A Comprehensive Guide to CRE Closing Costs in Brooklyn, NY
Understanding commercial real estate closing costs is an important part of buying or selling commercial property in Brooklyn, New York, including multifamily, mixed-use, retail, and development sites. Beyond the purchase price, transaction expenses can have a meaningful impact on a seller’s net proceeds, a buyer’s required equity, and the overall economics of a deal.
Understanding these expenses can help investors evaluate opportunities more accurately, avoid unexpected costs, and make more informed decisions.
What are the Closing Costs for Selling Commercial Real Estate in Brooklyn?
Owners can anticipate closing costs between 7% and 11% of the final sale price, before any capital gains taxes. These expenses can include New York City and New York State transfer taxes, legal fees, broker commissions, financing or debt-related costs, and miscellaneous property expenses. Sellers should plan for capital gains taxes separately, when applicable.
New York City Real Property Transfer Tax
The New York City Real Property Transfer Tax (RPTT) applies to sales and certain other transfers of real property within the city, including some transfers of ownership interests in entities that hold real estate. For residential properties with one to three units, the rate is generally 1.0% for properties valued at $500,000 or less and 1.425% for properties above $500,000. For commercial properties, including multifamily buildings with four or more units, mixed-use, retail, office, industrial, and vacant land, the rate is generally 1.425% at $500,000 or less and 2.625% above $500,000. Property classification and transaction structure can affect the final tax obligation, so sellers should confirm the applicable rate with a qualified professional.
New York State Real Estate Transfer Tax
Sellers may also be responsible for the New York State Real Estate Transfer Tax. For commercial transactions in New York City below $2 million, the rate is generally 0.4%, while transactions of $2 million or more are subject to an additional 0.25%, bringing the total rate to 0.65%. Combined with the NYC transfer tax, this can represent a meaningful portion of total seller closing costs.
Capital Gains Taxes on Commercial Property Sales
Capital gains taxes depend on the seller’s tax basis, holding period, transaction structure, and overall tax situation. Short-term capital gains generally apply to assets held for one year or less and are typically taxed as ordinary income, while long-term capital gains generally apply to assets held for more than one year. Long-term gains are generally taxed at federal rates of 0%, 15%, or 20%. Sellers may also owe depreciation recapture (taxed at up to 25%), the 3.8% net investment income tax, and New York State income tax. Qualifying investors may be able to defer certain capital gains taxes through a 1031 exchange, which allows proceeds to be reinvested into qualifying like-kind real estate under applicable requirements and deadlines. Inherited real estate may also receive a stepped-up tax basis, which can affect the taxable gain when the property is sold.
Legal Fees
Attorney fees for a Brooklyn commercial real estate transaction vary based on the size and complexity of the deal. Costs may reflect purchase and sale agreement negotiations, contract preparation, tenant or lease-related matters, liens, title issues, and closing documentation. For many middle-market transactions, legal fees may range from approximately $5,000 to $15,000 or more.
Commercial Real Estate Broker Fees
Brokerage commissions vary based on the size, complexity, and structure of the transaction. At Matthews™, broker fees may follow a waterfall structure and generally range from approximately 2% to 6% depending on transaction size. When outside brokers or buyer representatives are involved, commissions may be allocated among participating parties based on the brokerage agreements in place.
Other Potential Seller Closing Costs
Additional seller expenses can arise from the property’s operations, physical condition, title, or regulatory compliance. These may include lien or debt clearance, outstanding fines, title issues, property surveys or survey updates, utility reconciliation, deferred maintenance, and building or compliance matters. Addressing these items before bringing a property to market can help reduce delays, unexpected expenses, and the potential for retrades during due diligence.
Example of Seller Closing Costs
For a Brooklyn multifamily property with four or more units selling for $1.75 million, assuming clear title and a qualifying 1031 exchange:
- Estimated Total Expenses: $147,687.50
- Estimated Net Proceeds: $1,602,312.50
- Net Proceeds as a % of Sale Price: 91.56%
*Download the full report for an illustrative breakdown of selling closing costs. Actual seller closing costs will vary depending on the property, transaction structure, brokerage agreement, tax circumstances, and other deal-specific factors.
