For anyone looking to find industrial space in 2016, one thing becomes apparent rather quickly - there are not many building options to choose from based on a company’s parameters. We are currently experiencing a tangible shortage of inventory, and finding a building can be a genuine challenge. Now, this change in dynamics can come as quite a shock to those whose last search may have been sometime between 2009 and 2013. Inventory is now scarce and asking prices have risen significantly as a result of that shortage.
Interestingly enough, the current tight inventory has caused some companies who once entertained options for moving physical locations to postpone making that move now because they cannot find space to go to, thus further aggravating the problem.
So what can be done to help?
Here is a process that can uncover more possibilities when looking for space. Let’s take a look….
1 INITIAL Approach - Relationships
2 Off Market Approach
3 Procuring the Property
Initial Approach - Relationships
Generally, brokers who are working with a client seeking space, whether to lease or buy, will start by looking at the various multiple listing services published. (On a side note, make sure you are working with an Agent who has access to ALL multiple listing services available in your area.) Sadly, this is where the search can stop in many cases, if the property is not listed. But we must dig deeper and find that property that's not yet listed on the market and make that deal happen.
What are the next steps to discover these “off-market” opportunities?
A. Your broker utilizes their office network to identify off-market options:
The ONE THING that is very important to note from these above steps is that relationships are key .
So where does the “Off Market Transaction” come into play in all this, you ask?
Now that your broker and you have employed steps A, B and C above, and you have identified an ‘off the market’ property where there could be a way to make a deal, what do you do next?
We must take into account these 4 key components to solidifying an "off-market" property:
What are the expectations of the parties? Is it true that you will always pay more than market value when soliciting an off market deal? No, not necessarily. Will the seller/landlord be taking less? No, not necessarily here either. But the expectation questions must be considered on the front end so that no one is wasting anyone else's time.
You must present yourself and your company well to the prospective owner, regardless if considering a sale or lease. We must demonstrate that you are ready, willing and able to both execute and perform on the deal that is being considered. This will come down to your story - company history, financial picture, business plan and model, as well as your past experience. All this information must be packaged and presented well to instill confidence in the seller or landlord at the time you make an offer.
Now that you have set your expectations and put together your presentation, you must make a realistic offer on Price or this deal is not going anywhere. A good broker can research the comparable transactions in the market and recommend a reasonable recommendation on the initial offering price. Don’t start too low and know where your ceiling is so that you don’t chase a deal.
In an "off-market" transaction, this can often be the most challenging piece to the puzzle. That is because you generally have an existing entity in the space that you are trying to acquire, and they need to move somewhere too. As the one making the offer we cannot be too demanding on the deliverability date (but we cannot be too open ended either). However, if you are flexible in your timing this can often increase the probability of solidifying the deal.
Procuring the Property
After we have sourced the property through our network of relationships and presented our suitable offer, now it is time to finalize the deal.
This can be done with the drafting, review, approval and execution of either a Standard Lease document or a Purchase and Sale Agreement. It is important not to let key negotiating points get overlooked in these documents in the excitement of solidifying a sought after property. Take your time and review the documents with care. If you have any questions, be sure to ask them and be clear.
After execution of the document your real estate agent should help you navigate and coordinate the successful transition into your new location.
It is important to work with a real estate adviser who is both knowledgeable and capable of identifying, solidifying and completing the assignment alongside you. Please call me today to discuss your unique situation and how our team can help your business continue to grow.
Christopher J. Destino, SIOR, a Principal at Lee & Associates, is an engaging, responsive professional who enjoys working closely with his clients and helping them succeed.