Commercial real estate (CRE) transactions cover the buying, selling, leasing, refinancing, or development of property used for business purposes. Unlike residential real estate, these transactions involve more moving parts, more players, and more complexity.
At Sands Investment Group, our advisors guide clients through deals every day. From first-time investors acquiring a single-tenant property to institutional players managing portfolios across multiple states. What all of these deals have in common is the need for clarity, strategy, and experienced guidance.
When we walk clients through transactions, we keep communication clear and focused:
- Sentences are short and approachable.
- Critical details come first, for both skimmers and studiers.
- Terms are defined upfront. For example, CRE stands for commercial real estate, and LOI means letter of intent.
With that in mind, let’s break down the commercial real estate transaction process from start to finish.
Key Takeaways:
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What Is a Commercial Real Estate Transaction?
In plain terms, a commercial real estate transaction is any deal involving property used for business purposes rather than residential living. These can include:
- Office Buildings: From small medical offices to multi-tenant skyscrapers
- Retail Centers: Shopping centers, standalone stores, or restaurant properties.
- Industrial Warehouses: Distribution hubs and logistics facilities.
- Healthcare and Medical Properties: Urgent care clinics, dental offices, or surgical centers.
Commercial deals involve more parties, more documents, and more diligence. Beyond a buyer, seller, and lender, you’ll coordinate with attorneys, title/escrow, environmental consultants, appraisers, and property managers. The added complexity protects value and reduces risk for investors.
What Is Meant by “Commercial Transaction”?
More broadly, a “commercial transaction” can mean any financial agreement involving business activity. In real estate, it goes beyond buying and selling. Examples include:
Outright Purchase or Sale: The direct transfer of property ownership.
- This is the most straightforward type of transaction: a buyer acquires full ownership of a property from a seller. The buyer gains control of the asset and any income it generates, while the seller receives capital that can be redeployed elsewhere. Outright purchases are common for investors seeking long-term stability, steady rental income, or value-add opportunities. For sellers, these deals can be part of a portfolio rebalancing strategy or a way to exit a market.
Sale-Leaseback: An investor buys a property and leases it back to the seller, freeing up capital while keeping the tenant in place.
- In a sale-leaseback, an investor purchases a property and immediately leases it back to the seller under a long-term agreement. The seller (often an operating business) converts its real estate equity into cash while continuing to occupy the space. For investors, sale-leasebacks offer predictable rental income, often with corporate guarantees and built-in rent escalations. For businesses, it’s a way to unlock capital for growth, debt repayment, or operational investment without disrupting day-to-day use of the property.
Joint Venture: Two or more parties share ownership, risk, and returns.
- A joint venture is when two or more parties pool resources to acquire or develop a property, sharing both the risks and rewards. One party might contribute capital while another provides market knowledge or management expertise. Joint ventures allow investors to pursue larger or more complex deals than they might on their own, and they often structure profit-sharing through pre-agreed return hurdles or promotions. These partnerships can be particularly effective in development projects or large portfolio acquisitions where scale and expertise matter.
These structures add legal and financial complexity but also create opportunities for investors to structure deals that fit their goals.
Types of Commercial Real Estate Transactions
Commercial real estate transactions take many forms, and each type serves a different purpose in an investor’s strategy. Whether the goal is long-term income, short-term liquidity, or growth through development, understanding the structure of the transaction is essential. Below are the most common types of deals we see in the market, along with examples of how investors use them to create value.
Sales Transactions
- Outright purchases or sales. The most direct type of deal, where ownership transfers from seller to buyer. Investors often pursue sales transactions for stable income or portfolio diversification. Example: acquiring a retail strip center with long-term tenants to secure predictable cash flow.
- Example: an investor acquires a retail strip center for stable, long-term income.
Lease transactions
- These include standard leases, subleases, and Triple Net (NNN) structures where tenants cover operating costs like taxes and insurance. For investors, the lease structure determines income stability and risk exposure.
- Example: a landlord signs a 15-year Triple Net (NNN) Lease with a national pharmacy chain, creating predictable income with minimal landlord expenses.
Development transactions
- These cover ground-up construction or redevelopment of an existing property. Projects that involve new construction or converting an existing property to a new use. These transactions carry more risk but can generate strong returns when executed with the right team of architects, contractors, and engineers.
- Require architects, contractors, and engineers to work alongside the investor.
- Example: an investor develops a vacant parcel into a modern industrial warehouse, then leases it to an e-commerce distributor.
Refinancing and recapitalization
- Investors may refinance to take advantage of lower rates, free up equity, or restructure debt. Used to restructure debt, lower financing costs, or unlock equity for future investments. Refinancing allows investors to improve returns or access cash without selling the property.
- Example: an owner refinances a stabilized multifamily property, pulling equity to fund the purchase of another asset while keeping the original property in the portfolio.
Joint ventures and partnerships
- Allow multiple investors to pool capital, share risk, and pursue larger deals than they might alone. Joint ventures give investors access to larger opportunities and combine capital with expertise for stronger outcomes.
- Example: a developer partners with an equity investor to build a mixed-use property, splitting profits once the project is leased and stabilized.
