8 Pros & Cons of Selling Commercial Property Off-Market

As a real estate investor, the idea of selling commercial property in an “off-market” transaction, – that is, without a publicized marketing effort, – may appear desirable to some owners.

 

A Commercial Real Estate property is a property used specifically for business-related purposes.

 

One of the biggest advantages of commercial real estate is the potential for significant long-term cash flow stability. When selling commercial property, there is also the potential for capital appreciation. Commercial real estate properties are usually used for income-generating activities.

 

What are the Different Types of Commercial Real Estate?

 

Commercial real estate is categorized into different groups: office, industrial, multi-family rental, retail, mixed-use, hospitality, and land. These individual groups are also broken down into “class” categories:

 

  • Class A represent buildings suitable for institutional investors in terms of age, infrastructure, location, and aesthetics.
  • Class B buildings are often older properties once considered Class A, and now ripe for repositioning through upgrades and renovation.,
  • Class C buildings are often obsolete properties, in less desirable locations, and in need of major rehabilitation.

While there are several reasons to consider selling commercial real estate off-market, there are also many benefits to having exclusive representation. Before jumping into the pros and cons of selling commercial real estate, here are some of the benefits of hiring a brokerage firm:

 

What are the Benefits of Selling Commercial Property with A Brokerage or On-Market?
In order to get the highest price when selling commercial real estate property, you will want to sell the property “on-market” through an exclusive agreement with a professional real estate firm.

 

Benefit #1 – Selling Commercial Real Estate with a Broker Drives Competition
The #1 benefit to sellers of a professionally marketed investment property is the competition created among qualified buyers. It is this competition, and the “fear of loss” which ensues, which can drive the building selling price up and net the seller higher proceeds at closing.

 

“I truly believe competition drives pricing. The more eyes on a property, the more tours, the more offers, etc. There is no substitute for a full marketing process led by a qualified Investment Sales Broker under an exclusive representation agreement to create an environment where as many qualified bidders as possible are pursuing a property. Objectively that process will yield the highest possible price at the best possible terms for a seller.” -Bradley Balletto, VP of Investments

 

Benefit #2 – Investment Real Estate Associates Have Large Networks to Leverage.
Selling a commercial real estate property through a brokerage firm allows for the property to be shown to a larger network of qualified buyers. Associates know who to market a specific property to because they are talking to buyers and sellers all day long.

 

Benefit #4 – Marketing Your Asset Across Multiple Listing Platforms
There are numerous listing platforms that you can promote your property on such as LoopNet, Showcase, Ten-X Commercial CREXi, and Commercial Exchange. There are also sites for specific types of commercial real estate such as land or storage units. There are millions of views monthly on these listing platforms. And, signing on with a real estate brokerage firm, who syndicates across multiple listing platforms, will get you the most eyes on your property.

 

What Does Off-Market Mean in Real Estate?
An off-market sale is when someone sells their property without it ever hitting the public market. Essentially, the property trades without the public even knowing it was for sale, and it is never posted online or marketed publicly. There are two ways you can sell your property off-market:

 

  1. Using a brokerage firm to market your property quietly and directly to potential buyers with no public marketing

 

  1. Attempting to sell the property yourself without the help of a broker

 

Even if you choose not to have your property publicly marketed, it would be beneficial to hire a professional sales broker who can help you in selling off-market commercial real estate.

 

 

Additionally, The Right Investment Professional Will Give You the Advantage:

 

  • An investment professional should be an expert in your chosen property type and submarket. This will be reflected in the financial analysis of your investment property, as well as the pricing and marketing strategy proposed.

 

  • An investment professional should demonstrate a relationship-based approach that seeks to put the client’s long-term interests first, as opposed to being transaction-driven. The professional should not only know the specific product type and market, but also the many owners and investors and their acquisition requirements and transaction history.

 

  • These attributes of an investment real estate professional will position the associate to serve in an advisory role throughout the process, and ultimately manage the transaction through all stages to closing.

 

As a seller, your goals are typically to sell your property for the highest price, to the most qualified buyer, with the quickest and smoothest roadmap to a closing. By entering into an exclusive representation agreement with the right investment procession, you will typically net higher returns, benefit from the competitive process of a well-managed listing, and secure the best buyer for your property.

 

 

Pros of Selling Commercial Property Off-Market:

 

When selling commercial real estate off-market you may find the benefits to be:

 

  1. Minimal disruption to tenants and on-site management – without publicly stating your asset is for sale, the interest will be from highly interested parties – meaning that your tenants on-site will be minimally impacted.

