Friday, February 16, 2018

Seller Won't Close - Now What?

Image attribution: www.djray.net
Commercial real estate transactions are contractual - buyer and seller both agree to do something in return for consideration - something of value. So, what happens if the seller decides arbitrarily that he doesn't want to complete the deal? As I am not an attorney, I will not delve into the legality of such a position but rather explore the situation as a layman.

A normally motivated buyer and seller will negotiate a purchase price, enter an agreement which outlines the contingency period and closing date, deliver the signed agreement and an earnest money deposit to escrow and proceed.

Occasionally, the deal hits a snag. Generally, we see said "snags" on the buyer's side as the buyer discovers something untoward in his investigation of the property - air conditioners that don't condition, a roof that leaks, a percolating fuel tank, higher expenses than expected, an appraisal less than the agreed upon price, or some other nuisance. The good news is the buyer is protected if the "snag" is discovered during his contingency (due diligence) period. Typically, the buyer requests a price reduction from the seller or simply cancels the deal if the buyer perceives the problem is too big too fix with money. Certainly, the buyer has the option to look past the snag and proceed - but few do so. Once the buyer has satisfied himself, he waives contingencies, allows his earnest money to be non-refundable and marches toward the close of escrow. The buyer can still cancel, but simply loses his deposit.

Once a seller has agreed to sell, however, and the buyer completes his side of the deal, the seller doesn't have an escape hatch - lest he encounters a specific performance action by the buyer.

I've witnessed a couple of sellers, in my years in the trenches, who refuse to close. Most frequently, its a ploy to extract some blood from the brokers. A high stakes game of poker ensues - he who blinks first loses. One seller in particular did refuse to close and convinced the buyer to allow him to cancel the deal for a small monetary settlement - rare but it does happen. Fortunately, in that case, the buyer was an investor - a buyer relying upon the rent not a buyer planning to occupy the building for his company. Consequently, aside from some wasted time and money, the buyer wasn't harmed.

Friday, February 9, 2018

Is YOUR Commercial Real Estate Buyer FOR REAL?

Image Attribution: www.lysthouse.com
These days, multiple offers on well priced, conveniently located commercial real estate are the norm. Unlike the doldrums of a down market where the activity is tantamount to a cricket concert - activity is robust!

So, how do you filter the noise of multiple offers and settle upon the RIGHT buyer - the first go around? That dear readers, is the subject of this week's post.

Watch how the buyer acts. I've observed buyer behavior for many years. The way in which a prospective buyer behaves in a negotiation will speak volumes about the way in which he will behave once you strike a deal. Specifically, the speed with which a buyer responds to requests for information and counter proposals is a great indicator of motivation. If you monitor motivation throughout the transaction, you are less likely to be surprised by your buyer's actions.

Is the buyer on-time? If he's late to a showing - chances are the buyer is not concerned with timely performance. Not a big deal with a tour - missing a signing deadline is another story.

What is the buyer's story. If your buyer is a neighboring company whose employees park in your lot because his parking lot is filled with inventory - chances are the buyer is out of space and needs your building for growth. Conversely, a buyer moving up in size three or four fold could portend a problem with cash flow and financing. Understanding "why your building vs. another" is a solid indicator of  what's to come.

What's the buyer done in preparation. Has the buyer's broker blown your guy up with inquiries, requests to tour, and probing questions? When the buyer submitted his proposal, was it accompanied with a lender pre-qualification letter? How many times did the buyer look at your building before submitting his offer? Once again, these are things that suggest motivation and encouraging buyer behavior. If you receive an offer and the offeror has not seen the property - it happens - run away. The offer is not based upon a working knowledge of the facts.

Does the buyer need that "something" your building has. As we discussed in a previous post, there are items for which a buyer will pay a premium - excess land, good cube height in the warehouse, ample loading, modern architecture or remodeled offices, heavy electrical power. Discerning the "something" your building has and matching that to a buyer's requirement can predict a successful transaction - the buyer needs what you have and will pay to own it.


Friday, February 2, 2018

Commercial Real Estate is a SOCIAL Business - Or is it?

Image Attribution: www.youthareawesome.com
My industry is in the proverbial dark ages when it comes to marketing through social media! Compared to our residential counterparts - who kill it with social media - we limp along under the illusion that "social" just isn't for folks who own or lease commercial real estate. Wow, how wrong we are!

So why are we so 80's you may ask? In no particular order, here are some of the reasons.

Age plays a part. The average age of a commercial real estate broker is 57. Crowded with gray haired men, commercial real estate sales evolved from predominantly family owned brokerages with names such as Daum, Cushman, Collins, Lee, Ashwill, Burke, and others. As the majority of business in the old days was fostered via relationships and referrals - and somewhat stuffily, BTW - the old generation of commercial real estate brokers farmed new opportunities on the golf course, the bar or the steak house. You called, mailed, or placed an ad when you had a new listing. If you used a computer in the eighties and nineties, you were the source of water cooler humor - as no leads will come out of that machine young man - you get out there and cold call! Industry bias toward technology has now traveled a couple of generations to present day practice. Many new agents are trained the same way we were in the eighties - get out there and make relationships!

We approach it wrong. Social media marketing isn't like taking an ad in the Orange County Register - although many approach it that way. The Register has a broad circulation and appeals to those in the market for goods and services. If you are shopping for commercial real estate, great! You see the ad, call the broker, make a deal, done! Consequently, when Facebook, Twitter, Linked In, YouTube, Instagram came along we pushed our same old message of "here is my listing - buy my stuff." Missed in this method is the way folks transact these days. Sure, there are still buyers who are in the market, see an ad, and buy. Most, however, search the web for informational content - such as "how-to" articles, videos, or images and are pulled toward a service provider. If you are the agent providing the "help" you are sought as the expert. Critically important is this digital footprint so you can be found on-line.

When will it change. Given the nature of our business - maybe never. Commercial real estate is largely relational and our transactions are tough to standardize. However, as one who's used social medial content quite effectively to meet new prospects and close deals, I believe the current generation will adopt strategies to use social media marketing the right way. Just remember, like face to face networking, social takes time and places an emphasis on gaining through giving.