Buyers should account for both the equity required to acquire the property and additional expenses associated with financing, legal due diligence, inspections, title work, and closing. Banks, credit unions, and agency lenders may offer competitive financing, although available leverage can vary based on factors such as property type, rent regulation, vacancies, lease terms, property condition, cash flow, and the existing rent roll.
Down Payment and Good Faith Deposit
Buyers commonly provide a 10% good faith deposit when executing a purchase and sale agreement. If financing provides approximately 65% to 75% loan-to-value (LTV), the buyer would generally contribute approximately 25% to 35% of the purchase price as equity, in addition to applicable closing and financing costs. The contract deposit typically becomes part of the buyer’s total equity contribution at closing rather than an additional expense.
Who Pays Transfer Taxes in New York?
In many New York commercial real estate transactions, the seller is responsible for transfer taxes. However, this can become a negotiated item in certain transactions, including new developments or specially structured deals. Buyers should review the purchase agreement carefully to confirm which party is responsible for each transaction expense.
Legal and Due Diligence Costs
These costs can include contract negotiations, lease and rent roll review, title review, zoning analysis, financing documentation, and closing coordination. Buyers should also budget for property-level due diligence, including environmental assessments, engineering reports, inspections, and other third-party evaluations, which can add $5,000 or more depending on the size, age, condition, and complexity of the property.
Commercial Real Estate Financing Costs
Financing expenses vary based on the lender, loan size, leverage, and acquisition structure. Typical costs can include title insurance, a Phase I environmental assessment, appraisal, lender legal fees, loan origination fees, debt brokerage fees, and other lender-required reports. Title insurance may represent approximately 0.4% to 0.6% of the transaction amount, while appraisal costs may begin around $3,000 and increase with complexity.
Lender origination fees may be quoted in basis points or as a percentage of the loan amount. Lenders may also require a good-faith deposit after a term sheet is executed, with those funds generally applied toward third-party due diligence and financing expenses. Refundability depends on the lender and terms of the agreement.
Mortgage Recording Tax
Buyers who finance a purchase in New York City should also budget for the mortgage recording tax, which is paid when the new mortgage is recorded. For commercial properties, including multifamily buildings with four or more units, the combined New York State and New York City rate is generally 2.05% on loans under $500,000 and 2.8% on loans of $500,000 or more. The tax is based on the loan amount, not the purchase price. For buildings with six or fewer residential units, the lender generally pays 0.25% of this tax.
Example of Buyer Closing Costs
For the acquisition of a $1.75 million Brooklyn multifamily property with seven or more units using bank financing at 75% LTV:
- Estimated Total Acquisition Cash Requirement: $511,906
- % of Purchase Price: 29.25%
*Download the full report for an illustrative breakdown of buyer closing costs. Actual seller closing costs will vary depending on the property, transaction structure, brokerage agreement, tax circumstances, and other deal-specific factors.
How to Prepare for Commercial Closing Costs in Brooklyn
Closing costs should be incorporated into an investor’s analysis well before a property reaches the closing table. For sellers, this means accounting for transfer taxes, brokerage commissions, legal expenses, potential capital gains exposure, outstanding property issues, and expected net proceeds when evaluating an acceptable sale price. Buyers should look beyond the down payment and consider legal fees, title insurance, lender expenses, inspections, third-party reports, and other costs that affect the total cash required to complete an acquisition.
Preparation can also begin well before a transaction is underway. Staying current with building maintenance, resolving liens and violations, maintaining accurate property records, and complying with New York City regulations can help minimize unexpected issues during due diligence and closing.
Ultimately, commercial real estate closing costs in New York City can materially affect both a seller’s net proceeds and a buyer’s total investment. Understanding these expenses early allows investors to evaluate transactions more accurately and make better-informed decisions. Experienced commercial real estate brokers can also help anticipate potential issues, coordinate with attorneys and lenders, and evaluate transaction structures. For sellers considering a 1031 exchange or other tax strategy, early coordination among brokerage, legal, and tax professionals is particularly important.
The figures and examples included in this guide are estimates provided for informational purposes only and should not be considered legal, accounting, or tax advice. Tax rates, regulations, financing terms, and transaction costs may change over time.
Buyers and sellers should consult qualified transactional attorneys, accountants, lenders, and other appropriate professionals before making investment or transaction decisions.
