How to set up your commercial property for sale

What is the magic formula for maximizing commercial values?

You should sell when you have the highest possible lease rates and when your cap rate is relatively low.

That’s it. It’s simple.

Your two levers are this:

Net operating income (the income the property makes after all expenses related to the property have been paid) / Cap rate (a market metric determined by location, interest rates, the quality of tenants, and the asset type)

To increase your value, you must improve all these factors.

Increase rent (keep up with the market, maintain the property so tenants want to stay)

Quality of location (good locations are easier to lease and sell, decreasing risk, and increasing liquidity)

Favorable interest rates (good timing)

Improve the quality of tenants (national tenants are good, tenants with a long history of leasing in the plaza are great because both qualities decrease risk for the buyer).

Asset class (the specifics of the market will impact this if there is a high vacancy rate in the asset class you own, then this increases the risk to a buyer, and so decreases value)

Right now, our current market is favorable for sales, but many landlords need help in correcting legacy issues caused by the pandemic, or less favorable leasing conditions from a few years ago.

The most common issues we see are:

• Below market rent
• Improper accounting for operating costs (this usually starts with the best of intentions, but if operating costs are not collected in full, this will negatively impact the net operating income of the property because the undercharge in op costs comes out of net rent)
• Deferred maintenance (purchasers will expect a discount if the property needs a new roof, HVAC, parking lot, etc)
• Gross leases (not always a problem, but if the accounting is out of wack, then the value is in question)

Our team has a track record of setting up assets for sale, and we would be happy to discuss how we can work with you to improve your value and take a property to market.

Thanks for reading - and by the way, this article was written by an actual person. Feel free to reach out to us to discuss your property - 780.920.8019