Going after properties off market - It's hard, Any advise would be appreciated
Hello all,
I'll keep it short for everyone.
I'm a CRE Broker and 3 of my dearest clients have mandated me to bring them off market properties.
I've been calling Owners every day for 1yr now to see if they'll entertain off market offers. 99% of those calls went nowhere and I'm getting frustrated.
Anyone got advice?
Notes: My client has also been sending off market offers since the 90s and currently he too can't find a seller who would entertain a fair market offer.
For example: Recently I brought him a Class A apartment tower deal but the Owner is asking for a 2.5% cap rate offer when the fair value is around 2.7% cap rate and it won't make sense for my client so he is contemplating on passing on it.
Any advice? I'm about 1,5 yr out of University and damn Brokerage is hard ngl.
2.5 cap.........
Wait till you hear about the cap rates in Vancouver right now....
High rise apartment towers (Class A) are trading at 2% cap rates.
SOME EVEN ARE SELLING AT 1.9% !!!!
As a real estate investor who also asks for off-market deals (at the sub-8 unit space), I also realize the problem with off-market deals, which is that almost all off-market deals are from unmotivated sellers because if they were motivated to sell then they would just go to market. The problem with unmotivated sellers is that they don't really care about making a deal happen, so they just throw a stupid number at you and ultimately a deal rarely happens. I know this because when I get cold calls from agents asking to sell my properties that I am not motivated to sell, I just throw a stupid number at them. When I tell brokers I want off-market deals, what I mean is a listing that the broker is about to get and has not begun any widespread marketing yet. What I'm hoping for is being able to put in an offer and lock down the deal before the property is publicly marketed
The thing is, 90% of my clients are looking to do off market deals. They have done a large number of them successfully but over a span of 30+ years.
What would you suggest I do to find motivated off market sellers that won't sell at a stupid price?
Lol if I knew the answer to that then I would raise a fund and go directly to those off-market sellers to acquire their properties. The most I got for you is to build a network of real estate investors/owners/operators. Ideally you want to work with clients who transact in real estate often and hope that when they are motivated to sell a property, you can win the mandate. From my perspective as a real estate investor, I have relationships with multiple agents because it is much more likely that 100 agents bring me 1 off market deal each than 1 agent bringing me 100 off market deals
If it were easy to find off-market deals where the seller's pricing expectations line up with your buyer's then they wouldn't have a need for you. Its supposed to be hard.
Tell your clients that off market deals don't really happen through brokers. It's almost a truism. After all, if you found an asset that was asking 50% of its market value, why wouldn't you market it and double your commission? If they want to find a stupidly priced deal, they should do the cold calling. After all, you (should) have a responsibility to the Seller, as well.
But the main ways to source below-market assets are finding owners who have recently died or recently divorced, and need liquidity quickly to settle estate taxes or pay an ex-spouse. Otherwise, as others are noting, there is just no incentive to sell quickly without a marketing process.
Also helps if you can find a 1031 eligible property for the Seller to flip into.
This. 100% this.
Thank you,
Note: My clients aren't looking for a property that would sell for discount off market. They would pay fair market price.
They just hate participating in bidding wars.
So tell them to offer 30% above market and no one will bid against them. Problem solved.
If this is the argument your clients are making, and you're actually buying that, then you have a major problem. Read between the lines, my man. Technically, whoever wins the bidding war has just set the market price. So your clients are not objecting to bidding, they're objecting to the fact that bidding wars drive up the market. In other words, they want a good discount to market on price, and they think they best way to get this is by making sure no one else can ever challenge their bid.
