There are many reasons why a commercial real estate owner decides to sell their asset. Whether searching to cash out or turn around and invest in another property, no matter the purpose there is a right and a wrong way to sell an investment.
From office buildings, to industrial assets, to shopping centers, an owner searching to get rid of their commercial real estate should be conscious of the numerous factors that will affect their sale. Below, we outline the three main steps that any owner should complete prior to putting their investment on the market.
Step 1: Prepare the Property to Sell
The best time to sell a commercial real estate asset is when it’s considered most valuable.
The best time to realize maximum value is shortly after a property’s tenant leases have been renewed (for long lease periods of 10+ years). By doing this, the property assures a stable stream of secure income over the long-term, which is precisely what every investor is searching for.
Perform Necessary Repairs and Maintenance
Much like selling residential real estate, no investor wants to purchase commercial real estate that is in bad shape and in need of a long list of repairs. To prime an asset for sale, it’s vital that current owners make the important repairs. These are the things that are necessary to pass inspection and guarantee a smooth due diligence period.
Step 2: Hire a Commercial Real Estate Broker
After signing leases with favorable periods and terms, and making any needed repairs, your commercial real estate asset is at its most valuable. This means it is prepared to be priced and listed. Before doing either of those, an owner should hire a licensed commercial broker, as no important investment such as CRE should ever be done DIY.
A Broker will be responsible for expertly pricing your asset to place it on the market. An asset’s listing price is one of the most vital aspects of the sale process. It can mean a lot of offers and speedy sales, or waiting stagnant without a peep of interest for months.
Step 3: Complete the Asset Valuation
As stated above, there are numerous factors that come into play when dealing with a commercial real estate asset’s valuation process. These include the lease period and terms of the current tenants, building quality, property location, interest rates, demographic trends, and comparable sales.
While these factors have an influence on a property’s valuation, there is one factor that is the key driver of value: the annual return. Any buyer of a commercial asset expects one thing from their investment – that it will generate steady cash flow and strong annual income.
To determine that annual rate of return, a Broker will need to determine the asset’s capitalization rate. In commercial real estate, an asset’s annual return is referred to as the capitalization rate or cap rate, and it’s decided by dividing the Net Operating Income (NOI) from the property’s listing or sale price.
Now that the commercial real estate has been primed and is in the hands of an excellent broker, the property is ready to be listed. Alex Biliouris can help you and be the realtor to represent you on this journey. Call him today at 401-352-4607!