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Pros and Cons of Selling Commercial Real Estate Off-Market

Real estate investors are always looking for opportunities to sell commercial real estate for maximum gains. For a real estate investor, the notion of selling commercial real estate off-market means selling a property without any publicized marketing effort. While not all would be interested, this may seem desirable to some commercial real estate owners. 

What is Commercial Real Estate?

In simple terms, commercial real estate refers to any property that is explicitly used for commercial or business purposes. This can be a multi-family residential complex, malls, hospitals, office buildings, etc. 

That said, selling commercial real estate comes with many significant benefits. One of these perks is the potential of the property to offer long-term cash flow stability for the investors/owners.

Another benefit of selling commercial real estate is the potential of appreciation in its value which means appreciation in your capital. Investors and owners usually use commercial real estate properties for income/revenue generation activities. 

3 Classes of Commercial Real Estate 

You can categorize commercial real estate into various groups. These include offices, industrial, retail, multi-family, hospitality, land, mixed-use properties, etc. You can further break down these groups into individual classes or categories, which are as follows:

  • Class A – the real estate property falling in category represents buildings perfect for institutional investors due to age, location, infrastructure, and aesthetic appeal. 
  • Class B – the properties falling in this commercial real estate class is often old properties that were once class A real estate properties. The class B commercial real estate properties are suitable for investors looking for repositioning opportunities via renovation and upgrades. 
  • Class C – these commercial real estate premises are mostly obsolete properties. The class C buildings are in a less desirable condition and location. Furthermore, class C real estate also requires a major overhaul or rehabilitation. 

Selling Commercial Real Estate

Before you decide to sell a commercial property, you have to ensure to choose a route that will offer you maximum benefits. You can decide to sell commercial real estate off-market. However, doing so with an exclusive representation can provide you with additional benefits.

For instance, you wish to get the highest price possible for your commercial real estate, regardless of the class it belongs to. In that case, you can hire the help of a realtor specializing in commercial real estate. This will not only give you the benefit of access to expertise but also ensure that you are fulfilling all the legal requirements and paperwork needed for the transaction. 

One thing you must consider when selling commercial real estate off-market is to ensure that you are targeting qualified buyers. This can make or break a selling opportunity and hurt your profits. Get this right, and you can drive real estate’s selling price up and bag higher proceeds when closing the deal. 

The competition for commercial real estate is what drives the pricing. The more buyers interested in your property, the more you are in control of how much you want to sell the commercial property for. If you want to save time and only want genuinely interested buyers for a quick selling process, hiring a commercial real estate expert can save you time, money, and effort. 

What is Off-Market in the Real Estate Industry?

The term ‘off-market’ in the real estate industry means selling your commercial property without ever going to the public market. Simply put, an off-market commercial real estate sale means you will sell the property without the public ever knowing that the building or premise was up for sale.

In an off-market sale, you do not post any online sales advertisement or engage in any kind of public marketing activity. Typically, you can engage in selling commercial real estate off-market in two possible ways. 

  • You can use a real estate brokerage agency. This agency will market your property discreetly and directly only to potential buyers without any public marketing and promotions. 
  • You can attempt selling your commercial real estate all by yourself without any assistance from a real estate agent or broker. 

While selling a property off-market is beneficial on its own, you can add to its value by hiring the right commercial real estate seller to help you get a better deal than what you would bag selling it on your own. 

Pros and Cons of Selling Commercial Real Estate Off-Market

Just like any other business, selling commercial real estate comes with its own set of advantages and disadvantages. Here are some of the major benefits and drawbacks of indulging in off-market sales of your commercial property. 

Pros of Off-Market Sale of Commercial Real Estate

Here are the top four benefits of selling commercial real estate off-market. 

Minimum Disruption

Engaging in selling a commercial real estate off-market causes minimum disruption to your on-site management operations. Additionally, it does not cause any hassle for your current tenants. Due to no public promotion of your property on sale, the interest will be highly exclusive, and only highly interested investors or buyers will show up for a tour. This means the on-site operations and occupants will not face much impact. 

Keeping Your Income and Finances Confidential

Without any public knowledge of selling commercial real estate, you will be able to keep the financial information pertaining to your property confidential. No third party will know how much you made from the commercial property. You will be in complete control of your confidential information and disclose what you really wish to share with prospective buyers. 

Avoiding any seller fee

While you can hire a professional seller to help you with the off-market sale of real estate, you can choose the do-it-yourself route. This way, you will be able to avoid any fees to the brokerage or intermediaries. That said, seeking professional assistance may get you a higher price which will outweigh the expense of hiring a broker/agent. 

