Alternative Investments

Here’s Why Buyers and Sellers Are Heading Off-Market for Deals

In mid-November, California-based real estate investment firm RanchHarbor announced acquisition of a 112-unit multifamily complex in Boise, Idaho. The company didn’t disclose terms but noted that it was an off-market transaction.

That’s hardly the first off-market transaction in a pandemic that has seen massive amounts of money, seeking alternative investments, enter commercial real estate. To cite another example: In June, 29th Street Capital announced an off-market acquisition of a 424-unit Class A+ luxury apartment community in a Denver submarket for $134 million. More recently, earlier this month Apple Hospitality REIT acquired a three-asset portfolio off market for $126 million.

Pricing is one clear reason why buyers like off-market transactions. 

“The real advantage to buying off-market is being able to get control of a deal without going through a protracted, multi-round bidding process that can push purchase price above the level at which a property will appraise,” Adam Deermount, RanchHarbor managing principal, tells GlobeSt.com.

Sellers may have particular goals that can best be met by an off-market deal as well.

These might include confidentiality surrounding the sale, favoring a repeat buyer which may be expedited and more efficient, or feeling confident enough in the price without the need to ‘test the waters’ through a marketing process, says Loryn Arkow, a partner in the Real Estate Practice Group at Stroock.

Also, it can be the mark of a different investment strategy. “We tell clients that the goal needs to be to get otherwise unavailable property at a fair price, not purchase readily available property at a bargain price,” Walt Batansky, CFO of Avocat Group, tells GlobeSt.com.

Is it difficult? “On a certain level it’s not hard at all,” says Colin Behring of Behring Companies. “These transactions often happen because one party took the initiative to engage in conversation and the other is intrigued by their offer—that’s all it takes to get started.”

But it can be tougher to pull off than it sounds. “Finding off-market deals is very difficult as a buyer or buyer’s broker,” says Marc Imrem, managing director of Transwestern’s national net lease and sale leaseback group. “This is where relationships and communication become valuable.”

There are two ways into these relationships. One is direct.

“We have a client in the York county market of Pennsylvania,” Tom Jordan, president of the central PA division at Univest Bank and Trust Co., tells GlobeSt.com. “He spent years developing the relationships.” And people trust him. “He dug his well before he was thirsty. He’ll settle. He’ll come to closing with cash rather than going to the market and sometimes the deal will fall apart. Once you open escrow, that’s great, but until you close escrow and the money changes hands, it hasn’t happened.”

Then there are brokers, who similarly must be well-plugged in. If someone plans to invest in an area they’re not local to, getting a broker who knows all the players can make the difference, especially if a buyer has no reputation there.


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