WHAT NOT TO DO WHEN SELLING COMMERCIAL PROPERTY
PLUS – 5 TIPS TO SELLING COMMERCIAL PROPERTY
I was looking up all of the commercial real estate expired listings in Florida through the MLS over the last year. I would look at each one to see if they were possibly overpriced and for other reasons that might stick out for the property NOT to sell. After looking at around three hundred or so properties over two days a common recurring them began to take shape. Ninety-five percent of the commercial listings that did not sell were listed by a residential agent.
You see, commercial properties are marketed in an entirely different manner than are owner-occupied homes. The buyers are looking for different information, and buying for completely different reasons. With commercial properties, it’s the return on monetary investment that counts, not the benefits of living in a home.
Successfully marketing commercial property requires additional financial skills that most residential agents don’t have, beginning with knowing how to determine the correct price for income-producing properties.
Marketing commercial properties also requires knowledge of where to find the buyers who are searching for such investments. As a commercial specialist, I even use specialized websites to showcase my listings, because I know which sites attract serious investor
Because PINELLASCOMMERCIALPROPERTIES.COM specialized in handling commercial properties for several years, I also have a list of qualified buyers who are searching for their next investment.
Since you’re an investor, you know that investors are interested in the return on their investment. Thus, the numbers are all-important. While they naturally want properties that will appeal to tenants, the floor plan, the condition of the property, and the neighborhood matter only in how they will affect the bottom line.
The difference in what the two kinds of buyers are looking for is why real estate agents who deal with single family homes are often unable to sell commercial investment properties. They simply don’t “speak the same language” as investors.
If you asked the average residential agent about cap rates, net operating income, or zoning regulations that affect business in a specific location you might be met with a blank stare. Investment real estate is simply not their area of expertise.
Because I specialize in selling commercial properties, I do know how to talk to investors and how to present my listings in the most favorable light.
Agents who specialize in commercial properties are required to know several things that residential agents don’t need to know. This specialized knowledge begins with pricing. Investors purchase multifamily housing to get a return on their investment. Thus, we have to know how to price a property to get the best return for the seller while showing the buyer that their investment will yield a return.
That means gathering the numbers, then calculating the income versus the expense, including debt service. Then, because potential investors are business people primarily interested in return on investment, we must present those numbers in the same manner that an accountant would present them. Unfortunately, many residential agents simply don’t know how to do these calculations or presentations.
While investors are interested in location, condition, and desirability to future tenants, those features are all reflected in the income, expense, and occupancy records.
Since many investors purchase commercial properties that could generate higher rents after a bit of remodeling, we also need to know the neighborhood trends and the going rents for other commercial properties in the vicinity, along with the vacancy rates.
Then we have to know where to find those investor buyers.
I do know, and I’d be pleased to put my knowledge to work for you. Visit me at PinellasCommercialProperties.com and put a experienced team to work for you
5 TIPS ON SELLING YOUR COMMERCIAL PROPERTY
Selling a commercial property is much more complex than simply ordering a sign and taking a few photos. Establishing a clear price strategy, understanding your potential buyers and marketing the property can all be daunting tasks. Here are five tips to assist in selling your commercial property. Comparable properties. A commercial real estate agent can run a ‘comparable properties report,’ which will indicate the price that similar buildings have sold for, the date of sale and proximity to your building. This will give you a beneficial impression of how the local market is behaving. Taking a tour of competitive buildings will provide you with hands-on market knowledge for your property. A property tour is the best way to see what your competitors are offering in terms of lease rates, amenities and location. After studying your competition first-hand, you’ll have a better idea of how your building measures up. While sales comparables and property tours can be helpful, investors are more concerned about the ability of a building to generate income. This is useful because a comparable building may have more amenities and lower vacancies, but generate less income than your property. Property valuation. It can be extremely difficult to find similar commercial properties for a true price comparison. Mixed use and large properties can make this task even more difficult, so this is why commercial property is best valued according to the building’s Net Operating Income (NOI). The capitalization rate of your property can be used as an easy way to compare your asset with others available on the market. The capitalization rate is the rate-of-return based on the expected income the property will generate (capitalization rate = yearly income / total value). For example, if you buy a property that will generate $130,000 per year and paid $1,000,000 for it, the capitalization rate is: 130,000/1,000,000 = 13%. Whether 13% is good or bad will depend on comparable cap rates in your area. If a majority of buildings have a 10% cap rate, you are in the lead! However, if they’re at 15%, you may have an issue. As a general ruleof-thumb for commercial real estate investors: ±10% is considered a ‘good’ return on their investment. While the capitalization rate is an easy way to compare your property against others on the market, it should not be the sole factor in your pricing strategy. Other considerations such as growth or decline of potential income, or an increase of property value should also be measured.
UNDERSTANDING INVESTORS POINTS OF INTEREST
Investors are interested in a set of selling points. Attracting the right buyer for your property will help it sell in a timely manner. Ensure your information is up-to-date and accurate, as it will come up at the negotiating table! It’s much easier to negotiate a strong and favorable contract if your information cannot be disputed.
Selling with vacancies versus no vacancy. Investors who are interested in turnkey properties love 100% leased properties, especially when the tenants have established businesses with long-term lease contracts. However, if your property is plagued with vacancy, fear not! There are buyers who are interested in opportunities to improve a building’s tenant mix and make improvements.
