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Finding Off Market Commercial Real Estate Deals

Off Market Commercial Real Estate Specialists

Please note that we work in the Los Angeles, CA area and are no longer active in sourcing national deals. However, we’re always help with investment advice if warranted. 

Believe it or not, it’s rough out there for commercial real estate investors. The amount of time some buyers spend analyzing deals is more than they spend at their real jobs. Day after day, I meet more buyers who are absolutely against looking at anything on the market. If it’s already been on LoopNet, they’ve “seen it” and completely disregarded it. There’s the problem, though. They’ve “seen it”…meaning they looked at the price, location, unit mix, read a few words of the description, and MAYBE called the agent and said “DO YOU HAVE ANY OFFERS?!” and once the agent lied and said ‘yes’, they gave up and moved on.

It’s no wonder you have all these brokers running around asking each other for off-market deals or “pocket listings”. When nothing on the market seems reasonable, it’s time to hit up the people who DON’T actively want to sell. That makes sense, right? Nope.

In a perfect world, listing agents who put their listings on sites like LoopNet would 1) price it correctly 2) be descriptive 3) sufficiently inform their clients. Also in a perfect world, someone who claims to be a savvy apartment investor would know that everything is negotiable to a certain extent, including price. I get a kick out of the guys who, no matter how high of a CAP rate they’re getting, will insist on offering $100k less. “Property’s listed at $1m? Deliverable at $900k? I’ll offer $800k.” This isn’t the right way to make strategic investments in multifamily properties.

I’ll use a previous client of mine as a case study to show you how my father and I successfully find deals that make sense for our investors AND sellers. We used all the tools and resources available to give our client the technical data, facts and ideas necessary to make the most educated decision possible.

First, we’ll identify their buying needs: In this example, our client came to us with $2million that he needed to invest. His main objective was to gain cash flow and build equity in an appreciating asset that he can cash out in a few years. He had a steady job, paid off home, and was generally in great financial shape. He saved up this capital over the course of a decade, so he was naturally very careful of any risky investments. He decided real estate was the way to go and even did quite a bit of research on his own…even went so far as to get on LoopNet and start calling on the deals that were on the market in his neighborhood.

Clarify market knowledge: It’s always challenging when a client comes to you reciting things they heard their realtor friends saying about the commercial real estate market. That’s because 99% of it isn’t true. “My sister’s realtor friend told me people are buying apartments  in Montrose for 20 cents on the dollar!” No. “But I read online that you can make 15% on your money in apartment investing.” Hmm.

So, we spent about half an hour bringing him up to speed on market metrics (CAP rates, IRRs, vacancy rates, etc.) and what the current market conditions were like in the area.

Set reasonable goals: We set reasonable goals for the local markets here surrounding Glendale, CA that we would aim to achieve; 7% CAP, 10.5 GRM, 10% IRR, ~$130k/unit. If you don’t know what these metrics mean, well…don’t worry about them. Basically, we wanted to accomplish a reasonably profitable investment rather than try to find a “steal of a deal” and be stuck with problems.

Deal-searching: Yea, he’s seen every apartment building for sale in Glendale, CA  on LoopNet all right. He even knows each on-market property’s address and physical description by heart and he’s not happy about any of them. When we put the LoopNet results page on the screen in front of him for North Hollywood apartment buildings, he started going down the list one by one saying “this one’s great but not worth it, that one looks like a dump, this one’s empty.” We explained to him that the “price” on listings aren’t like price tags on stuff you buy at the store. You can negotiate. In fact, there are quite a few agents out there who specifically over price their listings because they’re used to being low-balled. Also, every property is being sold for a reason. Leveraging that information could be very lucrative in this business.

Naturally, he wasn’t content with what was on the market no matter how low we negotiated some of the deals. We had literally talked each seller down by at least $100k off of each listing. Our stubborn buyer still wanted to see more. We developed a method which would help us target off-market sellers (and yes, I’m totally giving away my secrets by saying this but I must warn you…no one does it quite like we do.)

  1. Foreclosure Records: filtered and searched through Notice of Default and Notice of Trustee Sale records (or properties that are in foreclosure).
  2. Expired Listings: pulled a list of all properties that match our criteria that were on the market in recent years.
  3. Target Search: went through my database of apartment buildings and found properties that match our criteria but are also owned by elderly retirees and have no debt/depreciation left on them. Why? Because older investors who have managed and dealt with their apartment buildings for decades are going to love the idea of exchanging into a NNN fast food restaurant for more cash flow and no hassle. =)
  4. Contact Property Owners: After all of that, we had 12 off-market properties to work with, all of which were in awesome locations and had great potential to add value. I contacted every single owner directly and had a brief conversation about their investment, told them what I was trying to accomplish and suggested letting us do a property valuation for them, free of charge. Only four of them agreed to have their property valuated by us. One out of four of those owners actually decided she would very much love to get fair market value for her building because her home was also in foreclosure and she needed money fast in order to save it. We put the deal together literally over-night and opened escrow the next day.

Boom! Our picky buyer acheived/surpassed every single one of the target goals and thanked us over and over again. This is what we do for our clients. Sure, some of our clients can probably just do it themselves if they really wanted to. However, the advantage of using Verdugo Properties as your commercial real estate brokers in the areas surrounding Glendale, CA is that we’re extensively trained and experienced in surgically orchestrating and executing transactions just like this. No matter which product type you’re into, we’ll achieve the same result over and over again; success.