When Your Commercial Deal Isn’t a Commercial Deal At All

For our Commercial Real Estate friends, K&A is happy to be a resource for your clients when they need to sell more than a building. We’ve assisted many realtors whose clients need market data about the value of their business, or who need an M&A professional to sell the business.

From Texas Realtor magazine

Written by Will Curtis

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When Your Commercial Deal Isn’t a Commercial Deal At All

The lines can blur between a real estate transaction and a transaction to sell a business. Know what to look for and why you should stick to your area of expertise. Venturing into the realm of commercial real estate can feel like navigating a labyrinth, with its own set of hurdles and secrets to uncover. Grasping the intricacies of how this sector ticks—from conducting searches on comparables to pinpointing the most lucrative use of a property—isn’t something one masters overnight.

Occasionally, the journey takes an intriguing detour beyond mere real estate transactions. Owners of retail establishments, gas stations, hotels, car washes, and other businesses may contact you about selling property, but those deals often intertwine with business brokerage, a field off the beaten path for
those holding a Texas real estate license.

Here’s a twist: business brokerage—distinct from commercial real estate—deals primarily with the sale of operational businesses, sometimes including their real estate. Imagine a bustling restaurant up for sale; it’s the business that’s changing hands, not necessarily the building it occupies.

Don’t confuse the two disciplines

For agents accustomed to the commercial real estate landscape, stumbling into business brokerage could happen by sheer accident. It’s a fascinating crossroads but comes with a caveat: There is no specific licensing requirement in Texas to conduct business brokerage. While this might sound like a green light to dive in, it raises questions about competence and ethical standards.

Valuing a business is a discipline that is not the same as valuing a property. It requires access to specialized databases for accurate comparables. This process is starkly different from evaluating a property simply based on cash-flow statements. It demands a deep dive into a business’s profit and loss accounts, sifting through numerous factors to identify what holds real value for a potential buyer.

Business brokerage has additional risks and demands

Don’t assume your errors and omissions insurance has got your back here. Many policies don’t extend to cover business brokerage, a gap that could lead to costly lessons. You won’t find Texas REALTORS® contracts that cater to business sales, necessitating a different contractual approach. You probably will need to hire legal professionals to craft the necessary agreements.

Marketing a business for sale is unlike marketing real property. It targets a distinct set of buyers. The goal is often to keep the sale under wraps to maintain business as usual and protect the company’s value—a stark contrast to typical commercial real estate transactions.

Still interested? Start here

So, your eyes are wide open and you’re still considering getting into business brokerage? Start with education. Immerse yourself in training programs offered by trade associations or delve into academic courses focused on business valuation. Finding a mentor in the field can provide invaluable on-the-job insights. And, crucially, ensure your brokerage’s policies and insurance coverage align with your
business-brokerage ambitions, keeping surprises to a minimum.

Though business brokerage is not for the fainthearted, with the right preparation and mindset, it can be an enriching addition to your real estate endeavors.

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WILL CURTIS, CCIM, CPM, is the Commercial Managing Director of Phyllis Browning Commercial based out of San Antonio and is a Texas REALTORS® instructor. His experience is in the office and industrial markets.