The Biggest Barriers to the Sale
Selling commercial property isn’t something most people do every day.
That’s understandable. The timescales in commercial real estate are generally longer than in many fields, because commercial real estate is a large investment it takes time to manage. It takes a time investment (and a financial investment, too) to maximize its value. When it comes time to sell, finding the right buyer takes time.
It’s a big deal, and most people don’t do it frequently.
As a consequence of that, for those who aren’t immersed in the world of commercial real estate, some of the barriers to successfully selling a property may be unexpected. It’s hard to anticipate the twists and turns in a road if you don’t drive it often.
We’re here to help. Selling commercial property is a big project, and it’s best to be prepared for the hurdles you’ll need to clear along the way.
With that in mind, here are some of the biggest barriers to the sale.
1. Lining up logistics.
Lining up the logistics that go into making a commercial property sale takes some legwork. It’s a legitimate barrier – for those looking to sell, the intimidating nature of the first step can result in inertia.
An object at rest tends to stay at rest. For property owners, it generally requires more effort to sell than to maintain the status quo. That’s compounded by the reality that there’s a lot of necessary paperwork, and many people aren’t sure exactly where to begin. Things can quickly feel overwhelming.
Recommended documentation includes things like:
Comprehensive building plan documents are important to obtain so that prospective buyers can have an understanding of the property. Sometimes, these are readily available; sometimes, they may not be easy to find, or they may not even exist – in which case they’d need to be recommissioned.
What is the status of vendor contracts? And how up-to-date are building systems?
For instance, commercial buildings require backflow preventer valves that prevent water from the building to flow backwards into the public system – these must be inspected every other year, and if there isn’t documentation to confirm that they have been, work will be required. Has the roof been inspected? Has the HVAC been maintained regularly? All this paperwork proving the building has been cared for is important.
Status of Tenants
What is the state of the building’s tenancy? Prospective buyers will want to have paperwork around the status of tenant leases to understand what will be required when they assume ownership.
All told, locating documentation and lining up logistics can certainly be a barrier to the sale. Working with a commercial real estate broker can help to break it down. A trusted partner will know what paperwork is needed, and they’ll be able to help with the legwork of acquiring it so that the sale can move forward.
2. Unreasonable expectations.
This is a common theme of commercial real estate: unrealistic expectations can hold processes back.
Often, expectations are built around price. A prospective seller may have a certain idea of what they’ll be able to get for a property, only to begin the process and find that the market doesn’t share their perception.
We’ve seen commercial buildings priced at $5 million that, in all likelihood, should be priced at around $3 million. Though this is a large disparity in perception versus market pricing, some level of difference is not all that uncommon. When the discrepancy is the result of unrealistic expectations on the part of the seller – and when the seller is unwilling to alter those expectations – making the sale becomes much more difficult and frustrating.
A commercial real estate broker can help to guide realistic expectations and remove this barrier.
3. The market demand isn’t there.
Sometimes, there simply isn’t market demand for certain types of commercial property.
For instance, the current state of the market has made selling big box retail space much more difficult than it was a decade or two ago. With the rise of ecommerce, there simply isn’t as much demand for big box retailers – and, naturally, there isn’t as much demand for the commercial spaces that were built with those tenants in mind.
In today’s market, a 3,000 square foot warehouse will be snapped up quickly. A 45,000 square foot retail space will take more time to fill.
Other factors contribute to demand, too – including building age, zoning status, nearby infrastructure, neighborhood, and more. But there’s no way around the fact that low market demand is a barrier to a commercial real estate sale.
Yes, it’s true: taxes are often a major barrier to selling commercial real estate.
Depending on a variety of factors, such as how much the building has been depreciated as well as other personal income levels, the tax on income from a commercial property sale can drastically reduce the take-home profit from the transaction. Because of this, it can sometimes make more sense to hold onto the building and lease it and collect the rental income. Over a period of years, this revenue could surpass the take-home value you may get from a sale.
So, be aware of the tax ramifications of the sale.
More than anything else, this is a reminder not to rush headlong into the commercial selling process without considering the likely outcomes.
5. The negotiation.
Finally, even when all of the barriers that can delay finding a prospective buyer have been overcome, negotiation with that buyer can still represent a major hurdle.
We’ve covered many of the issues that can happen during negotiation before. Essentially, many of the same barriers that can hold back a seller apply to prospective buyers, too: unrealistic expectations on price, timeframe, or logistics can bring negotiations grinding to a halt.
Again, a commercial real estate broker can help sellers to navigate this process. They’ve gone through it many times before. They’ve seen all of the common sticking points, and they know the ways around them.
Get Past the Barriers
If you’re intimidated by the prospect of overcoming the barriers to a commercial real estate sale, don’t worry – you don’t have to go it alone.
At Rockpoint Commercial, we’re experts in the Frederick commercial real estate arena. We’ve walked through the selling process with hundreds of clients, helping to navigate the complexities and challenges that stand in the way of a successful sale.
We can help you to line up the logistics, set realistic expectations, and find an ideal buyer to capitalize on the value of your investment.
Don’t let the barriers to the sales process hold you back from making the best decision. Get in touch with us today.