Why so many off-market real estate transactions? – Orange County Register
Thank you dear readers for following my letters over the past six years because with this week’s column we are celebrating an anniversary! Yeah. The first column written by yours truly was Super Bowl Sunday 2015. Oh, how the years have gone by. Thank you! Here are six more. What are you saying ?
Recently, I have observed a phenomenon of market activity rarely seen in my years in commercial real estate – that of “what is beneath the waves”. A lot of deals these days, similar to a stylishly dressed Zoom attendee from the waist down but wearing pajama bottoms, roll out of sight. Called “off the market”, these secret agreements dominate!
So you might be wondering why. I certainly am. Let me give some opinions.
First, a bit of contextualization. Historically, the motivation to accept an unsolicited offer has been related to one of the following: Selling pressure such as a pending loan deadline or foreclosure. Desire to avoid disruption to a business – after all, publicly marketed offers come with visits – people are walking around. Sale of the operation. Often times, the buyer of the business will pay the most for the real estate housing the business. Despite these triggers, the seller’s product is usually maximized by casting a wide net.
There is also a negative angle with off-market selling. You can leave money on the table, you don’t have a lawyer to walk you through the market conditions, and no checks have taken place. There could be an unresolved title issue, a leaking roof, or a stubborn tenant who needs to be relocated. Don’t forget the tax impact of the sale. Sure, you’ll face that anyway, but when that offer comes in, do you understand the after-tax net proceeds?
But, these days we are seeing sales happening despite all the hurdles listed above. The appetite for industrial buildings for buyers to occupy, developers to scrape and build new ones, or investors to satisfy tax-deferred trade is ravenous!
If you are a seller – or planning to sell – your options are to list or not. Hmm, that sounds like an idea for an HGTV show. If you make a list, your broker will perform a process: plant a sign in front, create marketing materials, notify local agents, post in multiples, and alert neighbors. Sprinkle a fly drone, Matterport tower, a few digital pushes and voila! Let the games begin.
But with the obscene lack of inventory, many practitioners are calling sellers with another approach. Just accept our proposal, shorten time to market, avoid disruption, and by the way, the buyer we have will pay us, offer you the best price, and close with no funding eventuality. Bam! The sellers are reacting favorably.
But, also at stake is what I call “mini-marketing”. Here is how it works. An owner gives an indication that they will complete a transaction. Brokerage help in engagement. A brief information sheet is prepared describing the offer – all with the seller’s consent. The best half-dozen buyers are solicited. Typically four will have a strong interest. Boom.
Finally, a stakeholder may have no interest in selling. He may only want to lease the building and keep it for the long term. But, in the process of finding a tenant, the buyer activity is flooding his mailbox. At the price people are paying, he cannot refuse. In addition, it can sell high and redeploy in a tax more advantageous state like Texas or Nevada and strengthen its yield.
So, to find out what’s really going on, take a look below the surface. You might just find that whale from a buyer you are looking for.
Allen C. Buchanan, SIOR, is Principal at Lee & Associates Commercial Real Estate Services in Orange. He can be reached at [email protected] or 714.564.7104.