of the purchase price that was decisive, but also the ability to maintain a partnership during the planning and construction phase. In addition, sound neighbourly relations should be assured in the period thereafter. These aspects were to be written into the contracts. In a long-term partnership the agility of the parties involved also acquires considerable significance, a constant openness to change, adjustment and correction. In fact, sometimes a concerted and reasonable reaction to changes is actually more important than exact adherence to a plan. 

No viable options for third-party use

The site of a family-run DIY store in an advantageous suburban location has no potential for further expansion, meaning that at least one fundamental competition criterion is lacking compared to major players in this market segment. To help them decide how to proceed, the management and family required from us a detailed written report including a specific site evaluation, market analysis, structural assessment of the premises in term of viable third-party use, building law principles and cost structures for ideal comprehensive redevelopment. This ultimately formed the basis for a decision to sell the property. However, building law for this property is not clear-cut, but instead only a nebulous evaluation, because we were initially only able to prepare a possible concept for use and its extent on the vague basis of sec. 34 of the German Building Code (BauGB). There is thus no legally binding framework, making it practically impossible to realise secure bank financing or payment of the required purchase price. Negotiations, also now as a result of corona, have dragged on due to the relative uncertainty around the building law situation. Based on the decisions by the legislature, the public interest sponsors have now set higher criteria for the mandatory social housing portion. This is rather negative news for the seller, since it cannot be ruled out that this will affect the level of the achievable selling prices. It remains to be seen - and of great interest - how the situation will progress. 


A failure of inheritance planning

The long-prepared inheritance plan did not come about because of the long-term severe ill-health of the prospective chief. No alternative solution was to be found in the relatively crowded market segment. Following intense consideration, the sale of the business premises was identified as the only remaining solution for the owners. The proceeds of the sale were also intended to securely sustain a comfortable standard of living for several generations in the long term. It proved advantageous in the selling process that the decades-old building law for commercial properties in the area was repealed in the context of a large infrastructure project. However, planning timescales for the final implementation of the new building regulations were extremely long. This is a process that often seems interminable, frequently commencing with consultations with owners, users and tenants. The family owners were not willing or indeed able to wait out years of sluggish progression until final implementations of new building regulations. But equally, the real prospect of possible value increases in the future could not be completely disregarded in establishing a selling price. The prospective buyer favoured among the competition as an experienced planner and property developer in the region, was however limited in terms of purchase price due to a dependence on banking financing. A solution was finally found by contractual involvement of a mezzanine capital investor. The share deal yielded a more than satisfactory selling price for the vendor.

It can be concluded that every transaction in the field of corporate real estate is unique. A limited adherence to is at least ad hoc barely discernible.

signed mow