Have you ever read about a commercial real estate transaction and thought:
“Wow, I would have purchased that for that price.”
Or, “How did they get such a good deal on that asset?”
Well, you’re not alone.
In commercial real estate, some of the best deals available come about as a result of someone understanding how to find off-market properties.
In this article, we take a look at the many ways in which CRE professionals of all kinds—not just brokers and investors—can generate leads and close off-market deals.
Off-Market Deals: Winning Your Own CRE Contracts
Most commercial real estate professionals still find the majority of their deals using traditional means: cold calling, advertising, through brokers, and by scouring online listings.
But there are two main reasons why this is quickly changing.
1. Investing in commercial real estate has grown in popularity.
Aside from office buildings, retail centers and apartment buildings, commercial real estate has historically been considered a niche investment arena.
Nowadays, more investors are drawn to the sector as a means of diversifying their portfolios.
Increasingly, subsets of the market – from trailer parks to hotels, from self-storage to senior housing – are piquing the interest of investors of all kinds.
2. This growing interest in commercial real estate has led to the second root cause of people wanting to source off-market deals: more demand has translated into higher prices.
As the market continues to heat up, many people are turning to off-market deals as a way of finding more affordable properties subject to less competition.
But finding off-market commercial real estate deals is a more intricate, nuanced process.
What’s more, many think that off-market deals need to be limited to investment opportunities.
That is very much not the case. Lenders, appraisers, and contractors can also take advantage of going off-market, and we’ll show you why.
But first, a quick primer on the difference between on-market and off-market deals.
Off-Market Deals Vs. On-Market Deals
When we use the term “off-market” deals, we’re referring to the deals that are not otherwise publicly advertised to the commercial real estate marketplace.
This includes investment properties that are not listed on MLS or on other publicly-accessible databases, or company information that is sold to vendors offering specific services (such as roof contractors or solar installation companies).
One misconception about off-market deals is that the owner is either motivated to sell or is actively in search of real estate-related services.
Sure, that might be the case.
It’s also very possible, however, that an owner hasn’t considered selling or servicing their property, but would entertain the idea if the right case is made.
Conversely, on-market deals are those generally available to the public and for which there is often multiple bidders vying for the opportunity.
This often drives up the cost of investment properties.
On the side of service providers, this often results in price reductions, the need for “sweeteners,” and frequently puts service providers in a position of making promises that can be difficult to ultimately deliver.
How to Find and Close Off-Market Investment Deals
There are a few common ways to find off-market deals, including:
Direct advertising of your services and/or interest in purchasing a property.
People who own duplex, triplex and even quadruplex rental properties will often get mailers on behalf of investors expressing interest in purchasing their property for cash.
More traditional service providers, such as contractors and lenders, may also use a similar approach, but with a twist:
Contractors may post signs in the front of homes they’re currently working on, whereas lenders may send postcards or email newsletters to customers who may be interested in refinancing.
Researching and finding commercial real estate owners that fit within your target market.
This is a more tailored approach and can be highly successful way of sourcing off-market deals, but it’s also incredibly time consuming.
It usually involves scouring public records for owner information that is often lacking, missing, or invalid.
Sourcing leads through word-of-mouth referrals.
The most successful commercial real estate professionals generally have a breadth of other connections in the industry.
This is how many off-market deals are originated.
For instance, a broker might be having a friendly conversation with a multifamily property owner who mentions they purchased a retail strip center on a whim, and have not been able to transition into managing the asset.
In CRE, it happens.
Thankfully, that broker happens to know a retail center investor who would gladly scoop up this property, even for a premium over what the multifamily investor just paid.
The broker connects the two and in turn, arranges an off-market transaction.
Another way to find off-market deals is to use a lead generation and property intelligence platform like Reonomy.
Unlike most commercial real estate platforms which highlight properties currently available for sale, Reonomy provides detailed information about all commercial properties in the U.S., actively for sale or not.
Instead of searching for information about roughly 1% of the market at a time, you can easily navigate the platform to find commercial leads of all kinds in any market.
Say you’re an investor interested in purchasing a multifamily property in the Los Angeles area. You can begin you search by looking for commercial properties anywhere in the Los Angeles-Long Beach-Anaheim MSA, as shown below.
Then filter your results by selecting “Multifamily” under the “Asset Type” tab.
If you’re interested in a specific type of multifamily property, say a mobile home park or a quadruplex, you can filter your search even further.
Let’s assume you were interested in buying a quadruplex property off-market.
A savvy investor, for example, might want to look for a property that is older, has not traded hands recently, and has not been renovated in quite some time.
This could be an indicator that the current property owner is not investing in the property. Perhaps there’s deferred maintenance or poor property management.
It could be a chance for an investor to purchase the off-market quadruplex as a value-add opportunity.
As you identify potential properties that meet your investment criteria, Reonomy allows you to access valuable contact information for the property owner.
To be clear, though: Reonomy does not replace the role of a commercial real estate broker.
In fact, Reonomy is often used by brokers looking to facilitate off-market transactions on behalf of their clients.
For example, a broker might do this research and conduct the initial outreach to assess whether an opportunity truly exists before bringing that prospective opportunity to their investor clients.
How to Source Off-Market Business Leads
In addition to brokers and investors looking for off-market opportunities, Reonomy is a valuable tool for contractors, appraisers, and other service providers interested in sourcing new off-market leads.
