Reonomy offers CRE professionals real-time access to the data points they need to grow their business — from debt and sales history to zoning and building owner information. Try Reonomy National for free today.
When looking for operating partners, strong professionals seek teams who exhibit niche business strategies in well-defined geographies, local connectivity, micro-market knowledge, and a proven track record of successful execution.
The local focus and niche strategy enable operators to source coveted ‘off-market deals’. Here we will explore some of the strategies around off-market deal sourcing.
Target deals that are under the radar.
Deals that fit the search criteria of a large majority of the buyer pool are unlikely to trade off-market. Instead, target deals that have some inherent complexities; significant deferred maintenance, a loan that needs to be assumed, or an affordable component. Complexities lead to a smaller buyer pool and more favorable pricing. When searching on Reonomy, it’s easy to use filters to identify and isolate specific buildings based on these complexities.
Work with brokers who are not the top brokers in their market.
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 the CBRE broker could be life-changing for a small local broker.
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, hold period, portfolio strategy etc., you can tailor your pitch to align the motivations and create a win-win scenario.
Run 3rd party due diligence.
Before the contract is finalized to help condense the closing period. The key to executing off-market deals is surety of 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 exercising 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. Credibility is everything.
Find privately owned deals 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. Along the same path, look for deals that haven’t traded in a long time. These deals usually have private owners and are in need of an infusion of capital.
Think like a seller and understand the depth of the buyer pool.
In order to curate your pitch, you need to understand both the motivations of the seller as well as the likely competing buyer pool. This knowledge will ensure you put your best foot forward without negotiating against yourself.
Consider strategies to close on loans more quickly.
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), so 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. Consider hosting a golf outing and inviting all the brokers in the market. 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.
Streamline and sync your property search with Reonomy. It’s challenging to source off-market deals, but there are many strategies to improve your chances. With the right CRE tech tools, commercial brokers and investors can identify — and expedite — valuable off-market opportunities.Try Reonomy National for free today.