Most commercial real estate transactions go through an identifiable life cycle before achieving the end result of a successful business venture. Those common stages are discussed below, as being essential components of every normal commercial real estate transaction.
During the underwriting phase, a lender will determine whether or not they are interested in being involved in the type of business associated with the property, whether the borrower meets their loan criteria, and whether there is legitimate market value to the entire undertaking. If all three of these are answered in the affirmative, the transaction can proceed to the next stage.
Closing an Investment
By this time, all the financial terms of the deal have been agreed to, funding has been secured, and the formal process of closing on the property is executed. The title company is paid, as are all other parties who are entitled to payment during the closing, and possession formally passes to the borrower of the funds.
During this phase, the property is monitored and managed, so that the investor has a realistic chance of recovering the desired income from the property. Reports are developed and closely scrutinized so that performance of the property can be evaluated, and when that performance falls far below expectations, alternatives must be considered by the investor and the lender, so that there is not a total loss on the property.
Eventually, disposition of the commercial real estate asset may become a desirable course of action, either so as to realize a profit from its sale, or because the original business plan has been faithfully executed and completed. In some cases, a property may be held longer than the original business plan called for, so as to realize greater profits, but ultimately, a disposition is the final phase of the transaction life cycle.
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