In an era where commercial real estate is increasingly competitive, investors are finding some of the best deals through off-market listings.
Likewise, sellers are noticing the benefits of finding off-market buyers, such as quick, low-profile transactions.
This article looks at the various ways to buy and sell off-market properties.
When are listings considered “off market”?
When we talk about “off-market” listings, we’re referring to properties that are not actively being marketed for sale on any major commercial platform.
This means that searching a national database, such as MLS, will not indicate that an owner is potentially interested in selling their property.
Why do buyers prefer off market listings?
There are many reasons why someone would want to buy off-market CRE. For one, finding an off-market deal means there’s inherently limited competition.
This means you can get a better deal than you would if you were bidding against other buyers.
While that’s not always the case, typically it will be, especially when considering the fact that the seller gets a larger sum of the closing price.
Still, some buyers are willing to pay a premium when negotiating an off-market transaction in exchange for other benefits, such as more time to conduct due diligence (which may be rushed in a competitive bidding process).
Why do sellers prefer off market listings?
Sellers also like off-market transactions.
It avoids any risk of listing the property and having it just sit without any offers, and the more time a property sits, the less valuable it’s perceived to be.
Off-market transactions also limit the number of showings an owner might otherwise subject tenants to, which can be disruptive over time.
For both buyers and sellers, there’s an added benefit of being able to keep the transaction quiet and relatively under-the-radar compared to what would happen with an on-market CRE listing.
So, now that we’ve looked at the benefits of off-market listings, let’s consider how off-market listings are typically found.
Commercial Listings Sites with Off Market Listings
It used to be that you had to have an influential circle of friends or be part of an “old boy’s club” to be privy to off-market listings.
Alternatively, you’d have to go knocking on doors to try and track down property owners.
But thanks to new technology, there are now several other ways for people to find off-market listings—or find properties not listed at all that likely to sell.
There are a number of real estate listing platforms that advertise “off-market” listings (though, one could certainly argue that by their very nature of being featured on these websites, they aren’t truly “off-market”).
Zillow’s “Make Me Move”
These are properties that Zillow has identified has potentially available for sale, though not actively on the market.
You could use this feature to search for off-market multifamily homes for sale in Boulder, CO as shown below.
The results show properties owned by people who Zillow thinks may be interested in selling, based on a proprietary algorithm.
One way to expand the search results is by adding two other categories of Zillow’s “potential listings,” which are properties identified as being in Foreclosure or Pre-Foreclosure.
These properties have some sort of public notice that has been filed that the owner is in default, and as a result, could be an indication that the owner is interested in selling before the bank takes the property.
There are other websites, such as Brevitas, that claim to be a platform that connects buyers and sellers of commercial real estate, thereby facilitating off-market transactions.
Whereas websites like Zillow tend to lean more toward smaller single and multifamily properties for sale, Brevitas features more robust commercial real estate offerings, such as office, apartment buildings, hotels, industrial, retail, and even development deals for sale off-market.
Hiring an Agent
A third, but also valuable strategy for finding off-market deals, is to hire an informed broker.
If you’re looking to buy or sell a particular asset class, find a CRE broker in your area who has specific knowledge of that property type.
Any qualified broker will know the ins and outs of the market, including the local players, and should have a good read on others who may be interested in buying or selling through an off-market transaction.
Find Owners Likely to Buy or Sell on Reonomy
An alternative way to buy or sell off-market real estate is to connect with owners directly using the Reonomy Platform.
Reonomy allows you to search for properties and find motivated sellers and buyers of off market properties.
You can search directly for a property using the property address, or you can search directly for an owner by searching for their name.
But let’s say you don’t have a specific deal or owner in mind.
Finding Off-Market Sellers
Instead, you’re looking to grow your portfolio of multifamily apartment buildings in the Nashville area. You’re looking for properties with at least 50 units.
Now, there are a lot of properties that fit this description, so how do you narrow the search based on those who might be interested in actually selling?
One strategy is to filter the results for properties that have not sold in the past 10 years (give or take a few).
This could be an indication that the owner has built up equity in their property and may see this as a time to cash out.
You could also layer in a filter for properties that have not been renovated since at least 1975.
This could be a sign that the owner either does not have the resources or does not have the capacity to renovate the property.
But perhaps the owner isn’t interested in selling at the moment.
It is often the case that an owner “stumbles” into investment property and has done quite well for themselves as a result.
Rather than trying to purchase the property, an investor might approach the owner of an outdated property and talk to them about the value-add opportunity.
For instance, maybe they structure a deal in which the owner contributes the land value as their share of the equity, and in exchange, the investor redevelops the property in a way that increases occupancy, cash flow, and thereby overall value—getting some chunk of this value in return.
Another way someone might use Reonomy to find off-market listings is by targeting geographies that have recently changed their zoning codes to allow for denser development.
For example, the City of Somerville, MA which is located just 4 miles north of Downtown Boston, is in the process of a zoning overhaul that will allow for significant new development in its historically commercial and industrial areas.
A savvy developer might use Reonomy to identify which properties fall within these new, denser development districts and then reach out to owners to gauge their interest in selling.
Some developers, though, have specific criteria that they use when looking for a deal.
For instance, they might only be interested in lots that are at least 2 acres in size in order to achieve the density they’d need to make the numbers pencil out on a mixed-use development deal.
So, using Somerville as an example again, we can filter the results for properties that are at least two acres in size (or approximately 100,000 square feet).
In the example below, we find a low-rise industrial-style building built in 1978.
The 104,000 square foot building is located on a 2.79-acre lot.
Under the city’s proposed new zoning, the owner could potentially build a property four times that size, generating substantially more revenue.
An investor may want to approach this owner to see whether they’d be interested in selling or, alternatively, partnering to redevelop the property once the new zoning takes effect.
Finding Buyers Off-Market
Sellers find Reonomy equally as beneficial when trying to arrange off-market transactions and connect with buyers.
For example, they can use Reonomy to identify commercial properties that have recently sold – say, in Tallahassee and within the past three months.
There is a good chance that someone who has recently sold may have cash on hand to invest in another deal, and therefore, might be interested in buying the seller’s property in an off-market transaction.
Reonomy can provide data about all of the recent CRE transactions in Tallahassee.
Now, while Reonomy doesn’t provide contact information for prior owner, it is often the case that the seller of a property owns other commercial real estate.
So in this case, you’d work backwards on the platform.
Once you know who sold the property, you can then search Reonomy for that seller to see if they currently own any other real estate.
If so, Reonomy can help uncover their contact information for you.
One of the reasons sellers might want to target those who sold within the past 90 days is because those recent sellers may be looking to do what’s called a “1031-exchange.”
A 1031-exchange is a process that essentially allows the seller to defer paying capital gains tax if those capital gains are reinvested in another “like kind” investment, such as another piece of commercial real estate.
However, the rules of using a 1031-exchange stipulate that the seller only has so long to identify, and then close on, this “like kind” investment before having to pay capital gain taxes.
In other words, those trying to do a 1031-exchange only have so much time to move, and are therefore, motivated buyers.
Evolving Transactions in Commercial Real Estate
Off-market deals are becoming more and more prevalent now in commercial real estate, and it’s not much of a surprise.
In the past, what would have been the biggest hurdle to a deal (the ability to find buyers in a reasonable amount of time) is becoming easier and easier thanks to evolving tech and nationwide data aggregation.
Off-market deal-making stands to benefit all parties involved. Start your search today.