Friday, October 10, 2014

Selling #CRE? Seven things you MUST know

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This post was inspired by an article I read recently in our local rag. The emphasis was on residential but I believe there is a commercial real estate application as well. Before, I get to the good stuff, how about a little context?

I provide Location Advice to owners and occupants of industrial buildings in Southern California...AKA, I sell and lease commercial real estate for a living and have since 1984. I have advised thousands of owners over the years which should qualify me as an expert du jour.

So to the good stuff (seven things you MUST know before you sell or lease your building), I promised...

Is NOW a good time to sell or lease commercial real estate. I was approached in 2009 (probably the bottom of our market in SoCal) by a friend and client of mine. He owned three commercial real estate assets that he purchased in 2001. All were multi tenant projects with reasonable occupancy BUT with over market rents. His desire was to sell the three buildings as a package and re-invest the sale proceeds into distressed buildings. I explained to him that this was an AWFUL time to sell because the over market rents would be marked to the lower market rents and he would be lucky to sell the three for the price he paid eight years before. He appreciated our candor and listed the buildings with us for LEASE and LEASE RENEWALS. Recently we have advised the owner that NOW is a GREAT time to sell and he is pondering.

How is my broker received in the market. Before you hire a broker to market your commercial real estate, ask him for the names and numbers of his three biggest competitors. Call these folks and ask them, "what do you think of ________"? LISTEN. This is critical. You don't want a broker with a shady reputation representing your commercial real estate to the market.

What is the market's perception of my building. Ask this question during the interview process when hiring a broker to sell or lease your commercial real estate AND after you list the building for sale or lease. LISTEN. The market can tell you things that your broker may be fearful of telling you.

Where is the occupant of the building going to go. We have had two situations recently (I represented the buyers) of occupants who couldn't find replacement space because the market is so tight. Even if you have cancellation clauses in your lease with the occupant, if he can't find a place to move, guess what, he won't move!

What are the three most recent COMPS that REALLY compare to my building. Anyone can cite general deal points...price, financing, buyer or tenant...BUT what about things like, how long was the building on the market? What, if any pricing adjustments were made during the marketing? Where was the buyer's previous location? Did the buyer or tenant grow into the space or was it a downsize? Why was this particular building chosen...power, yard, price, lease renewal of an existing occupant, option to buy exercised, etc.? Why was this COMP chose as a comparable to my building?

Are there any "headwinds" looming that I should consider. How would you have felt in June 2012 if your broker had ill advised you of the impending tax law changes. In effect, you would receive approximately 8% less if you closed in January of 2013 vs December of 2012. I'm guessing you have been more that 8% upset!

How many buildings JUST LIKE MINE are available. AND how many, just like mine have leased or sold in the past year. This quick analytic will let you know how many "weeks of business" are on the market and will help you gauge marketing time. if it appears that you are in a seller's environment...as we are in SoCal...you can aggressively push pricing...even if the recent comps don't support it.