Finding Transactions in Slow-Moving Properties

It is our observation that stagnant exclusive, listed, and off-market properties are abundant, and that they house many potential transactions.

Why? Most owners reason that the eventual buyer must bring cash or financing. The reality is that there are many more potential transactions available to those thinking outside the box than there ever will be waiting for cash buyers.

Example one: the half-empty office building

A seller owned a free-and-clear office building, 60 percent occupied. With that vacancy, conventional financing was unavailable, so cash buyers stayed away.

The buyer owned a free-and-clear commercial site in the path of progress, not quite ready for development.

The solution: the buyer created a 40 percent loan-to-value down-payment mortgage against his commercial lot and gave it to the seller. The seller carried back the remaining 60 percent on the office building. The transaction closed. The buyer activated dead equity while waiting for a land buyer. The seller got out of management, gained a permanent income stream, and received his down payment in cash when the land eventually sold.

Example two: the tired motel

A seller owned a 103-room motel with excellent cash flow that required a major remodel to keep its franchise. The seller had other priorities and did not want to finance the rehab. Cash prospects were few, and those who appeared wanted to severely discount the price.

A motel contractor was found who wanted to do the rehab but could not fund a down payment or qualify for the larger loan. The seller and the contractor located a third-party investor who liked hotels, owned free-and-clear condos in another jurisdiction, and was willing to put them in as the down payment and qualify for the loan.

The transaction closed because every party got the benefits they were seeking. The motel seller sold the condos a few months later.

Questions to ask about your own equity

• Why are we selling?
• What other equities do we own or have experience with?
• What types of equities do we prefer?
• Is our property free and clear? Is the financing assumable or easily replaced? Could we make it free and clear?
• If this is a problem-based sale, do we understand the situation fully? Negative cash flow we cannot carry? Developable land without the expertise to develop it? A partnership that needs dissolving?

These are a few of the questions needing honest internal answers before a successful transaction can be created.

Real estate is never the problem. It is always ownership that has situations to deal with.