The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
What a real estate offering memorandum is and what it should be are sometimes two very different things. Ideally your real estate offering memorandum should include financials, locations, traffic counts, demographics, and anything else that could be known to make a decision about buying an asset. These essential data points should clear up all details about a property one may be interested in acquiring. However, in some instances, an offering memorandum can leave out some key pieces of information, like a debt quote for instance, and this raises a big red flag. Offering memorandums that fail to include critical information will often result in properties not being sold.
Richard: What is a commercial real estate offering memorandum?
Ben Marks: So, I’ll tell you what it should be. When I started out it was a compendium of information and data that was accurate and specific about a specific commercial real estate. And so things everything you could possibly want to know to make a decision about buying the asset from the financials, to the locations, ariels, traffic counts, demographics, if it’s a retail property, store sales. Data points that are I would call them essential to helping not only a purchaser but also a lender, because you know my background is in banking. So what amazes me is there’s so many times I’ve talked to brokers and they’ll put out an offering memorandum and they won’t put in a debt quote. And my first question is – guys, 80% of this, as I mentioned earlier, is financed by debt. Have you guys gotten a debt quote? And sometimes they’ll have one and not put it on, but more times than not they wouldn’t even bother to going out and getting one. So that’s sort of an indication to me that you’re dealing with a broker that doesn’t know what they’re doing because the only way those deals are getting done are financed. And in many cases what the broker will find out after I’ve gone to the trouble to get my debt financing together is that the asset isn’t financeable. And so guess what happens when 80% of the structure is supposed to be financed at cheap debt at 2 or 3% and the banks for whatever reason in this scenario won’t finance it? Well that means that asset isn’t getting sold. And so those are the kinds of things and why I say that’s what it should be. I’ve seen some real great wins and I’ve seen some wins that are just terrible. So that’s what in my opinion I think a good offering memorandum should do.