50 unit apartment purchase process

[Mike Xiao]

Hi,

What is the typical process that goes into purchasing a larger apartment complex?

I was searching for a step by step typical outlined process online somewhere, but couldn't find anything. I was looking for something that would start from the LOI all the way up to closing.

I'm familiar with residential real estate process, and closed on a smaller 8 unit commercial complex.

But I'm wondering for larger commercial deals (say $10M-$20M).....what is different in the process from say your typical residential purchase?

I have my broker, but she has some commercial experience, but mostly residential.

Is it advised to get a lawyer involved and CPA to analyze the books, etc?

[Don Konipol]

The larger the transaction, the more thorough the vetting process will be. This means that before a potential buyer is allowed to enter negotiations, and certainly before sensitive financial information is released, the seller and or his agent will want to be convinced that the buyer has the ability and willingness to complete a purchase. Specifically, they will be looking for capital for a down payment and operating expenses and reserves, capability to obtain financing in an amount sufficient to close the deal. They will want to see what lenders will want to see to qualify the buyer; personal financial statements, credit reports, relevant experience, banking relationships, etc. This is not the same process as a SFR purchase, where the buyer obtains a letter of qualification from a dubious mortgage broker; this is a very intensive evaluation.

That being said, nothing is to stop any interested party, qualified or not from making an unsolicited offer.  In 99.9% of the cases the party making the offer will be asked to provide the documentary proof mentioned previously, and of course rejected should the seller not believe he will be able to complete the transaction.  Sellers do not want to go through the time, effort and exposure, or tie up their property, in a transaction that has no chance to close.

There are those extremely rare cases, that become real estate legend, in which a buyer with little capital, and no borrowing capacity, is successful in convincing a seller of a large, expensive property to take him seriously and is able to perform a high wire act of raising capital from a variety of unconventional sources and actually complete the purchase.  More common is the potential buyer who pays large sums up from for the promise of financing that disappears once payment is made.  Too, the borrower in this situation must carefully vett the source of capital available to himself in these situations; he could find himself in the middle of a money laundering scheme or as a front man for a drug cartel, where his eventual choices can be incarceration or death.