As we emerged from the Great Recession, there were “deals” everywhere. Excellent locations, quality buildings, good tenants and, yes, even good sponsors were literally one phone call away. The problem during the recession was scarcity of capital rather than the availability of good real estate properties to acquire. As capital began to return to the markets in late 2011 and 2012, equity and sponsors alike made the phrase “Off-Market” the buzz word in commercial real estate, indicating that the deal was available (at the right price) but was never marketed to the buyer pool at large.
Now, as we wind down 2014, there are many that are still using what has become an irrelevant term in commercial real estate vernacular, at least here in Texas. Members of our firm have witnessed countless meetings where a sponsor showed up with a supposedly “Off-Market” deal, but when we dug into it, sure enough, there was a sales broker involved. When we called lenders or investors to obtain financing proposals, they would respond with a resounding, “We’ve seen this deal before!!”
And, what was is wrong with that? Absolutely nothing! A sales broker out “bird-dogging” deals for principals provides a valuable role to Sellers and Buyers alike. But….if a broker shows a viable transaction to a willing buyer, it is not “Off-Market” per se but rather is being “Selectively Marketed.” Moreover, the role of a good sales broker is not to put all of his eggs in one basket…so if he/she is worth his salt, he or she will selectively pick some of the best prospects for the deal, thus turning the Off-Market property into a Selectively Marketed transaction.
The fact is that there is plenty of good real estate being both selectively marketed and fully marketed. The notion of one thinking a deal that is being marketed is somehow damaged goods is likely someone missing out on a lot of opportunities. I am not implying that there are no good Off-Market deals, but if you are not in a desperate situation or don’t want the details of the project to be known to the larger market, why would you not market your property to a wider audience?
The same holds true for our firm when we are marketing debt and/or equity placements. Clearly, a Client benefits from both the feedback and the results when a transaction is shown to the widest possible audience, and in doing so, it certainly doesn’t compromise the quality of the deal or its ability to attract the best possible capital provider. Furthermore, the combination of brokerage talent and technology have made the sale (and financing) process of either “Selectively” or “Fully” Marketed more efficient today than in the past.
In 2015 let “Off-Market” go the way of the dinosaurs, and let “Selectively Marketed” fill that gap…for now.
The author, Hook Harmeling, is a Senior Director at Metropolitan Capital Advisors and an eleven-year veteran of the firm. Hook can be easily reached at firstname.lastname@example.org