Dear Business Owner – Manufacture Urgency

(Dear Reader: These ‘Business Owner’ segments illustrate how real life commercial real estate challenges result in win-win solutions…even when the going gets tough!)

Dear Business Owner,

In the complex world of commercial real estate, location alone won’t maximize your commercial property value. Timing, demand and generating urgency are equally important. A commercial property in a strong location, sold in a down market will probably loose money. Yet if there is demand, and urgency is created through marketing, the seller will capitalize on their profit. 

That same property sold when market conditions are favorable, will turn a profit and maybe even surpass current property values with the help of value crafted marketing. Such is the case with Dave, owner of an architectural company.

Dave recently sold his share of the company to his partner, Brian, because he was moving out of state. Retirement didn’t include managing a commercial building from afar. 

Brian drives 45 minutes to and from work every day. He doesn’t want to purchase the building. His goal is to relocate the business and employees closer to where they live; ideally within proximity to the major freeways in Phoenix.

The Property

Dave bought his 2,000 square foot office condo as a gray shell during a roaring market. In total, Dave, invested $250 per square foot and created a timeless Frank Lloyd Wright style interior buildout. Two executive offices flanked the reception area and conference room. Beyond a planted atrium, an open collaborative work environment and breakroom greeted employees. 

The Set Up

Another crystal blue day accompanies me as I drive to a listing consultation. My mobile phone rings interrupting a very effective internal pep talk.  

“Hi, this is Andrea.” I atomically respond, silently wishing I had let the call go to voice mail. 

“Hi, Andy, it’s Denise.” ‘Andy’ cues me a friend is on the line and I immediately recognize the voice. “Listen, I have to make this brief. Dave and I finally found our dream house in Wyoming and we have a short inspection period. We want to sell Dave’s office condo and put the money into the Wyoming place. We’re also putting the Arizona house up for sale. We need to talk about you listing the office condo. Will you?” Denise rambled on before I could offer congratulations on the new home.

“Of course, and congratulations on the new home! But you do know that selling a commercial property takes more time than a residence, right?” I exit the Loop 101 mentally calculating the odds of catching all green lights, so I’ll be on time for my meeting.

“I know you’ll think of something.” Denise dismisses. Denise is a top producer at her residential brokerage company and her expectations are high.

“Even with inventory low right now, it may take up to six months to close the property.” 

I Know, But

“I know, but over the years I’ve witnessed the miracles you manage for your clients.” Denise postures.

“I know, but two weeks is hardly time to prepare the marketing materials. I don’t want you to have any false expectations.” I counter and pull into a parking space. It’s 2:58. I pride myself on being on time.

“I know, but if anyone can do it, you can. Please send me over a listing agreement to review later today and comps for pricing. We’ll discuss the plan of action late tonight. See ya.”  And she hangs up.

So, this is why Denise is the top producer at her residential firm of 100 agents, five years running.  I shake my head and skedaddle to my meeting.  

Real Time Market Conditions 

The 2,000 SF office condo is located at a premier location surrounded by multimillion-dollar homes. No commercial infill lots remain for development.  Small businessowners, secure with the economy, explore options to purchase instead of lease, seeking addition investment opportunities. Real estate ownership is one way to diversify an investment portfolio.  

In Scottsdale, the most commonly needed office size for small businesses is about 2,000 square feet. Move-in ready, contemporary choices like Dave’s are nonexistent. 

For Dave and Denise, the stars have aligned. 

Marketing Strategy

Two marketing experts gather at the local Starbucks to brainstorm a quick sale and profitable return. One, a commercial broker, and the other a top residential agent.  After reviewing sales comparables, we decide to list the property at $265 SF, $15 a square foot higher than the last property sold in the complex. The goal is a contract sale price of $260 SF. This is an aggressive asking rate for a commercial property and may not appraise at that value if a lender is involved. 

“Denise, timing is on our side. I’ve devised a marketing plan to exploit the lack of inventory and possibly achieve your sale goal. If I’ve gauged the market properly, we may have a buyer before we know it.” I pause.

Denise sips her latte and raises her eyebrows.  “Go on.”

“Everything I’m proposing is at my expense. First, after the listing agreement is signed, a sign will be immediately posted. Our sign vendor is already on notice.”

“Even before you post the property on your commercial MLS?” I notice she waggles her foot slightly. “We don’t do it that way in residential.”

Go Beyond

“Yes, even before the property is listed in Costar, our commercial MLS. Local businesses in the area may notice the sign before I can get it ‘officially’ listed.  Second, I prefer to use a professional photographer. Our graphic designer will masterfully highlight the suite and the brochure will entice brokers and buyers alike to tour this ‘must tour’ property.” I show Denise an example of a company brochure for a similar type property.

“What’s the big deal about a professional photographer? Isn’t that a given?”  She clicks her ring on the mug. 

I place a competitive property brochure on the counter. “This is our competition. The photos were taken with a cell phone and not even edited. Which property would you want to tour?”

“I’m surprised the big houses don’t expect more.” Denise admonishes pointing at the logo on the brochure. 

I nod in agreement and move on. “When we post on Costar, any broker with a client looking in our area, will be alerted. Simultaneously, we’ll send an email blast to our private database of businesses and brokers announcing a new listing.”

“I like it. And…” she says noting an emerging smile.

“And, the same day we’ll canvass, door-to-door, to every business owner in the complex informing them your suite is for sale. Urgency, that’s what we are creating, urgency!” Dark roasted coffee aroma wafts its way to my senses. I inhale deeply and sit back in my chair. This might work.

The Result

Within one day of executing the marketing plan, three offers are received on the property.  We’re thrilled. The letters of intent are treated equal and each buyer is asked to submit their ‘best and final’ offer within twenty-four hours. 

The Deciding Factor

We review the offers. All ‘best and finals’ are at the asking price of $265 SF with different contract terms. Denise and Dave accept an all cash offer to avoid the possibility of a low appraisal that is required when the buyer is financing the purchase. Based on the terms, the property will close sooner than anyone is ready for. 

Payoff 

The quick sale left the buyer without a home for their business. The buyer closed before their lease expired. A two month sale lease/back was suggested to both parties.  The signed lease permitted the seller to stay on for two months giving them time to relocate. The buyer had two months of rental income to offset their current lease. 

Name of the Game

  • $$$ Tip: Hire a listing broker who grasps marketing concepts and can manufacture urgency.
  • Business Owner Tip:  When market conditions align in your favor, create urgency when selling your property. 
  • Do the Math: Dave and Denise received $30,000 more than a similar property in the complex of similar size. $15 SF x 2,000 SF = $30,000.

Victory Points

  1. The seller achieved their financial goal and received full asking price for their building in a timely manner.
  2. The buyer secured a move-in ready office space that required no tenant improvements.
  3. The sale lease/back benefited both seller and buyer.

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