February 2010

Understanding the Acquisitions Process
peeling back the layers on the subtleties of the buy-side

By: Mark Mayfield, CCIM & Randy Graham | Managing Directors

Sperry Van Ness | Southern Commercial Real Estate | Rock Hill, South Carolina

One of the most important parts of the commercial real estate lifecycle is the acquisition phase. I believe most reasonable people would admit that the best way to have a successful outcome to any real estate venture is to get off on the right foot to begin with. While it’s certainly possible to “rescue” a troubled project, the best way to safeguard against a troubled scenario is to minimize future risk through the implementation of a sound acquisition plan. In the text that follows, I’ll offer some thoughts about some of the most common acquisition mistakes and how to avoid them.

Put simply, bad acquisitions are not healthy for financial sustainability. I’ve had the displeasure of watching lenders, investors, tenants and owners all suffer through the devastation and turmoil created by a bad acquisition. Whether it was due to lack of planning, leasing the wrong space, lending or investing in the wrong asset class or in the wrong market, getting whipsawed by buying into changing market conditions, paying too much for a property, or missing a critical window of opportunity, a bad acquisition usually spells trouble down the road. The sad part about what I’ve just described is that in most cases, these bad acquisitions could have been easily avoided by filtering them through a well conceived acquisition model.

Before I go any further, I want to dispel the myth that bad acquisitions only happen to inexperienced buyers…this is simply not true. Experience, while certainly a good hedge against a bad acquisition, won’t save you in all instances. Over the years, I’ve observed some very bright industry veterans end up on the wrong side of a bad deal. Don’t believe me? Go ask the smartest real estate investor you know to tell you about the worst acquisition they ever made - I’ll guarantee that if they’re being honest, they’ll have a painfully entertaining story to tell you.

Having been involved in literally countless acquisitions over the years, what’s interesting to me is how many bad acquisitions occur when buyers get most things right. All it takes to have a deal go sideways is to miss one key element, or misinterpret just a single critical piece of information. An understanding of this subtle, yet important concept is what separates the amateurs from the professional.

Successful acquisitions require the proper blending of access to deal flow, timing, opportunistic instinct, actionable market intelligence, sound due diligence, access to professional counsel, and the integration of the target acquisition into capital, operating & exit plans, which in turn fit into the overarching business strategy. But most importantly, it is placing all of these elements under the rigor and scrutiny of being managed within a sound acquisitions process that keeps a deal from running amuck.

What sophisticated buyers understand that the masses do not, is that sound process doesn’t stifle opportunity, it enhances it. A well crafted business process surrounding your acquisitions criteria keeps impulse and emotion at bay, while serving to validate or invalidate information and instincts. There is simply nothing bad that can come from framing your buy-side opportunities within the construct of a well reasoned acquisition plan.

While textbooks have been written on the finer points of the acquisitions process, I’ll leave you with these actionable steps to incorporate into your acquisitions plan, which if implemented, can help you avert disaster and improve returns...

 

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In 1996, Mark Mayfield and Randy Graham started in business together and in 1999 started their own company Southern Commercial Real Estate, LLC (“SCRE”) in Rock Hill, South Carolina located 15 miles south of Charlotte, NC.  With a successful track record and established entity, SCRE expanded its services and national reach on January 1, 2007, by joining forces with a nationally recognized leader in commercial real estate brokerage, Sperry Van Ness, to form Sperry Van Ness/Southern Commercial Real Estate, LLC.

  • Sperry Van Ness was founded in 1987, when Rand Sperry and Mark Van Ness created  a commercial investment real estate firm with one key mission: To create unprecedented value for commercial real estate investors.  Today Sperry Van Ness is one of the largest, most respected and fastest growing commercial real estate brokerage firms in the industry.
  • Sperry Van Ness currently has more than 1004 advisors internationally.
  • Sperry Van Ness is located in more than 150 cities across the US, as well as in Costa Rica and Panama.
  • Sperry Van Ness completed over $11.6 billion in sales and leasing transactions in 2007. 

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Mark J. Mayfield, CCIM

Managing Director|BIC

Randy Graham

Managing Director

1926 India Hook Road | Rock Hill, SC 29732

803.325.1000 | 803.325.1214 | www.svn-scre.com | info@svn-scre.com