Whether you’re buying or selling residential real estate or industrial real estate in South Florida or anywhere else, there will always be those inevitable closing costs to contend with.
These costs comprise fees, dues, and taxes split between buyer and seller to cover additional transaction-related expenses not included in the sale price. It’s just that with industrial property there are some differences (more often than not, in higher costs) and additional complexity.
Still, regardless of the cost of closing, there’s some good news with respect to South Florida industrial real estate. There are currently, for example, “351,000 square feet of industrial space under construction in Palm Beach County, and the vacancy rate has stayed low over the past 18 months, despite the pandemic and new developments in the area.”
Yet there remain those costs buyers and sellers will encounter at closing, which may impact the short-term profitability of a property. So let’s see what you can expect when it comes to industrial property closing costs in South Florida.
Overview of Industrial Real Estate Closing Costs
For industrial property, “closing costs are the fees that are due before the closing of a commercial mortgage. It should be noted that costs vary by the deal and lender, and their prices fluctuate greatly depending on the property size and loan amount.”
It’s especially important for buyers to understand these costs because it’s an important part of the loan process. “Closing costs can add up, so borrowers should factor them into their return on investment calculations to get a truer picture of the expected costs of financing.”
Typically for industrial property, the costs of closing fall into two broad categories: lending fees and third-party costs. The most basic and most common costs in these categories are . . .
- Origination fees – Charged by “the lender for processing a loan” and serves “as the compensation for the lender,” typically ranging “between 0.5 and 1.0% depending on the lender and negotiations”
- Brokerage fee – Paid by borrowers who use a broker “as part of their commercial real estate closing costs” and is “a broker’s commission for finding and securing the commercial real estate loan”
- Appraisal – A requirement for industrial properties before a loan can be secured
- Phase I/II environmental report – Ordered by lenders to ensure there are no “environmentally hazardous conditions at the property”
- Engineering report – Not required by all lenders, yet a common cost of closing for industrial property in south Florida, and designed to assess “the structural soundness of the property”
- Zoning report – Ensures that the property and its uses are in compliance with local regulations
- Seismic report – An “examination of the seismic-structural capabilities of the property,” depending, of course, on location
- Legal fees – Attorney fees incurred as a result of the complexity of industrial property transactions
- Title insurance – A one-off fee to “protect against loss of ownership of the property due to legal defects”
When it comes to the cost of closing for industrial property, here’s what buyers typically pay . . .
- Environmental due diligence – “[I]ncludes a Phase I or Phase II environmental study on the property,” with the contract often stating that “the seller will reimburse the buyer for this expense if any undisclosed contamination is found in the report that causes the closing to be canceled”
- Title endorsements – “[E]ndorsements to the title policy such as an environmental hazard endorsement that the buyer’s lender requires in order to fund the loan on the transaction”
- Municipal transfer taxes – May be required and include such things as “operating permits or pre-paid business licensing requirements”
- Special survey additions – Include such things “as a flood search or topographical contours of the property or aerial views required by the buyer’s lender”
- Property inspection expenses – “[E]xpenses you incurred as part of [the] due diligence to determine the status of the property both structurally and for its intended use”
- Financing expenses – “[A]ny fees charged by the buyer’s lender to facilitate the funding of the transaction and can include the cost of recording the mortgage, assignment of rents, recording the deed, lender administration and closing fees”
For sellers, closing costs for industrial property in south Florida typically include the following . . .
- Title policy – Covers “basic insurance requirements”(but the buyer will usually pay for specific lender-required endorsements to the title policy)
- ALTA survey – A new survey required by most lenders before lending on industrial property, usually costing around $800 and up
- UCC searches – “[S]imilar to title searches except they are done on any personal property or equipment that is being sold as part of the transaction”
- State and county transfer taxes – “[T]he deed stamps required by the local jurisdiction to be paid whenever title changes hands on a piece of property”
- Costs to clear title – Include “any amounts needed to pay off the seller’s existing financing on the property, record satisfactions of liens or mortgages, payoffs to municipalities, or any other expense that must be paid in order for the seller to deliver clean title to the buyer”
More on Industrial Property Closing Costs
What we’ve laid out above are the most common costs of closing that buyers and sellers will encounter at the closing table. Still, there are a few more points to consider concerning industrial property closing costs in South Florida . . .
The cost of closing a deal for industrial property involves many of the same costs for a residential closing. The biggest difference lies in the size of those costs and the additional amount of research involved.
Closing costs for industrial property typically run into several thousand dollars. But they are negotiable.
“All of the closing costs are negotiable between the seller and buyer. As a buyer you can, and should, have it stated in the contract which party will be responsible for each cost at closing such as title insurance, deed stamps, surveys and settlement fees just to name a few.”
In addition, in “a commercial real estate transaction . . . your lender could require you to put significantly more money into escrow or charge higher loan administration fees, points or any other cost they deem acceptable. Because of this, it is critical you negotiate all of the fees for your loan with your lender well in advance of closing.
Owing to these considerations, it’s advisable to have a good local agent who specializes in industrial properties and a qualified real estate attorney in your corner. Yes, this means additional expense, but ultimately the savings could be substantial at closing.
Get the Agent Advantage
Since profitability is paramount with industrial property, cutting closing costs is important. Be sure then to choose a team with the requisite experience in all aspects of industrial properties . . .
- Investing in a new existing property
- Selling your existing property for top dollar
- Looking for land for new construction
- Researching available properties
- Leasing a facility
Whatever your needs, go with the local South Florida agents who are ready to help take your business to the next level.