Current tenants. A rent roll provides a list of all your the current tenants in your property, their contract expiration dates and lease rates. The more established businesses with long-term leases will be more highly valued than unknown companies with short-term contracts. If you are having difficulty selling a property, be sure to analyze the tenant mix. If a few of your tenants are weaker than others, you may have to make some changes in order to sell the building. Clean up and repairs. Even savvy investors are prone to purchases based on emotion. Good first impressions can be crucial to receiving offers. Consider sprucing up your landscaping, cleaning vacant spaces and making repairs. There is no reason to wait to until repairs are completed to place your property on the market; photos and descriptions can be updated after your improvement projects take place.
Location highlights. While location isn’t the main focus for a commercial real estate investor, it is the number one concern for potential tenants. Be honest with the property’s location highlights because something you perceive as undesirable may be a selling point to someone else. For example, while some tenants prefer a quiet setting, others thrive in high traffic areas. Note your building’s most recognizable cross streets, its proximity to highways, public transportation, or other area retailers and traffic generators. An investor wants to know what potential tenants will be attracted to the particular location. Offering information about who currently occupies the space and what types of tenants are most successful can be an important selling point.
Property highlights. A thorough market analysis will give you a list of competitors and their amenities. Research the differences between competitive listings to understand their offerings compared to the sale price. Don’t be too discouraged if your property has fewer amenities than others in the area. Your cap rate is more important to an investor than the property’s bells and whistles. In fact, in some areas, keeping your amenities low will keep your costs down, which is a desirable trait for many commercial real estate buyers.
Demographics. Running a one-, three- and five-mile demographics report on your property will provide you with necessary insights into the surrounding population. Investors are interested in how tenants will perceive the surrounding demographics of a site. While many tenants prefer higher populations, others may prefer particular household income levels, age groups or property values.
MARKETING YOUR PROPERTY
Potential investors need to know that your property is available before they can send offers. Don’t get stuck with one form of advertising. Instead, utilize every marketing channel to reach out to many buyers.
Online databases. Large databases like LoopNet can help expose your property to thousands of commercial real estate agents and buyers. You may want to consider integrating social media into your online advertising plan as well. The more people you can reach via the internet, the easier it will be to attract investors.
Sales packages and other printed materials. An effective sales package (or offering memorandum) can be a vital tool. Focus the content of the material on the property features that will appeal to buyers. A professional design will separate your property from the crowd that advertises with word-processing software. Attaching a well-made sales presentation to your online databases and using them for mailers will get your property noticed.
Investors’ points-of-interest: Remember the selling points that buyers care about the most: net operating income, cap rate, sales comparables, tenant mix, vacancy rates, property highlights, location highlights and demographics.
Financial statements: Including a pro forma income statement and rent roll will demonstrate the mix of tenants that the property attracts, and how much yearly income they can expect from the property. Make sure to tell your agent if you’re uncomfortable making this information public; he or she can provide it separately and only to serious buyers.
High quality signage. Create large, readable and attractive signs to place on your available property. Signs should be visible from the street, use attractive colors, and display a 727-418-1570 number where you can be reached for enquiries about buying the property. Some areas may require permits or have sign regulations so make sure to talk with a commercial real estate agent before ordering signs.
DETAILS ABOUT DIFFERENT TYPES OF PROPERTIES
An investor wants to know what businesses will be attracted to a particular property. The easier it is to find quality tenants, the easier it will be to get a return-on-investment.
Office: While some businesses will prefer an affluent location with educated demographics, others will appreciate offices close to public transportation or lower income areas. Being clear about your location’s demographics and the traffic counts in the area because different highlights will appeal to different buyers.
Medical office: The layout of a medical office is important to particular specialty areas. Neighboring practitioners such as nearby laboratory services and hospitals may also be important. Highlight neighboring providers in your marketing materials, since locations that are close to medical specialists, laboratories and hospitals are generally in greater demand.
Retail: Emphasize the area’s demographics, traffic counts, accessibility and parking. Demographic information, including average income, ethni Alaska, average home prices and proximity to schools should be provided. Also, showcase neighboring traffic generators like super centers, grocers and banks. The busier the area, the better the location will look to buyers.
Industrial: Draw attention to your industrial building’s proximity to highways, railways or shipping yards. Also, make sure to highlight the different zones and amenities your building has, such as docking areas, warehouses and office areas.
Multi-family: Be honest about the state of your duplex, triplex, quad or apartment complex as ’flipping‘ apartment buildings is as popular as purchasing turnkey complexes. Some buyers may prefer to do the construction work while others won’t. Check out your competition and discuss the current market value of your property with an experienced multi-family agent.
- FIND A COMMERCIAL REAL ESTATE AGENT WHETHER IT’S NOW OR LATER PINELLASCOMMERCIALPROPERTIES IS HERE TO SELL YOUR COMMERCIAL PROPERTY. It’s difficult to do these things alone. If you’re faced with the complications of selling your commercial property, consider finding a commercial property real estate agent. When it comes to helping property owners sell their commercial real estate in Florida, we can provide guidance, property valuation, comparable sales reports, targeted marketing, demographic reports, traffic counts and contract negotiations. Pinellas Commercial property can provide a full range of seller representation services to local, national and international clients. If you need help to find potential investors, assistance with your pricing strategy or finding the appropriate buyer for your building, We have the expertise to support all of your commercial real estate needs.
We will ensure your properties receive maximum exposure through aggressive marketing techniques, a results-oriented philosophy, and a commitment to providing each listing with the tools needed to find a buyer for your property. Our seller services include…
- Market analysis
- Portfolio evaluation
- Development of a high-quality sales package
- Visible signage
- Listing onto online databases
- Additional marketing materials may be available upon request
727-418-1570 Call Today for a FREE CONSULTATION!
FIND A COMMERCIAL REAL ESTATE AGENT WHETHER IT’S NOW OR LATER
Alex P Williams