Off-Market Commercial Real Estate: What, Why, and How
What They Are, Why You Would Buy Off-Market Properties, and How to Find Them
If you’re on the hunt for commercial real estate, I obviously don’t need to dive into the many benefits that this investment vehicle can bring you.
You already know that commercial real estate investing is for you, but you’re likely having a hard time finding good opportunities that fit your criteria.
These properties don’t ever come up for sale, so how are they still trading hands?
Well, they’re being sourced off-market, so here’s my quick guide on how to find off-market commercial properties.
First, What is an Off-Market Property?
Off-market commercial real estate is exactly how it sounds - commercial properties, whether they’re office, retail, industrial, or multifamily, that are sold to another investor without ever having hit the market for sale.
Essentially, the property trades hands without the general public ever knowing that it was available - they never hit an online listing source or have a sign in the yard.
Investment opportunities are often sourced off-market through word of mouth, quality commercial real estate brokers, or other networks.
Why Would a Property Sell Off-Market?
There are many reasons that a property owner would decide to sell their property without taking it to marketing, including:
Fewer commissions and finder’s fees paid to brokers, which means the seller will net more on the property
Less “sales” risk, since tenants can see on-market properties as a risk to their business and will sometimes move elsewhere
No lowball offers and time-wasting tours from unsophisticated buyers that don’t have the ability or don’t intend to actually close on the property
And less intrusion or unwanted attention upon the operations of the asset
Now, there can also be drawbacks for sellers that let their properties go off-market.
Since they’re not releasing the opportunity to all potential buyers, they may not get the most competitive bidding and could lose out on earning top dollar for their asset.
Now, Why You Should Find Off-Market Properties
So, we know what’s in it for the sellers, but what’s in it for you as the buyer?
Well, there are some fairly outstanding pros to sourcing your investment opportunities off-market.
Better Negotiation Position
When you’re the sole potential buyer looking at the property, you’ll naturally find yourself in a better negotiating position. On-market opportunities, especially ones that are high-quality, will be in-demand and prospects will drive the price up or give the seller a strong position from which to negotiate, meaning you may not get as good of a deal.
When buying commercial real estate, you want every competitive edge you can get.
Privacy
Depending on how high-profile the property or parties involved are, you may not want the local papers or other sources discovering what you’re working on.
This privacy will give you the opportunity to work on your plans in peace without having to answer intrusive calls from other brokers, reporters, and neighbors.
Seller Flexibility
In my experience, working with sellers to buy their property off-market will often lend itself to far more flexibility with the deal terms than you’d otherwise find.
You may be able to work out a longer due diligence period, have more candid conversations with the seller about certain aspects of the deal, or get an outstanding price.
Off-market deals can also become far more creative and you could negotiate seller financing terms, a partnership with the seller where you won’t even need to come out of pocket, or any number of other opportunities if you’re willing to flex that muscle.
Not having to deal with multiple parties can alleviate the stress from a seller and make it easier for them to just work with you.
How to Find Off-Market Commercial Property
Here are the most effective ways that I’ve found for finding off-market deals:
Commercial Real Estate Brokers
Working with a commercial real estate broker that is established and knowledgeable in the asset class or neighborhood in which you’re looking to invest is probably your best route.
They’re working all day, every day to find these off-market opportunities in order to connect buyers like you with sellers so they can get commissions.
Not only will they be able to help you work through the pricing and negotiation end of the process, but they’ll also be able to walk you through the entire due diligence and post-closing side of investing to make sure that you’re good to go.
Cold Calling
Cold calling isn’t going anywhere and it is often one of the better ways to get directly in touch with the owner of the property.
Drive your market and find sites that you’re interested in buying then look up the property owner in your local tax records. Once you have their name or address, you could look them up on Google or Yellow Pages to find their best contact number.
Just give them a ring and let them know directly what you’re looking to do - couldn’t hurt to open the conversation from there.
Direct Mail
Direct mail is a surprisingly effective way of getting ahold of off-market opportunities.
There’s a reason the top brokers and wholesalers consistently send direct mail to the properties they’re farming - very few pieces of direct mail are sent nowadays and so there’s a good chance that yours will stand out.
I recommend hand-addressing every envelope to personalize it, which will certainly increase your open rates.
Networking
Nothing can quite beat networking, whether you’re doing it in-person or through social media.
If you’re taking the in-person route, join your local chamber of commercial, any specialty real estate or neighborhood groups, and let everyone know what you’re looking to do.
If taking the social media path, there are plenty of groups where you can post your search criteria in order to get your search in front of as many property owners and real estate brokers as possible.
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About The Author:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors as a board member for the Real Estate Investors of Nashville.
If you're serious about real estate investing, it's time to look beyond those quaint single-family homes.
Bold statement? Absolutely. But stick with me here.
Now, don't get me wrong. Investing in a single-family home beats twiddling your thumbs on the sidelines of the real estate game. And yes, I'll even go out on a limb and say that residential real estate still outshines many other investment vehicles out there.
But that's not why we're here today, is it?
I'm about to lay out five reasons why commercial real estate should be your go-to play.