“Off-market” deals

We’ll get multifamily properties that aren’t widely marketed from smaller brokerages. We call them off-market.

Why would a property owner, especially in multifamily and especially in this market, not fully market a deal.

 

The broker probably doesn't actually have a listing... a lot of times they do this if they think they'll lose out in a bake-off style process.  They'll try and front-run the process and bring the deal to a few groups they trust and they know can perform.  Other times it is because there is a small window of time (i.e. before a refi) to actually strike on the deal and they want to keep the circle small and only go out to groups they know can perform. Another instance is where there is something a little off about the deal (i.e. real banged up, environmental issue, physical issue, etc.) and they don't want to taint the asset in a broad process.  

That said, you should generally market your assets right now.  Things are fucking nuts in multifamily right now.

 
Most Helpful

I’ve never understood the whole “off market” thing and I find it hilarious when a broker calls you and says “ive got an off market deal”. Well, it’s officially on the market if you’re calling me, because you’re probably calling at least 2 other groups and are trying to make a market. Also I find it hilarious when brokers blast on LinkedIn that they have an off market deal and to message them if you want to see it. So that’s the first thing.

Second, the reason a group may want a light listing is because they may not want the world to know they are selling portions of their portfolio, so while it may get out to the market eventually, it will hopefully be quiet. 
 

Third, similar to what was said already, brokers know the seller will sell but isn’t giving them the listing. So brokers create a short OM and blast it around, hopefully someone bites and they can go to the seller and make a deal happen. I see this more on smaller deals and less on the institutional ones. The small deals I’m referring to are less than $5MM. I’ve always also found it funny because another way you know the broker doesn’t have the listing is when they say, “you can get that info in DD (rent roll) or my fee will be an additional (2%) - the seller should be paying - though I don’t mind paying a buyer broker fee if warranted, just be up front. 

 
pudding

I've never understood the whole "off market" thing and I find it hilarious when a broker calls you and says "ive got an off market deal". Well, it's officially on the market if you're calling me

This. Pretty much the definition of being marketed. 

Commercial Real Estate Developer
 
CRE

pudding

I've never understood the whole "off market" thing and I find it hilarious when a broker calls you and says "ive got an off market deal". Well, it's officially on the market if you're calling me

This. Pretty much the definition of being marketed. 

Yep.  An "off market" deal is when the owner of the property calls me up and offers to sell.  Even then, it's probably not "off market" because they're doing the same thing as Mr Off Market Broker - they'll call two or three people they know who will give competitive pricing.  I suppose you can argue that because of the time saved (not to mention the fees), you as the buyer can capture some of the value between your price and what a true market price would have been, but it's hard to imagine that is substantial, or else the Seller would be taking the deal to the full market anyway

 

If you have a partnership (who may not all be of the same mind), then it's much easier to get a consensus / decision with an on-the-table offer.  With a marketed process, there's interviewing/selecting the broker, there's a listing/fee agreement, there's opening the kimono on everything up-front, there are tours, there are timing/pricing decisions, there is the bother/irritation of tenants/employees/partners/other brokers/etc when everyone and their mother knows about a marketed deal. 

If ten partners have a day job, and ten different ideas of how things should go, and they don't want to rock the boat, then the marketing process can be a massive headache, so telling a broker to bring an off-market offer makes sense - especially when you have the optionality of going the marketed route in the future. 

And few brokers will bother claiming to a buyer that an off-market deal is only being shown to them and them alone.  If it's a deal worth showing, you show it to a handful of best buyers - unless there is one head-and-shoulders above the rest, but even then you show it to one/two others to triangulate/confirm pricing.  

 

Off-market to brokers just means "Not on Costar, Loopnet, Crexi, MLS" basically. These deals usually come about when some owner tells the broker that if they can bring someone at X price that they'd sell. Then the broker lets their 5-15 best clients/buyers know about it with some 5-line summary about the deal, and basically go from there. From the owner's perspective, they might like it cause they didn't have to do anything or deal with some long drawn out marketing process and still got their price. The commissions are also usually less on a percentage basis. From the broker's perspective, it takes much less effort to put these deals together and can make more money for their efforts despite the reduced commission percentage.

Depending on how desirable the asset is, you may still get a few groups competing against each other and the owner still gets the benefit of competition. If the broker is good, they will likely already know the best 5-15 potential buyers for an asset, so essentially the owner can get 90-95% of what a truly openly marketed property could without dealing with a ton of headache. 

Institutional assets are less likely to be sold this way, and usually comes from owners who have individual control of the asset as they don't have the fiduciary responsibility to investors like institutional groups do. Many people out there aren't interested in squeezing every single penny out of every asset and consider it more worth their time to do more deals than maximize each. From the owner's perspective they may only take a 5-10% discount, but may reduce the time they have to put into each deal by 50-90% (depending on how easy the deal comes together), thus making more sense to just churn.

 

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