Read the Tea Leaves to Move Your Commercial Real Estate

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Hours of prospecting, client meetings, and presentations have resulted in a new assignment. Awesome! You’ve carefully scrutinized each sale and lease deal. You’re up to speed on your competition - you’ve toured each building with which you compete. Prepared is your owner. She understands the tax impact of a sale or the origination costs of a lease and is on board. All that’s left is to produce that glossy brochure, plant that sign, call the neighbors, and publish in the multiple listing service. Now the fun begins! You must interpret the market signals - AKA “read the tea leaves” - to guide your owner to a successful close. Here are a few of my favorites.

Lots of inquiries - no tours. Something is awry - and typically it’s not the asking price. We experience this when a key feature is missing - IE: the electrical feed is substantially below average. Or, there is too much office space in the building. Compounding the office issue is a percentage of mezzanine. You see - mezzanine may be counted as overall square footage - thus it can’t be easily removed. Outside yard storage area is a very desirable component. If this is lacking - you’ll get folks inquiring to see if a yard can be added. If the answer is “no” - no reason to tour.

Tons of tours but no offers. Generally, this means the offering is solid with an amenity laden building - at least on paper. The asking price seems fair based upon the market comps and current availabilities. But when prospects actually view the building - warning sirens blare. This could be signs of deferred maintenance, an unworkable office layout, an unusually messy tenant in the space, or a farm of 55 gallon drums in the yard.

Offers well below asking. We are seeing this a lot currently. Buyers ignore the asking price and simply offer at their comfort level. I refer to this as “making the market the bad guy”. Please understand - I’m not suggesting you puff the price of an offering. However - what a ready, willing, and able buyer will pay is the best indicator of what your building is really worth.

Many offers at asking. Eureka! You’ve priced the listing correctly, building features are appealing, and interest has been generated from qualified buyers. Now it’s incumbent upon you to ensure the buyers can perform. Don’t simply assume that pre-qualification letter from the buyer’s lender is for real. Ask the tough questions. Cross qualify if necessary. Get a complete understanding of the buyer’s story - are they presently leasing? When does their lease expire? Are they expanding, contracting? What is their source of funds? You need to select the right buyer the first time. False starts are painful.

Crickets. Oops. You missed the mark! Pricing is too high. Location blows. The space lacks numerous features which cause it to be undesirable. Encumbering the building is a short term lease - thus occupants can’t move in immediately. You’re attempting to lease the building when the majority of activity is sales or the opposite - no one is buying and that’s your direction. Adjust course matey!

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.com.