Written Results

Sellers respond to this CCIM’s comprehensive offers.

The seller’s paradise of yesterday has evaporated, leaving a bid-ask gap that turns many of today’s deals to dust. To help bring sellers’ expectations in line with the current market, industry pros such as George C. Larsen, CCIM, principal of Larsen Baker in Tucson, Ariz., are utilizing creative strategies to get deals done. Larsen Baker develops, redevelops, owns, and manages approximately 2.5 million square feet of retail, industrial, and office space across southern Arizona.

CIRE: How do you manage sellers’ inflated price expectations in today’s market?

Larsen: I have had success with “begging” letters. That’s what my cynical staff calls the letters that accompany any contract or offer we make. These letters give me an opportunity to introduce sellers to Larsen Baker and our portfolio. They also provide a rationale for the purchase price and terms I’m offering for their property.

CIRE: Do you bid on listed properties or look for off-market deals?

Larsen: Both, with the most important element being the seller’s motivation. We joke that if you can calculate a cap rate, we don’t want to buy it. We’ll take properties with 70 percent vacancy and buy on a price-per-square-foot basis with the goal to buy at 50 percent of replacement cost.

CIRE: So what exactly do you include in the letters?

Larsen: Sometimes the letters are 8 to 10 pages with an analysis of the trade area, tenant mix, financing options, and the buyer’s cost to reposition the property and stabilize the income stream. I also provide facts on recent comparable sales. I don’t show all relevant sales — I’m not an appraiser — but all my sales data are accurate and documented. Oftentimes sellers don’t have that information — they only have the comps the listing broker provided. My comps can moderate the seller’s expectations. I really think the letters give me a competitive advantage.

CIRE: Why is that?

Larsen: In most cases my offering price is much lower than the asking price. The letter gives me an opportunity to explain how I arrived at that price. And, the seller knows I took the time to do an in-depth analysis of the property — I didn’t just fire off a lowball offer. Sellers may question my assumptions, but they understand how I approached the investment opportunity. And, my cash-flow analysis is transparent, right down to the potential profit from the purchase and redevelopment of the property.

CIRE: How do you determine your price?

Larsen: The price we offer is a function of three things: The market rent we expect for the property, the cost to find new tenants, and the cost to improve and reposition the asset. We derive the price by starting at street level with achievable rents.

CIRE: How do sellers generally react to your letters?

Larsen: Motivated sellers are interested and engaged. We find little hostility to low offers because the analysis is out in the open. I think sellers like knowing how we approached the valuation of their property.

CIRE: Tell us about a recent deal that came together as a result of this extra effort.

Larsen: We had been tracking a closed former Wal-Mart in Casa Grande, Ariz. Great location. It had been in and out of escrow at $4.5 to $5 million ($42 per sf) three times, as buyers tied up the property and tried to find a new anchor tenant before close of escrow. We knew the seller and his lender were getting nervous. When it fell through for the third time, we made our offer at $30 psf, all cash with a short due diligence period. We had already arranged our financing. We accompanied the purchase contract with a begging letter, met the seller at the property three days later, and signed the contract at $32 psf on the tailgate of his SUV. I like to write, and the strategy works for me. It takes a bit more work, but the results are usually worth it.

Jennifer Norbut

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