Seller/Buyer Privacy 

Selling commercial real estate off-market allows you to maintain privacy due to the absence of any public marketing or know-how of the sales. 

Cons of Off-Market Sale of Commercial Real Estate

The three cons of selling commercial real estate off-market are: 

Losing Benefits of Competitive Process

Putting a commercial process up for sales off-market means there will be no marketing efforts at all. This will result in you losing the edge in the competitive process. Due to less exposure, you will only get a limited number of interested buyers. 

Less competition means you will not have an adequate bargaining position and will be limiting your options when it comes to raising the value of your property. You may also have to wait until some buyer comes along to make a qualified offer. 

Lack of Seller Management

If you are planning to sell a commercial property off-market without any professional help, you will be lacking the marketing, negotiation, and transactional management skills. This will dramatically impact your probability of getting the maximum price. 

A lack of skills to close a real estate transaction may also result in many potential deals dying in the process. Furthermore, as you will be learning the ropes on the go, the off-market commercial real estate sale may take longer than usual. 

High Stake Real Estate, Higher Risk

If you are an owner of a high stake in commercial real estate, you have a higher risk of losing money. This is because commercial real estate investors and buyers are known for their cut-throat negotiation skills. Therefore, if you have never sold a commercial property off-market, you will face some challenges as these transactions never go smoothly. 

Even after you have made the sale, you will be frustrated or second-guessing whether you made the right decision and got the right price. Therefore, selling commercial real estate off-market is not for amateur or faint of heart. 

Is it a Good Option? 

If you are a first-time seller wishing to sell your commercial property off-market, you must ensure that you know the pulse of the market behavior. If you have been in real estate for a while and know your way around the market with a network of buyers that you may know, an off-market sale is an ideal route for you. 

Process of Selling Commercial real Estate Off-Market

As a seller, you must be wondering what the process of selling commercial real estate off-market is. Here is a quick guide on how to follow the route to make a commercial real estate sale. 

Know Your Goals

You must determine the goals or outcomes you wish to come out of your sales. For example, if you have a specific figure in mind or the timeframe during which you must make the sale. In case you are hiring the help of a professional commercial real estate agent, they will help you determine your goals. 

Property Evaluation

Potential buyers will be interested in knowing the exact current market value of your commercial real estate. Therefore, you must get your property evaluated and keep the evaluation report handy to share with prospective investors and buyers upon request. 

A Seller Pack

You can create your own pack of documents to send as a proposal to potential buyers. This pack will contain details about your property and the benefits it can offer the buyer or investor. In case you have a broker working for you, they will take care of creating a lucrative promotion pack for exclusive off-market buyers. 

Contacting Potential Buyers

If you are aware of any buyers, you can start contacting them. Once you have enough interested buyers on the list, it is time to start interviewing to assess if the buyers have the ability to buy your commercial real estate. 

Educating Interested Buyers

It is your responsibility to educate potential buyers about the benefits and specifics of your real estate. 

Entering Negotiations

Once you receive an offer, it is time to start a negotiation process with the buyer. This is where you will have to be firm in your stand if you are dealing with an off-market sale of commercial real estate. The buyers or investors in this industry are known for their notorious negotiation skills. 

Facilitating LOI and Closing the Deal

Once you accept the offer, it is time to accept the letter of intent from the buyer and start the closing process. Make sure to have all the paperwork in order. Hiring a real estate attorney is the best way to ensure you do not miss out on any important legal requirements when selling commercial property. 

If you already have a real estate agent on board, they will take care of this entire process from beginning to end. This way, you will avoid the hassle and only worry about when the money will land in your bank account. 

Seeking Help from Investment Professionals Can be Beneficial

Even when you do not wish to engage in any advertisements to sell your commercial property, you can seek assistance from an investment professional for maximum benefits.

For instance, an investment professional with expertise in selling commercial properties will know the type of property and where to look for potential buyers discreetly. The expert will also be able to create an accurate and lucrative analysis of your commercial property to entice the right buyers. 

A commercial real estate investment professional will know the specifics of your property type and potential market. Moreover, such professionals have a pool of potential investors and owners with a transaction and acquisition history of such real estate properties. 

Conclusion

As a seller of commercial real estate, your goal must be to sell your property to a potential buyer with the highest bid. However, not all prospective buyers are ideal to deal with. Therefore, you must carefully gauge if the buyer has enough financial strength to ensure the smoothest and quickest off-market sales. 

That said, selling commercial real estate off-market can help you avoid hassle and time-wasters and only contact an exclusive buyer community. This is especially beneficial if you have a commercial property in top-notch condition in a desirable location. This will not only get you the best buyers, but you will also be in a better position to ask for a higher price. 

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