5 Ways to De-Rail Marketing your Commercial Real Estate Vacancy

These days - available buildings are in short supply. Unlike our residential colleagues - our commercial real estate market is largely owner oriented. We are seeing some changes as available spaces are hanging around a bit longer and buyers are offering more boldly. What follows are five ways you can insure your vacant building stays vacant - regardless of the seller slanted market.

Assuming a buyer will simply discount the purchase price to address deferred maintenance. Let’s imagine your roof needs replacing, HVAC units originated during the Clinton administration - but don’t blow as hard, the exterior needs a swift coat of paint, and the landscape is as overgrown as California’s budget. As a seller - you might opt to forego spending dollars to remedy the issues. There are three flaws to that approach. First, the prospective buyer will ALWAYS estimate the repairs higher than reality - which creates a wrestling match between buyer and seller as to who pays and how much. Second, the buyer may not have the cash necessary to perform the fixes. Remember - most buyers finance purchases. If the price is reduced and the buyer uses his cash as a down payment - where is the repair money? Third, the buyer has a business to run and may not be willing to adopt a “project” of repairing a broken building.

Marketing a building while occupied. At first glance - this may appear to be an owner benefit. After all - the occupant is paying rent while folks are traipsing through. The reality? Tours are tough as arrangements must be made around the tenant’s schedule - which might not jive with the prospect’s. It’s difficult to see the potential - as the space is filled with employees, equipment, inventory and all manner of activity. Another pitfall? If your relationship with the resident has been less than stellar or if the building has some notable shortcomings - don’t expect a glowing review. You may miss the buyer with an immediate need as the space cannot be occupied at the close of escrow.

Not placing the space in “lease-ready” condition. There is a commonly held belief in the commercial real estate profession. What is it you may ask? If your goal is to lease your commercial real estate - the premises must be converted into a “lease-ready” condition. What is lease ready? Offices re-painted and carpeted or left for the tenant to choose the flooring - with a board of flooring choices. Warehouse area painted and cleared of all machinery, equipment, and debris. Restrooms, break room, and common areas deep-cleaned. A prospective tenant must be able to walk-in and immediately imagine his company occupying the space - and not be distracted by the old mini-blinds left over from the previous tenancy.

Harboring a hidden agenda. Does the occupant of the building have any Rights of First Offer, Rights of First Refusal, Options to Buy, Options to Expand or Contract? Has the current tenant found a place to move? Is the marketing effort simply a nudge to persuade said tenant to renew his lease? Only careful questioning will uncover the secret. We recently proposed on an offering only to discover the tenant had a right to buy the building. Fortunately, the right was relinquished and our folks got the deal. But, days were wasted while the right was vetted.

Allowing a buyer to know more than the seller knows. A buyer will have a period of time to conduct his due diligence - a fancy way of saying he can walk away if he can’t get financing or dislikes the color of the exterior. Appraisal, Enviro reports, title review, building inspection - including roof, air conditioners, plumbing, electrical - and city conversations about zoning, improvements and proposed use will conclude during the buyer’s contingency period. What will they find? As a seller, you’re not required to know. However, if you are aware of issues and don’t disclose them - you might get a nasty gram from the buyer’s attorney. I counsel sellers to do a bit of pre-work on the building’s condition. This might entail hiring an inspector and budgetary bidding for problems uncovered. Surprises are avoided and sale proceeds are maximized.

Allen C. Buchanan, SIOR is a principal with Lee & Associates Commercial Real Estate Services. He can be reached at 714.564.7104 or [email protected]