Speeding Commercial
Real Estate Sales in Slow Markets
Effectively building commercial real estate wealth requires
the ability to spot a great bargain and the ability to sell that property well,
no matter what the state of the market. The real estate market is notoriously
cyclical in nature and somewhat difficult to predict. The market for local and
national real estate can turn quickly and it is important for every investor in
real estate, from the largest player to the smallest, to have strategies in
place for selling properties in down markets.
In a hot real estate market, of course, little marketing is
required. Noah George has heard the
stories of bidding wars breaking out in the residential market at open houses
in California and elsewhere. In the commercial world, it's not unusual to have
30, 40, or more institutional and private investors bidding on a piece of prime
commercial real estate in a strong urban market. In these kinds of markets, all
a Seller needed to do was hang up a metaphorical "For Sale" sign and
wait for the hordes of buyers to appear.
Of course, these markets do not last forever. Lately, we're
seeing some pressure on cap rates as short term interest rates have climbed in
response to the Fed's tightening. Those formerly "hot" markets have
become "luke-warm" markets and are cooling further. As prices for
residential and commercial real estate spiraled ever higher, more and more
buyers found themselves priced out of the market. Even the creative financing
schemes created by mortgage lenders often failed to close the gap. In
hindsight, the downturn seemed inevitable, but many failed to see it or prepare
for the inevitable slowdown to follow.
Price the property properly. The market will tell you what
you property is worth, regardless of what you think. Price the property
realistically, especially in a down market. Noah George said that it is important to understand that the value
of a particular piece of real estate is derived not only from the underlying
value of the property itself, but by market conditions.
Offer incentives to attract buyers. Offering unique
incentives can go a long way to boost the attractiveness of a particular piece
of property and help you stand out from the crowd. Some sellers are including
perks like free plasma TV's, vacations, sporting event tickets, and other
unique incentives. What's important to note about these offerings is that while
they represent a very small percentage of the value of the property being sold,
they create traffic, interest, and distinguish you from the competition.
Don't overlook the value of curb appeal. How your property
looks from the outside is an essential part of marketing, called "packaging."
Enhancing your property's curb appeal can often be achieved with little
expense. Consider painting, re-landscaping, signage, and minor parking lot
repairs. Between two similarly priced properties, the better looking one will
probably get sold faster.
