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Author Topic: Commercial Real Estate - Typical Transaction Fees  (Read 33552 times)

Offline MikeyC

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Commercial Real Estate - Typical Transaction Fees
« on: February 24, 2006, 11:53:25 am »
Hi,
I'm rather new to commercial real estate and am particularly interested in purchasing mid-size multi-family units and / or office space.  What are the typcial fees associated with a transaction like this?  From what I've been reading there could be lawyer, accountant, broker, property manager etc fees.          

Thanks,
Mike

Offline rodbrown44

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #1 on: February 24, 2006, 11:56:10 am »
Mike,

It depends upon how you go about the transaction and what Lenders you use.  Are you doing small commercial $100K - $1M or larger projects?

Offline MikeyC

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #2 on: February 24, 2006, 12:01:59 pm »
Hi Rod,
I'll probably focus on small commercial to start off with since I don't have prior transaction experience or a team of professionals.

Offline patti porter

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #3 on: February 25, 2006, 05:53:16 am »
Hi Mike,

It is really hard to give you a figure for fees, because they will vary across the U.S.

Attorney:  Will the attorney set-up your company (C-corp, LLC, etc)?  Will the attorney review your contracts & leases?  These fees can start adding up quickly, especially if you are using a law firm.  I would go to your local REIA meeting and network to see who is using what attornies.  Real estate investors tend to be a cheap lot, so we tend to find the cheapest out there.  There was an attorney in my group who gave discounts for simple items (setting up LLC's and reviewing contracts).

Broker:  Most Brokers get paid at closing, so you shouldn't have any up front fees.  However, the lenders do have some upfront fees, such as credit reports, appraisals, etc.  Depending on the property type and loan amount this can vary from $2,000 to $5,000.  There will also be additional fees at closing.  For a rule of thumb, closing costs are 3% - 5% of loan amount.  The broker should disclose all the fees to you before closing.

Property Management:  Their fees can range from 5% - 10% of gross lease amounts.  If you have the time and the property is local, I would not use a mangement company.  Your REIA meeting is also a good place to find property managment companies.

Accountant:  Are you talking about monthly bookkeeping or just taxes?  If you're just starting out, I would use Quickbooks to do my bookkeeping and use an accountant to do taxes.  Once again their fees varies.

Regards,
Patti Porter
Learn everything you need to know about commercial properties...before you buy them!
Visit http://www.all-about-commercial-mortgages.com.

Offline kmrei

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #4 on: March 18, 2006, 05:02:00 am »
What about a due diligence fee?

Offline tedjr

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #5 on: March 19, 2006, 07:44:35 am »
Howdy Kmrei:

Most commercial lenders will need engineers reports both structural and environmental. The last deal I did both of these costs me $5K up front at risk money. If the loan is not approved the money is wasted unless you can get a new buyer or the seller to buy the report. An appraisal will also be needed at a cost to me of $1600. All theses could be higher or lower depending on the size of the deal, the age and condition of the structure and many other factors. My deal was a total rehab valued at $165K and needed $250K in repairs. It appraised at $715K after rehab and I hope it will be finished soon.
Ted P. Stokely Jr

San Antonio, Texas

Offline lender4developers

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #6 on: April 14, 2006, 07:38:33 pm »
For commercial real estate deals that are $1 million or greater, expect to pay the following lender fees in addition to any quoted above:

- $10k to $25k application/due dilligence fee (non-refundable)

- Lender points of 2% to 5% of which 1% to 3% will be required up front as a commitment fee (may or may not be refundable)

As for broker fees, that all depends on the broker. Many of my lenders have indicated that many charge 3% to 5% which I personally think is excessive.

I typically charge 1% to 2% depending on the size of the loan and the amount of time & work that it will require from me. Also another factor is if the borrower is a repeat client and if there is opportunities for additional business (say a condo conversion where I can be the preferred lender for the developer).

Some brokers also charge non-refundable retainer fees which can be as high as $5000. I charge $2500 to cover my time & any upfront costs that I incur.

Also keep in mind that many lenders have exit fees that are paid at closing which range from 2% to 10% unless you are willing to offer the  lender equity in exchange for the exit fee.

Offline 4EEM

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #7 on: April 27, 2006, 04:18:52 pm »
....you need to start working with a new lender.  "Lenders fees" (i.e., not third party) should never exceed 1% of the requested loan amount...This should cover your underwriting, processing, rate lock fee, application fee (if any).

If your being asked to pay more than 1% to the lender and 1% to the broker (if any) you need to keep on shopping.
Patrick S. Lawson
Highland Lending, Inc.
Phone  (407) 877-0093
Fax      (866) 476-1133

Offline lender4developers

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #8 on: April 27, 2006, 04:39:43 pm »
The 1% rule applies primarily to residential lending or if you choose to use a Bank for your commercial loan. But please keep in mind that in addition to the 1% origination fee, Banks will still have additional charges for Underwriting, Processing etc.

If you choose to use non Bank commercial Real Estate lenders, then expect to pay 2% to 6% in lender origination fees + due dilligence costs, etc.

