Turnkey commercial real estate solution: the story of Gerhart

I live and do business in Germany, and my business interests are related to commercial real estate. The company I own buys office and warehouse space and then rents it out. In recent years, this segment of the real estate market in Germany has been stagnating, so I started thinking about entering the UK market.

Gerhart, 53 years old

A real estate investor from Germany

Clients’ names and photos have been changed

Investing in commercial real estate requires significant capital, an understanding of the market situation, careful planning and painstaking legal work. Business people interested in office or warehouse space are very cautious when choosing a company to carry out their assignment. Therefore, the proposal from Gerhart, a German investor working in the commercial real estate segment, became a real test of professionalism for our specialists.

The task set by Gerhart was not an easy one. The 53-year-old German investor wanted to enter the UK commercial real estate market, starting with a suitable warehouse or office building, premises for a shopping and entertainment centre, a logistics zone or a production base. The peculiarity of the case was that Gerhard could come to the UK for a few days to conclude the deal, but did not plan to move or make regular visits to the United Kingdom. He was also not prepared to spend a significant amount of time or delve deeply into organisational issues.

Another of Gerhart’s wishes concerned the management of the property. He did not want to delve deeply into organisational issues, including finding tenants and ongoing repairs. For him, entering the UK commercial real estate market was a test project focused primarily on making a profit. Therefore, the client wanted to hand over the management of the property to our specialists.

Gerhart did not require us to develop a detailed business plan or guarantee a stable and steady rental income. Our specialists had to prepare approximate calculations of the payback period, but there were no restrictions on the area, class of property or number of floors. The client agreed to invest some money in initial repairs, but the need for expenditure for each proposed property required additional calculations.

Our actions

First of all, our specialists analysed the market situation and identified the types of properties that might interest Gerhart. We assessed the actual investment attractiveness of each of them and calculated the return on investment in 3 years. The property that seemed most interesting to us was a complex of industrial and commercial buildings in the port area of the city.

Preliminary discussions with the owner were positive. We prepared and conducted negotiations between him and Gerhart, using the capabilities of a digital platform for video conferencing. During these negotiations, both parties finalised the details of the deal and approved a plan for further action.

Just in case, we tried to find an alternative option. But any other offers on the commercial real estate market were less interesting. Their main drawback was unclear prospects for return on investment, explained by their narrow focus. The property we selected for Gerhart was a complex of buildings. Office space, warehouses, workshops, logistics and processing centres. Each property complemented and expanded the capabilities of the others, so the risks for Gerhart were minimal.

Before signing the contract, as part of the legal support for the transaction (conveyancing), we conducted several additional special checks:

• the actual legal status of the property — who is the real owner, are there any legal restrictions, outstanding debt obligations or hidden court orders;
• the form of ownership — freehold (full, unrestricted ownership) or leasehold (effectively a long-term lease); our client was only interested in commercial property of the first type;
• the exact amount of tax liabilities;
• additional and hidden costs — taxes, transaction registration, service fees, etc.;
• objective technical condition;
• assessment of the area’s infrastructure — access roads, road quality, parking spaces;
• approximate costs of maintaining the building complex;
• prospects for resale in a few years (in case Gerhart decides to close the project and return the money spent).

The most crucial stage is legal control of the transaction. The rule “trust but verify” applies to residential real estate, but for the commercial segment it becomes decisive. The specialists at Imperial & Legal have completed all the necessary legal procedures required by UK law, so there will be no problems for Gerhart in completing the transaction or in the future when the investment project actually starts operating.

Gerhart’s journey with Imperial & Legal

All-inclusive service

Imperial & Legal’s approach to client assignments differs from the norm. We want not only to complete the task, but also to offer the client a comprehensive solution that takes into account all the circumstances of the case. We strive to minimise the client’s involvement in organisational and legal activities.

In the case of Gerhart’s assignment, this approach meant that after the transaction was completed, we discussed the client’s request to take the property under trust administration. The essence of the service is that our specialists will handle all organisational matters, but Gerhart will retain the right to make any strategic decisions.

This eliminated the need for the client to visit the property in person and, as a result, to make regular trips to the UK. Gerhart will be able to focus entirely on running his business and not waste time on administrative matters. This means that we did not just help the client resolve a specific issue (the purchase of commercial property in the UK), but created all the conditions for the stable development of his investment business.

What the client got:

• our specialists took care of all the hassle of selecting commercial property in the UK, the purchase and sale procedure, and property management;
• the property provided a good rental yield throughout the entire period of ownership;
• after 3 years, we were able to sell the commercial property complex at a profit;
• The net profit (after deducting overhead costs and payment for our services) was approximately 25%, which is a very good indicator for the UK.

Conclusion, findings

When we completed the sale of the building complex, Gerhart said that he did not particularly believe in its success, as he did not consider the UK commercial real estate market to be profitable. But with us, he became convinced that with the right, comprehensive approach, such projects have every right to exist.

The client asked us if he could contact us again in a few months for help, as he was planning a major investment in commercial real estate. The project was large and complex, but for us it was profitable and interesting. We agreed and wished Gerhart success in his business.