How to Start the Evaluation of a Commercial Real Estate Deal

What to consider when commencing the evaluation of Commercial Real Estate

 

If you are considering purchasing Commercial Real Estate or Real Estate in Brisbane for investment purposes, then there are a number of basic things to consider before going deeper into your due diligence and hiring lawyers or accountants for a deeper dive into the opportunity.

 

Team – Evaluate the strengths and qualifications of the team involved in the commercial real estate venture. Assess their track record and relevant experience in the industry.

 

Evaluate the strengths and qualifications of the team involved in the commercial real estate venture. Assess their track record and relevant experience in the industry.

 

Consider whether the team's skills align with your investment vision. For instance, if you plan to develop the property, do they have expertise in construction and project management?

 

Check if their expertise is credible and directly applicable to the specific direction you intend to take the business. A team with a successful track record in retail may not be suitable for an industrial real estate project.

 

 

Market – Analyse whether the commercial real estate investment addresses a genuine problem in the market. Is there a clear demand for the type of property or service being offered? Determine if the identified problem is a persistent issue with long-term potential. It's crucial to ensure that the market demand will sustain your investment over time.

 

Trends and patterns - Investigate whether the business aligns with current market trends and patterns. Identify specific trends that support your investment thesis.

Conduct thorough research to validate the observed trends and anticipate potential shifts. Staying ahead of market dynamics can be a significant advantage.

 

Competitive Advantage - Assess if the business has a unique competitive advantage. This could be in technology, pricing, delivery, branding, or any other aspect that sets it apart from competitors.

Consider how sustainable this advantage is. Is it something that can be easily replicated by competitors, or does it create a durable moat for the business?

 

 

Strong business model – Scrutinise the business model for its robustness. Are the revenue streams well-diversified, and are the costs adequately controlled?

 

Ensure that the financials are supported by solid numbers and that the business is structured in a way that facilitates future growth and scalability.

 

Clear roadmap to profit – Evaluate whether there is a clear and realistic path to profitability for the business. Consider the scalability and potential for revenue growth.

 

Explore options for an early exit strategy, such as selling to an investor. Determine if the market is large enough to accommodate future growth.

 

Implementation – Examine whether the team has successfully executed key milestones and strategies in the past. This demonstrates their ability to turn plans into action.

 

Verify if expansion strategies have been set and, more importantly, if they have been achieved. This indicates the team's effectiveness in executing growth plans.

 

Risks – Identify and assess market risks associated with the commercial real estate investment. Determine if the team has a clear understanding of these risks and potential solutions.

 

 

Ensure that the risks taken are reasonable and well-documented. Look for any red flags or areas of concern that could impact the success of the investment.

 

In summary, evaluating a commercial real estate deal involves a comprehensive analysis of the team, market dynamics, business trends, competitive advantage, financial viability, profitability roadmap, implementation capabilities, and risk management. These considerations form the foundation of a well-informed investment decision.

 

You might like some of our other articles and our video series on Due Diligence.

 

A good business broker can help you to determine many of these elements and if you are looking for commercial real estate in Brisbane, Cristian Marcu from ELDAD Property Group can help you in your endeavours. Cristian can be contacted on 0438 509 094 and would be more than happy to assist you in your endeavours.