What’s wrong with the way we sell real estate?

Prior to co-founding iREITs, I spent 4 years as an investment sales broker at HFF and then JLL. In my quest to find a better way to invest in Real Estate, I took the leap to join HFF to be able to participate in commercial real estate transactions, studying the process as an insider.

Illiquidity is real

What I learned while I was there reinforced and cemented the following in my head: Real estate moves slow, and when people refer to Private Real Estate as an ‘illiquid asset’, they mean exactly that. 

However, an illiquid asset, an asset that is difficult to sell because of its expense, lack of interested buyers, or some other reason, is not always an indication of value. In the example of private real estate, it may be the consequence of a poorly designed sales process. For real estate owners, this is a critical issue. Any barrier in the sales process is a barrier keeping real estate owners from realizing the value they’ve worked so hard to create in their investment.    

Watching the process of dispositions unfold across multiple transactions during my time at HFF really showcased how sellers are at a disadvantage when they launch into this all-important process. It is no wonder that in times of uncertainty, or even in good times, many owners repeatedly delay the decision to sell.

Understanding the Situation

When we started iREITs, we wanted to figure out if there was a more seller-friendly way to manage the disposition process. One that gave investors the opportunity to generate returns when they buy and preserve those returns when they sell, given the exit of an investment has just as much to do with your return as the price you pay at the start.  

While we were mapping out the investment side of the equation to find a better way (see upcoming blog post), we decided we needed to take a holistic approach if we were going to truly make an impact. So, we decided to map out the typical process from start to finish.

What we found – as expected – was a serious disadvantage. 

Repeatedly, we found that sellers are at a disadvantage with today’s ‘conventional’ sale process.

Not only does a sale generally take longer than 6 months, but it can also be an absolutely brutal process for sellers. Food for thought:

• Price, the #1 most important factor for most sellers, is uncertain until more than halfway through the process.  
• Certainty, the #2 most important factor, is not clear until the very end of the process.  

Business Disruption is clearly evident throughout the process with broker interviews, buyer interviews, due diligence and site visits – the disruption is palpable. 

And given most owners opt for a publicly-marketed sale process in attempt to maximize pricing and certainty by casting a wider net, the risk of a failed process and the potential lasting impact on the property’s value is a real and present danger.

Reimagining a better disposition process

In our quest, we asked real estate owners to describe their ideal disposition process. Simply put, it boiled down to these key characteristics: 

Taking this input from potential customers, we set out to rewrite the script of a ‘conventional sales process’ to build a better solution for potential sellers that gives:

• Market pricing and Seller Discretion.  
• Certainty of close without a long-drawn-out process 
• The flexibility to defer your taxes and gain diversification.

The result of this work is the iREITs Disposition Manager:  

Better for Sellers is Better for Investors

At iREITs, we’re taking an innovative approach to an age-old process – supercharging a single owner’s sale options by aggregating sellers together into a single portfolio. With portfolios, we are making it easier for owners, potential sellers, and their brokers to optimize their real estate sales, recapitalizations, and even tax-advantaged trades.  

We are bringing the attributes that seller’s care most about – price and certainty – to the forefront of the discussion, directly addressing the worst parts of the conventional sale process.

And as we reimagine the process for sellers, we are also making it better for investors. Not only do these portfolios diversify away the idiosyncratic risk of a single property (increasing the overall value of the transaction), but they also give investors the ability to efficiently deploy capital quickly into targeted strategies exactly where they want to invest.  

What is better for the seller, is truly better for the investor.

We’ve already started discussions with a number of owners that are considering a disposition through our portfolio vehicles and that fit perfectly with where our institutional investors want to invest.

If you are a real estate owner or broker and want to discuss how this might work, we’d love to talk.