 

  1. Maintain confidentiality of income and expense information – with or without the help of a brokerage firm when the property’s income and expense information will be shared with prospective buyers is under your control.

 

  1. Avoidance of seller-paid brokerage fees – if you decide not to hire a professional brokerage firm, you could avoid paying a fee. However, often the competition created by enlisting professional services gets you a higher selling price than if you didn’t hire a professional.

 

  1. Provides privacy for the seller and buyer – in off-market sales, you are able to maintain privacy due to the lack of public marketing.

 

  1. Benefit from an already established relationship between the broker and the buyer – if you decide to hire a professional brokerage firm, but still want to sell off-market, you can do that and still get the benefit of the associate’s relationship, knowledge, and experience.

 

Cons To Selling Commercial Property Off-Market:

 

 

  1. When an asset isn’t marketed correctly, it loses the benefit of having a competitive process that a broker brings. How will you position the property correctly and communicate the opportunity to qualified buyers who will pay the highest price? Selling a property off-market means that it will get less exposure than if it is listed with an investment sales professional. This results in fewer potential buyers seeing the property, less competition, and fewer qualified offers.

 

  1. Marketing and transaction management is an acquired skill set, with a dramatic impact on the probability that your sale ever closes. If marketing and transaction management skills are not in your wheelhouse, it can slow down the process of selling a commercial property. You should consider how will you run an off-market campaign, find a qualified buyer, manage the transaction, and remove all contingencies, and maintain a negotiating position of strength throughout the process.

 

  1. Facilitating the sale of investment real estate is a high-stakes activity, not for the faint of heart. In untrained hands, and the absence of competition, transactions rarely go smoothly, and buyers are notorious for renegotiating. Having the experience and knowledge when these issues arise will determine whether the transaction is financially successful or leaves you frustrated or worse.

 

The commercial real estate industry and economic environment are constantly changing.

 

For non-professionals without a pulse on the day-to-day of the market, the practice of selling a commercial property off-market may be more challenging than ever contemplated. And the perceived benefits in confidentiality and fee-avoidance are inevitably outweighed by the unanticipated cost to many sellers in “off-market” transactions.

 

Selling a commercial property can be a very stressful situation. It is very time consuming and requires a ton of research and planning. For the process to go as smoothly as possible, selling commercial property with an associate, on the market, is the best way to go.

 

In the end, it will allow you to create the most competition, work with a larger network of qualified brokers and buyers, and ultimately, allow for the highest closing price.

 

The Traditional Process of Selling Commercial Real Estate

 

As an investor, if you choose to go the route of executive representation with a real estate broker, you can expect to go through the traditional process of selling commercial property.

 

Whether you’re going through the process for the first time or the 3rd time here is a quick overview of the steps in selling a commercial property:

 

  • Initial Consultation of Seller’s Goals – To help you in selling commercial real estate, associates will discuss what goal you’re trying to archive.
  • Property Evaluation – To evaluate the property, you may be asked to provide a tour, and copies of your documents and records such as rent roll and expenses relating to the asset.
  • Marketing Packet – Once you have listed your property, the firm will create a specialized marketing packet.
  • Contact & Qualify Buyers – In addition to conducting proactive outreach to potential buyers, a good real estate professional will also interview those potential candidates to assess their ability to buy.
  • Educate Buyers – Associates will educate potential buyers about the specifics of your asset.
  • Present Offers and Manage Negotiations– When your associate receives an offer(s), they will present those offers to you and manage any negotiations between you and the buyer.
  • Facilitate the Due Diligence, LOI, and Closing Process – In addition to facilitating the associate will also work your attorney and troubleshoot any challenges that arise to bring the property to closing.

 

 

To learn more about our award-winning investment sales team, and to benefit from our regional platform and expertise, please contact us at admin@northeastpcg.com

 

Northeast Private Client Group specializes in assisting investors, owners, and syndicators of mid-market multi-family real estate properties between $1M – $50M in the Northeast and Southeast regions. We represent sellers exclusively with their best interests in mind. We establish a trusted relationship by providing knowledge and guidance to help our clients achieve their individual goals for maximizing value and return on the sale of their real estate investment. Our highly disciplined process is just one of the many reasons the firm has earned CoStar’s Power Broker designation year after year. To learn more, visit www.northeastpcg.com.