There are so many pitfalls in commercial real estate that it is easy to become distrusting of everything you hear and read in offering memorandums. I have a client who is in an exchange and the number of offering packages which list things which are not true or conceal things which are critical to disclose that it is easy to become discouraged in trusting anything that is presented to you.
In one instance a triple net offering with a major name food company was presented as “corporate guaranteed”. Once the lease was obtained and reviewed, there was no such thing in the lease. The listing broker simply said, they are substantial and are “good for it”. In another offering package the listing agent stated that this particular offering provided a certain annualized return or cap rate of X percent. Upon review, there was extensive rental abatement in the first year which made the return not even close to what was advertised. This offering package marketed a site and the tenant required the additional parking on the adjacent lot which was not included in the offering which meant the tenant would probably vacate if the parking was taken away.
Brokers are required to disclose material facts. A lack of personal guarantee would be a material fact as is the presence of free rent which impacts annualized returns. Often there are first right of refusals tucked into the leases which for exchange buyers represents a risk of defeat since the tenant may exercise their right to purchase a building and then the exchange buyer has been tied up with nothing to show for it and the time clock runs out.
Brokers are often put under such pressure to produce they decide the best way to achieve their objectives is to try these approaches. It puts a stain on all who strive for excellence and true client representation.
In this business, it is critical to trust and verify. Find an agent who is highly ethical and does not need to make a transaction to pay his/her bills. His interests will be truly aligned with yours and you will both sleep better because of it. There can still be success, even in the wild west of CRE.
