Make It Easy To Say Yes
September 3, 2016
What Finance Brings to the Team
December 1, 2016

It’s Tough to Sell a Dirty Truck

A friend of my son who lives across the street has been trying to sell his 4X4 pick up.  Yesterday, I saw him come home from off-roading with it.  How did I know he was off-roading?  The truck was covered in mud.

He parked the truck and promptly put the “For Sale” sign back in the window.  I scratched my head wondering if he had thought through his sales strategy.  Didn’t’ he know he would most likely get more money if it were clean?

Like selling a truck, one of the key items in selling commercial property is how it shows.  You never have a second chance to make a good first impression.  But there are also a lot of non-visible items to be considered to ensure you get the best possible price and terms.

Here are some thoughts on readying your commercial property for sale:

  • Building Prep:
    • OK, let’s start with how the property looks.  Generally, the nicer a property appears the less perception of risk in the eyes of a buyer, and it increases what they are willing to pay more for it.
    • Take care of any deferred maintenance items.  For instance, make sure the HVAC system is in good working order.
    • Is the building well taken care of and the exterior looking good?  If needed, paint or pressure wash the siding and wash the windows.
    • Is the roof in good shape?
    • Tour each of the tenant spaces and make sure they are clean and orderly.
    • If you have vacant space, have it clean and move-in ready.
  • Operating History:
    • If possible, have at least three years of operating history for the prospective buyer.
    • Scrub the statements to remove any owner expenses not attributable to the property and capital improvement items you expensed for income tax purposes.
    • Explain any revenue dips.
  • Leasing:
    • If you have any upcoming tenant rollover, extend the leases before you take the property to market.  Not only will you get a value bump from the (hopefully) increased rental rate, but buyers will not factor re-tenanting risk into their pricing.
    • Confirm you will get clean estoppels from your tenants.  Work to cure any tenant issues before you take the property to market.  If a tenant knows they are between you and a property sale, they have a lot more power on their side.
  • Title
    • Order a preliminary title report on your property prior to going to market, especially if you’ve owned the property for a while.  You never know what might pop up that needs fixing or might be missing:
      • Liens from contractors, subcontractors, taxing authorities, or lis pendens.
      • Encroachments onto your property.
      • Easements that benefit your property.  Make sure they are all there and recorded.
    • Even though you might not be able to fix all problems before you go to market, by reviewing title ahead of time you will be able to alert any prospective purchaser that the issues are being taken care of.
  • Due Diligence Package:
    • In a future post I’ll discuss more fully what goes into a proper due diligence package.  The bottom line is that presenting the buyer with a well-laid out package shows them you care about the transaction, the property, and the relationship.  All of this reduces concerns in their eyes and increases their view and pricing of the property.  Key items in a well prepared package include:
      • Detailed rent roll and copies of all leases and amendments
      • Loan documentation of being assumed
      • Preliminary title report
      • Building plans and property survey
      • Occupancy approvals from municipalities
      • Recently completed environmental or other engineering reports
      • Contractor or system warranties, if applicable
    • I prefer to put all due diligence materials into a three-ring binder with a table of contents and each section labeled.

A few final thoughts on selling your property:

  • All of the above also apply to financing your property as well.
  • Reduce perceived risk. Better pricing almost always follows buyers’ perception of reduced risk in owning an asset.
  • Sell the dream.  Show the property in its best light.  Let the prospective buyer be proud to own it.