Unlock your property’s potential with equity.
In today’s real estate climate,
making your property more marketable requires creativity and an open mind.
Owners need to expand the benefits their properties offer. Along with physical
aspects and pricing, the structure of the transaction, and your capabilities
and expertise all figure into the formula. The key to completed transactions is
determining which benefits appeal to a particular buyer and still provide the
same or better benefits for you, the seller.
In the late 1970s I
discovered that incorporating value other than cash is what helps to close
transactions. That other value is equity — in the form of real estate, paper or
notes, or even a particular skill. These additional forms of equity are a
A willingness to look at
different transaction structures can be a very positive step toward broadening
the market for your property. Below are a few examples of transaction
structures I have used to help property owners increase their properties’ marketability.
If the seller’s objective is to raise
capital for a business, a sale-leaseback of the property provides a way to
acquire the needed capital and create an investment for a potential purchaser
that offers an appealing return. Many triple-net-leased retail, office, and
industrial property transactions are sale-leasebacks. Small property owners may
do this as well. It is an excellent way to fund a business expansion or other
Owner financing also can
help a buyer acquire a property. In this time of tight credit, it may be the
only way to bring the parties together. Later the owner can sell or exchange
the note for cash or other real estate. A note is generally more liquid than
real estate and therefore many investors are willing to look at taking the
created note as part of another property’s purchase price. There also is a large market of
note buyers who will consider paying cash for the note at some value.
If a seller needs to
extinguish debt on a property, another option is selling at a discounted price
with the option to buy back the property in the future. This approach also
offers the buyer an excellent return on his investment during his interim
holding period (compared to what he could get for his cash in a money market
account or CD).
For example, I was
involved in a transaction a few years ago where a developer had acquired a land
parcel to develop into retail/restaurant pads along with two hotel sites and an
apartment site. The market changed and he asked me if I could help him get his
debt paid (about 20 percent to 25 percent of the property’s value when fully
developed) and give him the opportunity to develop the property when the market
returned. Through a marketing session, we found an investment partnership that
was willing to acquire the property for a little more than the debt and give
the developer an option to repurchase the property within two years for a
reasonable return on their capital. The new buyers were comfortable with their
security in the real estate and the return they were going to receive on the
repurchase. The developer freed up his credit line, took a liability off his
balance sheet, and still had the opportunity to move forward with his
development at a future date.
Exchange techniques also
increase the marketability of your property. Early in my career I owned a small
apartment building near a university. The university was interested in
acquiring it, but after a couple of months, we were still far apart on the
value, and it looked like we might not be able to come together. I asked if the
school had any surplus property, since universities often receive property
donations that are not in locations where the school can make use of them. The
university had a tract of land it couldn’t use and offered to include it in our transaction.
The value of that land brought us to a figure we were both comfortable with and
we completed the transaction. I sold the land after a few years and realized a
nice profit out of that part of the transaction.
These and other formulas
are used every month in national and local marketing sessions and individually
by well-counseled real estate investors and knowledgeable brokers schooled in
formulas and techniques.
There are numerous
combinations that can help a transaction come together if you keep an open
mind. Using your own skills, expertise, and experience to dispose of property
and acquire new opportunities will help you to profit from your real estate
ownership in any phase of the real estate cycle.
Bill Richert, CCIM, SEC,
is president of Richert Properties in Tulsa, Okla. Contact him at firstname.lastname@example.org.