DISPOSITIONS
As noted in our Acquisition services page, the sale (disposition) of an investment property is a pivotal moments in the overall life-cycle of an asset and working with an experience advisor can add great value to the transaction while minimizing angst.
Disposing of an investment property requires much more than just listing it for sale. Considerable thought needs to be given to the exit strategy long before a sale. In fact, an exit strategy should be developed prior to acquisition and should be dynamic with periodic reviews and adjustments to ensure they remain viable and optimized as market and property conditions change. Proper planning before a sale can also help reduce taxes and conflict among partners. Value add strategies, implemented prior to sale, can create additional cash flow to boost the value of the property. Removing risk can also increase value for buyers. The aforementioned are just a few examples of items that should be contemplated prior to a disposition.
Liquidity needs, capital gains taxes, and potential future estate taxes should also be discussed with your tax and financial advisors prior to making a decision to sell in order to ensure these aspects are properly addressed and planned for in advance of a sale. If the property is owned my multiple parties the desires of partners to cash out or reinvest by way of a 1031 Exchange upon a sale should be discussed amongst partners prior to the decision to sell being made. There are planning strategies that your tax and legal advisors may employ that provide flexibility and allow partners to go separate ways without negatively impacting the other partners in the investment. These strategies can only be employed well in advance of a sale. The principals of Arete Real Estate Advisors LLC have spent years in the Wealth Management business working with Ultra High Net Worth Individuals and Family Offices and are experienced in identifying and providing solutions to these types of issues and are committed to working with your tax and legal advisors to provide comprehensive real estate solutions that integrate well with your overall tax, investment and risk objectives.
The value of income producing investment properties are typically derived from the cash flow that the property generates. There may be short term strategies that can be employed to boost the cash flow prior to sale enhancing the value of the property upon sale, especially in a low CAP (Capitalization) rate environment. Additionally, properly preparing a property for sale by organizing information, documentation, and providing transparency to potential buyers can increase the value of a property by removing the risk of the unknown to the buyer and will lead to a smoother transaction, quicker close, reduced seller liability, and goodwill with the buyer.
Determining the highest and best use and who the property will appeal to is an important, but often overlooked step in the sales process. Before you can decide how to effectively market the property, you must understand who your target audience is in order to reach them. It's also worthwhile to note, that different types of buyers will value the property disparately based upon their various motivations to purchase, cost of capital, tax considerations, intended use, etc.. For example, an owner-user for a warehouse may be willing to pay more than a private investor since they have access to high leverage US government sponsored Small Business Administration (SBA) loans to purchase the property, whereas the private investor must depend on standard Commercial Real Estate (CRE) loans with higher equity requirements. Similarly, an institutional buyer may be willing to pay less for a Single Tenant Net Leased property than a private individual if the Institutional buyer is near their asset allocation limit for a particular asset type or if the private investor is in a 1031 exchange and running out of time and options. The opposite may also be true in some instances where the institutional buyer may be willing to pay more than an individual buyer due to their lower cost of capital, economies of scale in their operating expenses, and the willingness of their stockholders or pensioners to accept a lower rate of return than a private individual. Therefore, knowing the highest and best use of the property and who the best buyer will be is an important part of the equation when trying to maximize value for a seller. The team at Arete Real Estate Advisors LLC has extensive experience in mastering this formula.
Once the pre-sale issues have been addressed and the property is listed for sale, it's time to get the word out to as many potential buyers as possible. Having an experienced real estate broker that will focus on the sales and marketing effort for the property is very important in order to find those one or two parties willing to pay more than the rest. It's a simple equation, maximizing exposure of the asset being sold to as many of the market participants as possible, equals the best offer possible.
Running a successful sales and marketing campaign is only half the battle. Once offers are received it's time to interview the prospective buyers to determine their financial resources, motivation, and offer terms. While purchase price is of course an important factor in selecting a buyer, often times it is not the sole determining factor. Other deal terms such as whether a buyer is paying all-cash or requires a financing contingency to purchase, the type and terms of financing a buyer plans to use, due diligence contingency period, environmental and other contingencies, closing date, buyer's expectations of seller warranties/guarantees, and buyer track record all can be factors when choosing the best offer.
Expect the unexpected. There isn’t another saying that could so succinctly describe the due diligence and closing process in real estate. Despite careful planning and preparation prior to sale, issues which can cost sellers time, money, and lost opportunity can still arise. Successfully navigating the due diligence and other contingency periods in a sales transaction requires experience, creativity, and objectivity. The principals of Arete Real Estate Advisors LLC have a demonstrated track record of success having closed hundreds of dispositions in over 23 states throughout their careers.
Call us today to see how we can put our experience to work to help you with the sale of your investment property!