Depending on the broker, you can expect to pay 1% to 5% for their services in addition to the lender & 3rd party fees.

In my honest opinion, paying 3% or more for broker fees on a loan of $1 million or more is excessive unless they are actively working with you in all phases of your project.

Offline 4EEM

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #9 on: April 27, 2006, 04:43:49 pm »
As a commercial broker I never charge more or less than 1%.  If I think the loan is going to be a pain in the butt and 1% is "not enough" I pass on it.

I've worked with lenders in the past that will charge more than 1% for their fees (not counting third party) but there are a number of lenders who have small loan fees.

You may be asked to make a "deposit", but those funds are credited back to the borrower at closing.
Patrick S. Lawson
Highland Lending, Inc.
Phone  (407) 877-0093
Fax      (866) 476-1133

Offline J Bo

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #10 on: June 07, 2006, 11:35:41 am »
If you are looking to get into commercial, I have an investment oppertunity avalible in the best market in North America (Calgary) also in Vancouver.

Offline lovetoknow

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #11 on: August 06, 2006, 05:04:00 pm »
hi tedjr,
Good post.. In this case, do you get a pre=approval with the lender first and then have the property appraised? How do you manage the "at risk money" ?
What is the typical downpayment for commercial loan ?
thanks


Howdy Kmrei:

Most commercial lenders will need engineers reports both structural and environmental. The last deal I did both of these costs me $5K up front at risk money. If the loan is not approved the money is wasted unless you can get a new buyer or the seller to buy the report. An appraisal will also be needed at a cost to me of $1600. All theses could be higher or lower depending on the size of the deal, the age and condition of the structure and many other factors. My deal was a total rehab valued at $165K and needed $250K in repairs. It appraised at $715K after rehab and I hope it will be finished soon.
« Last Edit: August 06, 2006, 05:07:19 pm by lovetoknow »

Offline Arie

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #12 on: August 10, 2006, 05:56:53 am »
"$10k to $25k application/due dilligence fee (non-refundable)"

IMO, that is a crazy amount for a application fee. Even on a 20mil loan, all the upfront money is just capital to visit the property. It shouldn't exceed more than 5k. Beware of application/deposit scams where they claim the property value isn't where you represent and keep your big deposit.

Caveat Emptor.

« Last Edit: August 10, 2006, 09:09:07 am by Arie »

Offline JOHNNY Q

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #13 on: August 15, 2006, 01:22:13 am »
My investor never ask me what I charge. 1.5 to 2 points. on average. Because I put the deal to bed in 45 days on average with a trained investor or not. You do not need a team of professional, you just need one who is a closer. Money talks and xxxxxxxx walks. Time is money. Do you have it on contract yet? what is dcr on it? what is the last 2 years rent rolls look like. Blah..blah.. If you need to make money, stop talking  and like nike sia d it best just do it! Commercial investing 101 is now in session.
Please have your pen and paper ready.
John Quebedeaux-CEO-Quebedeaux Financial Investment Holding LLC
Residential, Commercial, Construction, Land Acquisitions, Lot Loans, Bridge Loan, Hard Money, Foreclosure Bailout & Short Sales.MTN, BG, SBLC etc...

Offline UnderwritersTrust

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Re:Commercial Real Estate - Typical Transaction Fees
« Reply #14 on: November 11, 2006, 02:16:41 pm »
For a commercial non-contentious transaction exceeding $5MM, a fee of 1.5 - 1.76% of the equity investment (including arrangement for mezzanine financing) is the typical fee-span in western (including central Europe) Europe for a single asset transaction irregardless of the underlying collateral.

More precisely, 1.765% inclusive of all sub-contractor (due diligence) fees but not including VAT for bring a non-contentious deal to closing, is reasonable.   Fees can be negotiable depending on a number of commercial factors, e.g. size of the deal, repeat client, type of deal - take private, one-off, securing financing only but no further services, etc..

What you receive for a fee will depend on who is selected to move the transaction to closing, e.g. law firm, accounting house (PriceWaterhouse), freelance closer, brokerage house, 'on your own', etc..  Law firms and brokerage houses are often happy to make their fee's exclusive of due diligence costs incurred by third-party resources, e.g. environmental, valuers, tax advice, economics modeling (in multi-asset complex transactions).  Hence the 'all in' investor fee amount can be higher - and wisely should be factored into the investment return economics.

Not discussed here but another 'fee' factor to be considered in return economics are the 'exit' fees associated with selling (monetizing) the investment at the end of the projected business plan horizon, e.g. 1, 3, 5 years.

As noted above, fees can be 'in or ex-clusive' of: the asset valuation fee from a reputable valuer, the environmental (Phase I report) survey fee, preparation & validation of underwriting economics (critical in sizeable and institutional investor transactions), representing the investor at negotiations, post-closing action items and/or asset management fees, etc., etc..  Again, in general the fee should be inclusive less the VAT.

Happy to provide more information if needed.  
UnderwritersTrust
London

« Last Edit: November 11, 2006, 02:53:19 pm by Underwriterstrust »

 




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