For example, a commercial roofing company can use Reonomy to identify properties in their service area that meet certain criteria – say, a minimum of 50,000 square feet.
The roofing company can then access owner contact informationand reach out to these owners and have a conversation about potential roofing needs.
While the owner may not need any roof work at this time, the contractor has started a valuable relationship.
Next time, when a storm hits and causes significant damage in a local area, the property owner will know exactly who to contact for roof repairs.
In the example below, we find there are nearly 200 commercial properties of at least 50,000 square feet in Charleston, South Carolina.
A roofing contractor can use this information to connect with property owners in advance of hurricane season so, in the event of damage, they can have their investment properties repaired quickly.
But contractors aren’t the only service providers who find Reonomy valuable when trying to find off-market commercial real estate deals.
Consider how a mortgage broker might use data about off-market properties.
Reonomy allows users to search for properties in any area and filter the results based on mortgage origination date or maturity date.
Most commercial mortgages are structured to amortize in 7 to 10 years.
A mortgage broker can use Reonomy’s expansive dataset to identify properties with loans scheduled to mature in the near future, as these owners may be interested in refinancing – particularly if interest rates have dropped since the loan was first originated.
How to Connect with and Close Owners of Off-Market Properties
Traditionally, commercial real estate listing platforms – even those that boast off-market listings – only have surface level information about property owners.
The data provided is generally whatever is available via public records at the city or county level.
Reonomy provides more robust information about owners, including the current reported owner, that person’s address (which is often different than the property address), email address and phone number.
This is particularly helpful when properties are held as part of limited liability companies (LLCs) – as that can obfuscate who the true owner of the property is.
Reonomy provides LLC data as well, including the name and contact information of those named as part of the LLC.
This is much more efficient than trying to scour a secretary of state’s website for LLC information.
Ultimately, one’s ability to identify and connect with a property owner is a critical piece of closing off-market real estate deals.
In speaking with an owner directly, you’re able to better understand their motivations, their likeliness to engage in a deal, and the realistic timeline for deal completion.
You can also take all of the information and use it to build poignant talking points.
Now, let’s get a bit more specific.
Strategies and Pointers for Off-Market Deal-Making
There are quite a few ways that you can navigate your local market to source off-market contracts.
Below, learn about some of the potential strategies you can use to find an off-market deal that aligns with your needs.
Target deals that are under the radar.
Deals that appeal to a large majority of the buyer pool are unlikely to trade off-market.
They’ll always benefit from the competition of the market. So, what you can do instead is go off-market and source deals that are under the radar, but still fit your exact preferred contract scope.
Target deals that have some inherent complexities, like significant deferred maintenance or a loan that needs to be assumed.
Complexities lead to a smaller buyer pool and more favorable pricing.
Work with local brokers.
While it’s important to have relationships with all the major brokers, you’re more likely to access off-market deals through small local brokers.
Tell them what you’re looking for and let them go to work.
What may be a small deal for a CBRE broker could be life-changing for a small local broker—and even for you.
- Related reading: Broker Wins New Listings Connecting with Owners on Reonomy
Know the motivations of the seller at the asset and portfolio-level.
The more you know about the seller and their motivations, the more effective pitch you can make.
By understanding their asset-level strategy, holding period, and portfolio strategy, you can tailor your pitch to align with an owner’s motivations and create a win-win scenario.
Run 3rd party due diligence.
The key to executing off-market deals is surety of the close and execution timeline.
Consider spending money up front to conduct diligence before the contract is inked.
This will ensure there are no timing issues and you’ll be able to close within the contract timeline without having to exercise an extension.
The shorter diligence and closings periods may be what separates you from other potential buyers.
Relationships, credibility, and reputation are everything.
Always do what you say you’re going to do.
Pay brokers quickly and don’t haggle them about their fee.
Don’t re-trade deals (unless there’s a valid reason). Make sure you have access to debt and equity.
Find privately-owned assets with aging owners.
Although the business has become increasingly institutionalized, many properties are owned by generational families.
Look for deals that have aging owners who may just look to get out of the deal so they can retire.
These owners may be less concerned about maximizing price and don’t want to deal with the headache of a mass marketing process.
These deals usually have private owners and are in need of an infusion of capital.
Maintain relationships with active lenders.
Make sure you have good relationships with the active lenders in the market.
When an opportunity comes up, you need to be able to move quickly—debt is usually the longest lead time item (not to mention a key factor of risk/return).
Make sure you have a roster of active lenders who want to work with you and can mobilize quickly.
Capital gains taxes could be a bigger concern than loan maturities.
You could target deals with upcoming loan expirations as a strategy, but a bigger concern for sellers is often capital gains.
The market for debt today is robust and during the last downturn many lenders extended maturities, so loan maturities are less of a risk.
Be flexible and find ways to work with seller’s who are doing 1031’s.
Remain top of mind.
Check in with owners every 6 months or so. Establishing a relationship is important, but it’s even more critical to nourish that relationship.
Check in frequently by adding value so you remain top of mind when an opportunity does arise.
When working on a specific deal, hang around the rim. Often you close on deals that you started looking at 2-3 years ago.
Today the timing may not be right, but when the seller does decide to exit, you’ll be the first call.
With the right CRE tech tools, commercial brokers and investors can identify (and expedite) valuable off-market opportunities.