The host of The Commercial Real Estate Show, Michael Bull, answers the question of whether a seller of a commercial property would or would not want multiple bidders when selling a property. The answer seems obvious, and in fact is. More bidders means more demand which means a better price. What Michael is really doing here is discussing the wisdom, or more aptly the lack of wisdom, of selling a property off-market.
I would diverge from this opinion, however. Owners have good reasons to sell off-market. Sometimes they don’t want to spook tenants or – where owner occupied – employees and customers. These are difficult reasons to debate, although the potential negatives are likely less than believed, particularly if one manages the message. There are other reasons as well, a desire for privacy and lack of belief that the selling process benefits them.
This last belief, that the public selling process doesn’t benefit a seller, is simply wrong, which is what I think Michael is getting at. I am contacted all the time by buyers looking for off-market properties. I’ve yet to have one ask me if I know of off-market properties for which they can pay above market price. In fact, I’d submit they are almost always – OK always – looking for below market pricing.
Allow me to provide a painful example. I came across a property not too far from my office that an owner was willing to sell for just over $2 million. This was exciting to me, as his expectation was seemingly lower than the market could bear. We were going to meet, then he cancelled. In subsequent calls, he increasingly blew me off, each time with an increasingly dismissive know-better-than-you attitude. Eventually, he told me that the property was under contract for just over $2 million in an off-market transaction involving a competing broker. Less than a year later that property was for offered for sale by the new owner for nearly double the price. Personally, I thought the property could sell for more than $3 million, and would guess that is what the new owner will garner for it.
It was never clear to me why this owner wanted to be so private with his sale. I sensed that he was confident he knew what he was doing when in fact he didn’t. He’s no dummy, in fact quite the opposite, but intelligence breeds confidence which breeds complacency.
Real estate seems so sensible, “one can touch it for God’s sake.” In truth, real estate, particularly commercial real estate, is akin to a bond with an associated derivatives package causing changes in interest rate expectations, economic expectations, commerce trends, etc. to affect the underlying fixed income instrument. I see it all the time.
All this being said, the ultimate decision is the owner’s, thus that is all that matters. If an owner demands an off-market sale, I’ll not argue it for long, as I’ll argue myself out of the deal, “all hat no cattle” style (pardon the flashing of my Midwestern upbringing credentials). That would be like a politician campaigning on principles, which results in lots of principal, no office.