Selling Commercial Real Estate in a Declining Market

Too often I watch sellers follow the market all way down in a dropping market. Sellers get proud and often think they are still holding the winning lottery ticket. As in all business endeavors, sellers need to have sell strategy. Most sellers want to realize property appreciation, but may or may not need to cash out immediately.

In the current market, many sellers need to cash out. If that's the case listen to the market - expecting a 7 CAP in a 9 CAP market is unreasonable, even if you have the most credit worthy tenant in the world. While you bring your credit tenant property to market at a 7 CAP, your competition is bringing the same credit tenant property at a 9 CAP - the result, investors take the higher return and the you're still holding your property. At this point most sellers, drop their price to an 8 CAP while the market is moving to a 9.25 CAP - same result. The consequence? Those developers that sold have capital to move on to the next project. The developer that didn't sell is scrambling to find a refinance in a no-credit environment, and end up giving the property back to the bank.

The second scenario for sellers that want to lock in their appreciation and don't need immediate cash. This strategy usually works best on completed, leased-up developments that are generating a return, but can work on properties in all stages of development. Sellers, you can't get credit in this environment and most of your potential buyers can't either. Get creative, consider seller financing, lease with purchase options, mortgage wraps - cover your payments, take an income stream and agree to cash out when the credit market comes back.

It all boils down to strategy - determine your needs, why are you selling the property, and what conditions can you live with? Make no mistake this is tough market, but there is plenty of opportunity in this market - cash and creativity are king. If you have cash, you're fine. If you don't have the cash, get creative. Those that are realistic and creative will and thrive in this market.

For more information contact Chris at christofer.pacheco@gmail.com.