On-Market or Off-Market?

By Mark Hulsey

I recently returned from a commercial real estate conference in Denver and my big take-away didn’t have anything to do with the various speakers or sessions. Sure, there were a few good nuggets here & there, but what really struck me was my conversations with other producing brokers. As they would tell me about the successful transactions they completed, I would curiously ask, “Did you represent the buyer or seller?”

Often, the answer was, “both.” That would naturally lead to my next question, “Did you take the asset to market?” Many times the answer was, “Didn’t need to.”

That’s when I’d usually pause and guard my next comments. Hmm…’didn’t need to.’ It’s those words that throw me for a loop. Not that there’s anything wrong with that, but as a commercial group that focuses on serving sellers and taking product to market, that’s where I start to second-guess their process.

Here’s the scenario:

Jim is finally ready to sell his office building and calls his broker buddy, Bill, to help him out since he works in commercial real estate. Now, does broker buddy Bill truly list the property, spend the time and money to package & position the asset to take-it-to-market in a comprehensive manner? Or, does Bill do the easy thing and reach into his proverbial back-pocket and shoot the listing over to his friend for the deal-of-the-decade? That’s an Off-Market Deal.

When broker Bill can’t get the transaction done with his buddy, he starts to make a few phone calls. We hear about these ‘deals’ floating around the market all the time. I get a kick out of it when you hear about the same off-market property from two or three different brokers and each think they’ve got the hot inside scoop. That’s a seller who knows how to play the non-exclusive broker market. No thank you.

Maximize Market Exposure to Maximize Seller Equity

At RE/MAX Results Commercial Group we are listing brokers – we serve sellers. We pride ourselves with best-in-class asset marketing & market exposure to the widest pool of qualified buyers locally and nationally. We work with building owners to get the most money for their property. It can take a lot of work, money, and patience to do it right. But that’s our job and how we legitimately earn our fee. That’s an On-Market Deal.

I can’t tell you how often I have sellers tell me, “…but Mark, I can’t leave money-on-the-table.” And my reply is simple. When a property hits the market with the correct packaging & positioning, along with comprehensive market exposure, there’s not a nickel on the table when we leave the closing. Everyone knows, a building is only worth what the market will pay for it. But how in the world can this be accomplished without allowing the market to get a good look and go through the sales process?

If we’re going to get the very highest market value for the asset, we can’t treat the listing like it’s an inside secret. That’s not serving the best interest of the seller.

Sure, wouldn’t it be great to just keep this whole commercial real estate sales thing easy and on the down-low. “Just find me that cash buyer who will overpay for my property without anyone else looking at it and let’s close this thing in a couple of weeks. The buyer doesn’t need due diligence – it’s overrated. You know this is an AS-IS deal and I’m not doing a damn thing to this property. Don’t bug the tenants or tell the neighbors. I know what it is worth, now get on the phone and get it sold.” Those aren’t our kind of clients.

To be fair, there’s nothing inherently wrong with off-market deals. It just needs to be handled in a transparent and forthcoming way as it’s explained to the seller about the pros and cons of doing an off-market transaction. Sometimes, a seller and broker may intentionally start as off-market and put their feelers out there to see if there are any low-hanging buyers.

Exception: Trophy Assets

There’s also a big difference in what types of properties would warrant an off-market approach. For example, there are a very limited number of qualified buyers for a trophy office building going to market at $250,000,000. To use a mass marketing approach on a trophy asset would be silly. This requires direct selling to only qualified buyers and brokers playing in that space. But, when we’re talking about properties from $500,000 to $5,000,000, the buyer pool is huge. With that, should come a commensurate marketing approach – get the property out there in a huge way. It’s about as many qualified eyeballs seeing this offering as possible. Just that simple.

Worst Practices

Getting it out there is not throwing up a sign and crossing your fingers.  It’s not telling your buddies over drinks and fantasy football about this amazing exclusive listing you amazingly won. It’s not telling the seller you sell commercial properties only to throw it on one database with two pictures and three sentences and again, crossing your fingers. I call this “worst-practices” in marketing commercial properties. Believe it or not, we see and hear about this all the time. Those brokers or agents aren’t doing anyone a favor faking their way through the listing. Many times, not only do they not have a handle on how to list a property the right way, they don’t even have a clue.

I think the part that bothers me the most with off-market deals is the vagueness of it all – brokers that are playing in the gray zone. That’s telling a seller that they’ve got the buyer and they’ll get them top dollar without using all of the marketing & advertising tools and technology available today.

Only Good Deals are Off-Market

There’s an incorrect perception in the market that if a property is not listed on the major commercial real estate databases, then it must be some secret, off-market steal-of-a-deal. No doubt, the best deal ever. That’s a bunch of baloney. Buyers would be better served to make more offers. Test the waters. Too many Midwestern brokers and buyers are too conservative in their deal-making approach. There are plenty of good deals that are on the market and many of those are on the market because they need to sell for one reason or another. Death, divorce, or going-out-of-business, are just a few of the reasons sellers must dispose of their buildings.

Commercial real estate professionals must do the right thing for their clients. It’s our fiduciary responsibility. There’s no room for manipulation, under-delivering, or just plain old BS. Not every firm is qualified nor knowledgeable about how to maximize equity for a seller, and this goes well beyond just the marketing phase. Let’s be clear with our sellers about our intentions and do our job the right way. It may not be fast and easy, but there’s no other option.

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