Maybe too personal but are you an ex-MK guy? I've heard the same exact advice from them years ago
Haha no. I'm just someone with a low tolerance for bullshit. Someone who says they want off-market properties because "they don't like bidding wars" and will pay a market price is just a dishonest piece of crap.
this is a rare circumstance but:
i am selling off-market, an asset controlled by me and my partners that is still in lease-up because i know of some weaknesses in the deal/submarket, i know what it's worth, and i got them to step up and pay a good #. if they fall through, THEN i can take it to the market (when it's fully stabilized) and i won't have to worry about looking like the guy who is taking my fucked-up deal BACK to the market.
the property also has a history of being looked at by a shit-ton of ppl in my sector, because i called EVERYONE to help me as a partner when i was rezoning it, and then after taking down the dirt i called EVERYONE to just buy the site off me, and in both cases the resounding response from everyone in the biz was 'no thanks, that one is not for me' .... i don't awnt to keep taking this thing to the broader market after repeatedly stumbling. i'd like to quietly get out at a great #.
of course now rates are going the fuck up and i'm just waiting for these guys to retrade me....
That is unusual. However, the same truism applies - you're doing what you think will get you the highest price. In this case, it's because you think you've got a bit of an idiot on the line, and bringing it to market means more diligence, which means bidders finding out what the weaknesses are.
Obviously things get sold off market. They just rarely get sold off market, by a broker, for a discount to their real value.
This has always been true. It's just that cap rates have changed.
Was a broker in a major market for 2 years looking for only off market deals. Candidly the reason our firm looked was because we aren’t super legit and established snd that’s the only way we could get deals. We wouldn’t win vs big guys in a process and never had exclusives. Not to scare you but you need to leave for a major firm with a big team or go back to school. It’s very hard to get out from where you are, it seems we were in the same spot. You need to have deals that are marketed with major teams that have connections and get these deals done. A lot of these are off market but they’re getting legit prices bc of their rep and relationship. They’re not cold calling. I was in the same spot, cold calling sucks. Need to get out while you can for your own sake. Lmk if you have any questions.
Oh wow. So you do understand the pain!
Can you please tell me your story? How was your team able to win off market deals, then going on to do listings and cotpetitng wth the big boys.
We weren’t at all, we never had a chance. I’d work on the sand shitty deals from seniors that went nowhere. My direct boss sold over $100mm the year before I joined and 0 for the 2 years I was there. My deals were not his priority and he didn’t care about me learning much or what I was working on. You need to leave ASAP even for a better not #1 team. Lots of teams give draws or small salary’s and accuracy care about your growth. There’s team splits. None of that was the case at my old firm. You can definitely find a place if you really want to stick with sales. Put together a resume, act like you were a broker and analyst and learn how to underwrite in Excel. Go to bigger shops and teams like Meridian, JLL, CBRE. Reach out to alumni and cold email brokers there. Ask to get on calls.
The #1 team in my city does a couple billion in sales per yr.
To join that team I think I need to get a mba from a nicer school.
I think I'll do that after giving this off market thing about another yr.
Am a broker on a top tier sales team in my market. We have done off and on market deals. My senior broker hates us "wasting" time on off market deals but you have to be careful with your time and really understand you need to focus on real sellers. And since Covid it sounds like we have done a lot more off market stuff than before. You need to really define your list of buyers and identify the top buyers for any particular strategy (ie entitled development sites). Then you approach one by one until someone makes a compelling offer at the seller's ask.
I'm not sure how others view this, but I try to develop relationships where I can tell a buyer, "Look - I work for listings... it gives me more certainty of getting paid. Sellers today are not motivated to sell off-market. Why would they? But if I come across a deal I know you'd be interested in, I'm happy to give you a first look and try to keep it off market. But I want to ask you to pay be a separate buy-side fee outside of escrow".
Seller doesn't want to sign a listing agreement so I am not a fiduciary to them. I am happy to keep a deal in the pocket to allow time for someone to offer and negotiate back and forth. But if they can't get to the price, then I will tell them straight up I am going to cast a wider net and allow them the opportunity to take one last bite at the apple.
I am about to put an off market deal under contract where I went to one group first who came in at 86% of ask and went up to 93% of ask. Seller is not reducing price after ~1 month of back and forth so I have a 2nd group who just wrote at 96% of ask. The first group is a someone who may pay a fee outside of escrow, the 2nd group I don't have a solid relationship with them so far, but I know they are active in that market for the business plan.
tldr - buyer needs to be upfront about compensating you for your time. if they are wishy washy about it, then move on to another client who understands the incentives for brokers
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