What is your exit strategy for commercial properties?

For a majority of our assets our business plan is hold forever. Most people that have created serious wealth have not done this by partnering with the government and paying taxes from your sale. 1031 is great but what can be even better is to hold and do modest refinancing every 10 years or so. This money is pulled out tax free. We like to keep our stabilized properties at 30-50% leverage.

"Taking the right decisions at the right time is the key to building your wealth to the sky" I totally agree that "Hold and Sell" is the mantra for long-term investments but but but be up-to-date with the running Market :)

The best exit strategy for commercial properties in 2023 involves a combination of factors. Firstly, investors should stay aware of the market conditions and economic trends. Any potential changes in interest rates, employment rates, and industry growth will help investors gauge the optimal time to exit their commercial property. By understanding these market dynamics, investors can sell their property at the peak of its value and maximize their returns. Secondly, investors should focus on maintaining a well-diversified portfolio. By having a mix of different types of commercial properties, such as office buildings, retail spaces, and industrial complexes, investors can spread their risk and avoid putting all their eggs in one basket.

Over the cycles, I have observed that the best owners, including jv owners never over- leverage, they hold for the long term, and refinance when rates are favorable. In addition, they focus on keeping their properties well leased at rates that don't strangle tenants. Above all, knowledge of the market is critical. Many small owners today seek to sell vacant properties at pricing that is irrational; they should be tapping fresh leasing demand where it exists, then sell or enjoy new income streams with new tenants in place.

Hold and Cash Flow-Long term wealth, 1031 Exchange-Defer capital gains, Lease Option-Give tenant opportunity to purchase or Portfolio sale-Sell as a group of properties together as a package

This is a great example where i have seen people raise capital for other ventures using equity,its cheaper and quick to access,the property guarantees you the loan and you retain or still hold unto it

Leverage, leverage, leverage! ???? This can be a solid strategy to open up new doors for say a new business venture, but of course comes with its risks. You may refinance and lock up your credit availability if the new business doesn’t generate enough of a profit to cover the additional cost of debt - but a wise man once said…you won’t know unless you try. The opportunity cost could increase by choosing not to capitalize on the equity, resulting in loss of the potential gains refinancing would bring. Much of this comes down to one’s risk appetite.

A strategy we use regularly. We seldom sell good assets. They're difficult to get your hands on so a decision to sell needs to be a justified one. Regear to comfortable levels. Sleep well at night.

This is a terrific move when your intent is to grow and expand the portfolio; but be careful to not over leverage on the refi and know your prepayment penalty exposures as part of your decision making.

Great option to extract money income tax free under the right circumstances because it’s a loan and get tenants to pay for it, not you.

I stems from a small residential building that wass purchased for under $2M and sold for $9M, proceeds used to purchase an office building for under $24M; and further sold to purchase a single NNN Tenant property for $31M+; despite an incremental dollar level of debt that came along with these purchases; every step of the way was an increase in the equity position of the property to what has become a fairly passive investment yielding a solid cash flow that far exceeds that which could have been generated from that small apartment building at today's rental rates. I should put a white paper on this one. Of course, this is over a period of 30 years; but the point is that no capital gains taxes have been paid!!!

This strategy is increasing and is not only valuable in the long term maintenance of our social environments but also "already invested CO2", decreasing need for new built property to some degree.

There is a risk/reward on the sunk costs in obtaining new zoning; yet a recent assemblage of properties and rezoning over a period of close to 3 years has proved fruitful in positioning ourselves in a joint venture for a large-scale project. It can be done quite lucratively if one has the patience and fortitude.

I agree, especially for folks who have a solid team and have built rapport with the right industry partners to be able to negotiate favourable rates and terms. Permitting can be tricky, but not an impossible feat.

From my perspective, this is essentially the same thing as a flip. It can be very profitable but I would also say it is very risky. You need to understand your market and have a very good budget to be successful. I would also say that flipping commercial properties is more challenging that residential properties. They tend to be more expensive to rehab and also are less liquid than residential properties.

A great income tax strategy; you just need the appropriate landing spot as most charities are not in the business of taking on risk with owning and running real estate even if it only means to flip it and sell. If you have a good broker; they can get a Buyer lined up for the charity to orchestrate an appropriate exit strategy for you; but remember, you need to have an appraisal performed first and foremost for substantiating the value of the donation; and further the flip sale should closely mirror that value to add credence to the value of the donation.

Well, It's never a easy decision without pre-condition given. By making a disposal, factors listed below need to be pre-assessed: 1. Is it a professional investor, what's the purpose for this investment? 2. What investments forms the portfolio, is it single property or is it part of various asset combination? 3. What market is this investment in? A hiking property condition (might lean to hold decison), or a shrinking property market, how's the trend go forward? 4. What is the investor background, is operation their specilty or making quick money the target? 5. Commercial property in what type, location, size, market position, current condition, ROI in each scenario, potential clients etc. With all above answered, a decision is there!

In my experience, it is very important to have few exit strategies for short/medium/long term as the market condition can change very quick. I am based in uk, and recent example is the mini budget in October 22 when whole mortgage market went into difficulties and all lenders raised their interest so high that influenced the way I was looking at my exit. I have a conversion from commercial into residential project and initial plan was to keep it, refinance, pay all creditors and enjoy cash flow. However, didn’t work as semi commercial interest rates were above 9% and didn’t make sense anymore. Then I was thinking to title-split and sell units individually, however valuations came back lower than expected and had to change again into selling

One successful exit strategy for commercial properties is to hold and refinance every 10 years or so. This allows investors to pull out tax-free equity that can be used to reinvest in other properties or businesses. It is important to keep leverage at 30-50% to maintain a good balance of risk and reward. For example, an investor could purchase a commercial property for $1 million 10 years ago. Today, the property is worth $2 million, with a mortgage of $500,000 and equity of $1.5 million. Instead of selling the property and paying capital gains taxes on the $1 million in appreciation, the investor could refinance the property and pull out $1 million in tax-free equity. The investor would still have $500,000 in equity plus an extra $1 mil.

I agree that it is certainly important to be familiar with the pros and cons of all the exit strategies available. However it is important to consider “preservation” strategies as well. With billions of dollars in low interest real estate debt coming due in the next several years, borrowers will be looking at new interest rates which will be much higher. This will stress cash flows and reduce cash on cash returns. Thinking creatively now about how to lower loan to value ratios, lower costs, and increase occupancy levels will help owners navigate higher interest rates later. Implement your defensive strategies now in order to withstand the higher interest rates and preserve the investments later.

Lease/Rent and sell on ROI This is a very common method where monetization becomes much easier if it is rented out to a retailer/office. Look out for a potential renting opportunity. Make improvement cost as part of Rented Capex and sell the existing asset class at a fixed ROR (depending on markets). Typically Grade A properties in bigger cities in India are sold between 7.5% to 11% p.a return.