Find a printable and downloadable version of this whitepaper at the end of this post.
As brokers, our pledge to our clients is “to secure the highest price and best terms from the largest pool of qualified buyers at any given point in time.” Techniques we typically engage to accomplish this include public auctions, sealed bids, and extensive advertising by which we hope to create a competitive environment that will enable us to drive up the price. This is usually achieved through the use of signs, advertising, direct marketing, etc. Any attention-getting methods should be used to get the word out that this asset is for sale. Aptly described as “on-market” selling, this is also sometimes referred to as “push marketing” referring to the broad dispersal of information to the market.
And, in a “sellers’ market” with an abundance of ready, willing and qualified buyers, this is a suitable choice as we have seen in recent history. However, there are many purchasers who refuse to participate in auctions or anything that looks remotely like one that narrows the pool of potential bidders. With a limited number of buyers, it is questionable if you are getting adequate exposure to the “right” buyers. Today, with many ‘acquisition funds’ being formed to take advantage of historically low pricing and potential windfall opportunities to acquire distressed properties and loans, more and more “off-market” transactions are being recorded.
Exactly what is an “off-market transaction?”
It is simply the purchase or sale of investment property, which takes place, or is negotiated, outside of a formal, public marketplace. The transaction is negotiated in a private environment that is controlled by the seller and/or seller’s broker. When a property is said to have traded “off-market”, there is a degree of secrecy or privacy about the transaction which is not for public knowledge.
What are some reasons sellers or buyers would opt for an off-market transaction instead of an on-market one?
First from the sellers’ perspective… We know that some buyers will offer top prices merely to get into contract and control the property and attempt to “re-trade” or reduce the price. If the contract fails and the seller returns the property to the market, it may be perceived as flawed and de-valued. Additionally, placing a property “on the market” will cause a great deal of activity which will include possible disruption at the property that can affect the tenants, employees, vendors and service personnel. This can disturb rent collections, daily operations or instigate disputes and even loss of tenants; all legitimate concerns or risks of an on-market process.
From the buyers’ perspective… On-market deals sometimes have a higher cost of admission with a lower success rate than that of an off-market situation. Money has to be spent on attorneys, due diligence, engineers, architects etc. without any guarantees. Many buyers will shy away if they aren’t sure they can be successful. Some purchasers feel that there is little satisfaction in out-bidding other knowledgeable players or other speculators who may or may not be capable of finalizing the transaction.
We know that some buyers prefer “off-market” transactions. They may even pay a premium for the privilege of receiving a private showing or first opportunity to buy. In an off-market deal all parties have more control over the privacy of the transaction. If the deal is complicated or problematic, sellers may prefer to go off-market to a handful of known candidates with experience in these issues.
Sometimes off-market deals will generate more qualified bids and even higher bids in an effort to pre-empt an auction. Buyers may feel there is more certainty about the chances of acquiring the property by avoiding the on-market process. However, unless the seller and broker are certain of the market value of the property and can verify that the purchaser is paying a premium above that value, the price may not always be the highest achievable price in the open market. Inviting only select bidders to submit an offer is sometimes referred to as “pull marketing” as only what are believed to be “qualified” buyers are notified.
Technology is playing a larger and larger role in both on- and off-market transactions as the ability to push property offerings to broader global markets is enhanced and the ability to target qualified buyers is as well. Owners can be well-served by discussing the options with an experienced commercial real estate broker with proven qualifications in both on- and off-market transactions to determine the best approach that will yield the highest probability of success while minimizing any risk associated with either process.
At NetWorksCRE we provide a proven and patented transaction process for our clients to conduct off-market transactions. With our access to this transformational tool, you can price your potential asset against the “bids” of purchasers with the confidence of full anonymity before engagement of a purchaser. Transactions are conducted in privacy within a “deal room” that provides confidential full-disclosure of buyer qualifications to seller and property due diligence materials to the buyer.
For sellers with a fiduciary obligation, or simply the sense of owing the best result to their partners, shareholders or client, the system we use provides current demand and pricing analytics that aid in determining not only the “best” price, but a short list of qualified buyers. A speedy, well-priced, well-matched sale is sometimes far preferable to the imprecise, slow and costly public offering. Our system can also work concurrently with a public offering when policy requires public marketing.
For a private demonstration of this patented transaction process, contact Jim Tucker, CCIM at (804) 794-9119 or Jim@NetWorksCRE.com