Purchasing commercial real estate in South Florida comes with a range of considerations that can surprise even experienced buyers, especially in Palm Beach County and the Treasure Coast.
Our associates have been walking business owners and investors through the process for decades. We know from experience how much more informed and confident clients feel when they know what to expect. This brief guide will help you better understand the commercial real estate market and decide whether purchasing commercial property is the right choice for you.
Commercial vs. Residential Purchasing
Buying commercial property differs from buying residential property in five key ways:
- Down payments may be larger, depending on the borrower, property type, lender, and loan program.
- Amortization periods may be shorter than those associated with residential mortgages.
- Interest rates can differ based on market conditions, the borrower's qualifications, and the type of financing.
- Lending decisions may consider the property's income potential, the borrower's financial strength, and the intended use of the property.
- Zoning laws must be factored into current and future plans for the property.
Many business owners choose to lease space rather than commit substantial capital to an acquisition. For those with enough liquid capital to purchase, ownership can provide greater control over their space and an opportunity to build long-term equity. Investors may also benefit from rental income and appreciation, depending on the property's performance.
The right property will look different depending on why you're buying it. A business owner who plans to occupy the space may care most about whether it works for day-to-day operations, leaves room to grow, and makes financial sense over time. An investor is more likely to look closely at the tenants already in place, the lease terms, ongoing expenses, vacancies, and the income the property could produce.
Location, Use, and Value
Location should be considered in relation to the way the property will be used. A downtown setting may work well for offices, shops, and restaurants that rely on visibility, foot traffic, or convenient access for clients and employees. Industrial, service, and distribution properties often depend more on practical factors such as highway access, parking, loading areas, and proximity to customers.
For some companies, operating from business centers such as West Palm Beach or Boca Raton may support recruitment efforts and help project a strong brand image to potential clients and partners. However, a downtown location is not automatically the most valuable or appropriate choice for every buyer.
Commercial properties can also gain value from surrounding buildings and amenities. A business near a new residential development may benefit from an expanding customer base when the project is completed. On-site parking can also make a property more convenient for customers, employees, or tenants.
However, not all commercial spaces can be leased to any tenant. Zoning and permitted use regulations restrict which kinds of businesses can operate within a given area. For example, some mixed-use districts may restrict high-impact uses such as nightclubs or industrial operations, as well as redevelopment that exceeds local height, density, or intensity limits. Permitted use laws are municipal regulations that further restrict what business activities can be conducted on a property.
Always make sure that your property's zoning and permitted use align with your intentions for it before making an offer. While you can petition for rezoning, these efforts don't always succeed.
Financial Review
- How much income can the property generate? Begin with a look at current rent rolls, past income, existing lease terms, and scheduled rent increases to see whether the property can cover its operating expenses and financing costs.
- Which expenses will you be responsible for? In addition to the cost of the property itself, you may also need to budget for taxes, insurance, utilities, property management, and building maintenance. Review recent operating statements and consider whether expenses such as insurance premiums, repairs, or common-area maintenance could increase after the purchase.
- If you plan to rent out the property, how many tenants can you attract, and how quickly? Empty units will cost you money every month. Look at the property's current vacancy rate, the length of time vacant spaces have remained unleased, and demand for similar properties in the surrounding market.
- Are there any active leases on the property? You'll need to honor the terms of any existing leases until they expire. Review each lease carefully for renewal options, termination rights, expense responsibilities, rent concessions, and other terms that could affect future income.
- Are any major repairs, capital improvements, or tenant improvements likely to be needed? These costs should be included when estimating the property's potential return and the amount of cash required after closing.
Your commercial real estate agent can help you answer all of these questions and paint an accurate picture of how the purchase will affect your finances in the future.
Risk, Condition, and Due Diligence
Assessing the property's level of flood risk and storm exposure is a crucial precaution when shopping for commercial real estate in South Florida. Certain properties in this region (especially waterfront ones) are much more vulnerable to these hazards. You'll want to factor in repair costs and higher insurance premiums when deciding how high you're willing to bid.
Always consult a commercial real estate lawyer and a commercial insurance broker before making an offer. Your lawyer can review documents such as land surveys, title and lien records, and lease agreements for potential problems, while an insurance broker can help assess available coverage and estimated insurance costs.
Consider having a building inspector and an environmental consultant examine the property during your due diligence period, too. They'll check the building and grounds for potential problems, such as foundation damage or asbestos contamination.
Make Your Next Commercial Move With Confidence
Acquiring commercial property in South Florida requires thoughtful guidance, careful due diligence, and a clear understanding of long-term value. Get in touch with our team today for expert help evaluating your options and navigating the purchase process.
