There are more than 50 million commercial real estate properties in the U.S., but only a fraction of them will be publicly listed at any one time. But just because a property is unlisted doesn't mean the property owner wouldn't be open to selling for the right price. If you are only searching for-sale listings, you are missing out on great opportunities.
Off-market commercial real estate deals require a little extra patience to find and take some finesse to pitch, but they give you the opportunity to net exactly the assets you want for your portfolio.
Owners of commercial properties have several ways that they can advertise a property they want to sell, such as on real estate listing platforms or simply posting on social media. Any property not currently advertised for sale on a public listing is considered to be off-market.
A property could be off-market for several reasons. The first and most obvious is that the owner is not looking to sell. The property might be off-market because the owner is in the early stages of preparing the building to be sold and hasn’t gotten around to listing it yet. Some owners also choose to keep the property off-market for privacy reasons. They may want to avoid the concerns of tenants or, for owner/occupants, negative effects on the larger company.
With active listings, all the information is available: the list price, the commissions, and the brokers involved. By approaching an owner while a property is off-market, more terms of the deal can be up for negotiation. The seller may be open to a slower transaction, for example, while they wrap up details. Or they may be open to a lower purchase price if they don’t need to replace a worn roof.
Perhaps you’ve found apartment complexes in a specific neighborhood or with fewer than 10 units work best for your portfolio. Instead of compromising because the only available properties are in a different part of town or have 15 units, you can target the exact investment property you are looking for.
Once a property is listed, word travels fast among interested investors. While competing offers for CRE are less common than residential, it can still happen. Off-market deals require more effort to find, so it’s more likely that yours will be the only offer.
Working with an off-market property is a more private process for you as an investor. It will be harder for competitors and other interested parties to know the deals you are working on if the deal isn’t being advertised.
While it’s possible to find a diamond in the rough and negotiate a great price, it’s not guaranteed. Property owners who aren’t looking to sell may set an exorbitant price to see how interested you are. Or, because they haven’t done an appraisal recently, they may over-value the property. While there are many benefits to off-market deals, getting a discount is not always one of them. Off-market deals are often sold at or above market rate.
Identifying off-market deals and the people behind them requires strong networks, good research skills, and some old-fashioned sales tactics.
The first step in identifying the right opportunity is to know what you’re looking for. Before you even start looking at properties, know your preferred part of town, the size of the building you’d like, how many units/tenants it should have, and the price. Get specific: you want an apartment building with 20 to 50 units within three miles of the local college or an office/retail building with three to five tenants on a specific street.
With that research done, now comes the networking. Reach out to real estate brokers and let them know the type of investment you are interested in. They might know of a nascent opportunity or have a client with an intentionally off-market deal.
Also, if you don’t already have relationships with local contractors and builders, start building them. These professionals might know of properties that would be difficult to sell, perhaps because of needed repairs or architectural quirks that aren't working for the current owners.
Once you’ve identified a few properties, reach out directly to the owners with targeted and personalized offer letters.
The first step is finding the owner, and that might take some time. If you have a strong relationship with a real estate broker, check to see if they are familiar with the property. If that doesn’t work, head to the county tax assessor’s office. If the owner paid property tax on that building (which they should), the assessor’s office should have a record of the tax assessment history, the condition of the property, and other helpful details about the property. This information is available to the public. All you need is the address or the parcel number.
Sometimes, buildings can be held in a limited liability company (LLC), which pays the taxes on the property. If that’s the case, try the website of your state’s secretary of state’s office. Search for the articles of organization for that LLC, which should include the names of its members.
A slight shortcut would be to hire a title company, which, for a fee, can create a property report with that information included. You’ll also get information about the title and any liens on the property, which can help with your due diligence.
Now that you have a name, do your research so you can create a targeted and personalized offer letter. Sellers want to work with people they like and trust. When approaching an off-market property owner, you have to build this trust from scratch. Learn everything you can about the property and the owner, including what their occupation is, how many properties they own, and how long they’ve owned the property. This way, you can personalize the letter and show that you are serious about the offer.
Once you know who to contact, nail down your starting offer. You want this to catch their attention but still be open for negotiation because there are a lot of details you won’t know until you have a conversation with the owner. Know the price you will open with based on the research you did on the property. Consider the terms of the agreement and what might be valuable for the owner. With off-market deals, you can get more creative with the details. For example, perhaps your down payment is broken up over a few months while they off-ramp ownership. That can give them more time to get organized while also locking in the deal and decreasing your out-of-pocket expenses.
As with all sales, the best way to pitch is through an introduction from a mutual friend. Find a common connection through a local chamber of commerce, a real estate broker, or an industry group, and get a warm introduction.
If you don’t have a connection, reach out cold. This could be through email, sending a personalized letter, or connecting through social media. Unless they are posting to LinkedIn and Twitter regularly and make their email address readily available, crafting an introductory letter and sending it through the mail is the least intrusive and best first step.
You might have to go the extra mile to secure an off-market deal, but be careful not to go overboard and make concessions you can't afford.
Know how long you are willing to wait for a decision. It’s possible the owner hadn’t thought about selling until your offer. It might take some time for the opportunity to sink in, but go in with a specific timeline in mind. Put a deadline on the offer and move this investment to the back of the pile if they don’t give you a yes within that timeframe. If an owner is hesitant, signing a non-disclosure agreement might help to ensure everyone feels comfortable sharing information and give the owners confidence to move the process forward.
This might be the perfect property for your portfolio, but the owners probably think it’s pretty perfect as well. Some off-market owners may be ready to make a quick deal, but some may set an unreasonable price. Know where your line is before you start the negotiation.
The best deals in commercial real estate take time. Document your process and add the contacts you made to your CRM, especially the ones who turned you down. Set reminders to follow up with them periodically. When they are finally ready to sell, you want to be the first one they call.
If you are interested in identifying off-market opportunities, biproxi can make the research process easier. Schedule a demo today!