How Long Does a Commercial Real Estate Transaction Take?
Commercial deals rarely move as quickly as residential closings. Typical timelines run 30 to 120+ days, depending on:
- Due Diligence: Reviewing leases, financials, and property conditions.
- Financing Approval: Loan application, appraisal, and underwriting.
- Zoning and Environmental Review: Confirming the property’s legal use and safety.
- Negotiations: Finalizing purchase agreements and contingencies.
The more complex the property, the longer the process usually takes.
The CRE Transaction Process: Step by Step
Commercial real estate transactions follow a series of structured stages. Each step is designed to reduce risk, verify information, and ensure the property aligns with an investor’s goals. While no two deals are identical, most transactions move through the following phases:
Property Identification and Origination
The process starts with identifying an opportunity that fits an investor’s strategy. This could involve market research, direct outreach to owners, or tapping into broker and advisor networks. At SIG, our proprietary database gives clients access to both on-market and off-market opportunities across the country, often uncovering deals others may not see.
Offer and Negotiation
Once a target property is identified, the investor typically submits a Letter of Intent (LOI) or term sheet. While not legally binding, an LOI outlines the framework for the deal and guides negotiations. The most common negotiation points include:
- Price: Balancing market conditions, income stream, and investor return goals.
- Contingencies: Conditions that must be satisfied before closing, such as financing or environmental review.
- Timing for Closing: Aligning expectations on how quickly due diligence and approvals can be completed.
Due diligence
This is where investors confirm that the property performs as represented. A thorough due diligence process often includes:
- Property Inspections: Verifying physical condition and identifying repair or replacement needs.
- Environmental Reports: Typically, a Phase I assessment is conducted to identify potential contamination or risks.
- Lease and Tenant Review: Examining rent rolls, tenant credit, and lease terms to confirm income stability. See how SIG reconciles tenant negotiations.
- Title Search and Lien Checks: Confirming clear ownership and identifying any claims or restrictions that could affect the property.
Financing and Underwriting
If financing is part of the transaction, lenders perform their own analysis to determine loan terms. This typically includes:
- Loan Application: Submission of borrower’s financials, property details, and investment strategy.
- Property Appraisal: An independent valuation to ensure the property supports the loan amount.
- Underwriting and Final Approval: Review of borrower qualifications, debt service coverage, and market conditions before issuing a loan commitment.
Contract Drafting and Legal Review
Attorneys draft and review purchase agreements, loan documents, and any regulatory disclosures. This step ensures that all obligations, rights, and timelines are clearly defined and enforceable.
Closing
The final stage involves signing agreements, transferring funds, and recording ownership. Title and escrow professionals coordinate the movement of money and documents to ensure all parties are protected. Once recorded, ownership officially changes hands, and the transaction is complete.
Key Players in a Commercial Real Estate Transaction
- Buyer and seller are the main parties.
- Advisors/brokers (like SIG) provide market intel, pricing guidance, and negotiation support.
- Attorneys ensure legal compliance.
- Lenders and financing partners provide capital or debt.
- Inspectors and appraisers confirm property condition and value.
- Title and escrow companies verify ownership and handle the funds transfer.
Understanding the 2% Rule in Commercial Real Estate
Some investors reference the “2% rule,” which suggests monthly rent should equal about 2% of the property’s purchase price.
- Reality Check: It’s a rough guideline, not a guarantee.
- Limitations: In today’s high-value markets, it’s often unrealistic. Investors now rely more on cap rates, debt coverage ratios, and long-term appreciation potential.
Common Challenges in CRE Transactions
Every deal faces potential hurdles. Here are common challenges and ways to reduce risk:
- Financing Delays: Work with lenders early to anticipate requirements.
- Zoning or Permitting Issues: Verify local regulations before entering contracts.
- Environmental or Structural Surprises: Order Phase I environmental reports and inspections.
- Tenant Complications: Review all leases thoroughly to uncover risks.
- Market Fluctuations: Use conservative underwriting to withstand shifts.
How SIG Guides Clients Through Transactions
SIG operates with a client-first philosophy grounded in collaboration, integrity, and market expertise. Here’s how we add value:
- Collaboration Across Teams: Investors benefit from the reach and specialization of SIG’s advisors.
- Proprietary Systems: Our shared database connects investors with thousands of buyers, sellers, and listings.
- Sub-Product Specialization: From quick-service restaurants to industrial properties, our advisors know the nuances of each niche.
- Win-Win or No Deal: We only pursue transactions that make sense for our clients.
- Experience on Both Sides: Whether working with a buyer, seller, or both, SIG facilitates smooth and transparent deals. See our case study.
Conclusion: Turning Transactions Into Long-Term Investments
Commercial real estate transactions are never just about closing a deal; they’re about building wealth and creating long-term stability. With so many moving pieces, having experienced advisors by your side makes the difference between a transaction that simply closes and one that creates lasting value. At SIG, we believe in a relationship-driven approach that combines expertise, collaboration, and integrity.
View our listings or connect with a SIG Advisor to start planning your next commercial investment.
