How do you know when it’s the right time to sell?

As a rule, you make money in real estate when you buy, not when you sell.

With that said, it’s common for an owner not to know when to sell, says Joseph V. Barna, SIOR, a principal at Cushman & Wakefield/CRESCO Real Estate. The property owner needs to weigh market conditions, along with internal factors like occupancy, cash flow and the condition of the building.

“You don’t want to wait until you’re in trouble, because there are sophisticated buyers out there,” Barna says. “The buyers know you’re in trouble and that sooner or later the building is going to go back to the bank, where they can buy it at a discount. You don’t want to put yourself in that situation.”

Smart Business spoke with Barna about when to put your property on the market.

How do owners get into trouble with commercial property?

Many people purchased properties when the market was robust, buildings were at a premium and rents were high. They’ve seen values decrease 10 to 30 percent and rents decreased or stayed flat, and now face a balloon payment that’s more than the building’s worth. Let’s say they paid $1 million and put 20 percent down, but when the note is up and principal is due, the property is reappraised at $700,000. The lender might finance 80 percent of the $700,000 and the owner will need to invest additional cash to consummate the transaction.

Another problem is when you start to have vacancies and cash flow dries up, especially if you’re carrying a mortgage. Then, not only do you have to find a new tenant, you’ll also need to pay for the carry plus improvements and related fees.

Owners procrastinate thinking they will get a tenant or the market will turn, but nothing happens quickly in real estate, so they keep digging themselves a deeper hole. In some cases, they give the keys back to the bank and walk away if lucky enough to have a non-recourse mortgage, rather than continue to feed an unprofitable investment.

What’s a better way to handle a property?
Instead of waiting until you’re in a negative position, it makes sense to evaluate how that property is positioned and possibly bring it to market sooner — especially if you foresee a vacancy issue, capital improvements or refinancing situation. If you have a small or midsize portfolio, you don’t want to be in a bind with major vacancies and limited cash flow.

It’s not uncommon for a building to sit vacant for years. Therefore, if you sense you could be at risk you should bring the property to market and have time to find that ‘highest and best’ user or investor. Again, it goes back to ensuring you don’t overpay when you buy, while understanding the functionality and need in the market for that specific property type.

How can a sale-leaseback be a tool for business owners who own their property?
A sale-leaseback allows owners to sell their property while retaining the benefits of tenancy through a long-term lease. This increasingly utilized tool allows owners to use their essential real estate without tying up large sums of debt and equity capital.

It is possible to exceed market values depending upon the credit of the seller and the term of the lease. A sale-leaseback is also a logical solution to a short- or long-term exit strategy. Other reasons why owners utilize this tool include paying down debt, making an acquisition and reallocating capital in more productive uses, as well as estate planning.

How can a broker help?
If you are considering selling your property, it is important to understand who is the ‘highest and best’ potential buyer no matter if it’s a user or investment sale. You need to know the demand of your specific product type, market conditions, most effective manner to position the product and what needs to take place to maximize value.

By consulting with a broker, you’re not committing to anything; you’re doing your due diligence and getting questions answered. Gathering all the facts early will help you make the right decision at the right time.


Joseph V. Barna, SIOR, is a principal at CRESCO. Reach him at (216) 525-1469 or [email protected].

Insights Real Estate is brought to you by CRESCO


CRESCO: How to be the winning bidder on a property with multiple offers

Two years ago, multiple bidders for commercial property in Northeast Ohio would have been unheard of. Now, market power has shifted from the buyer/tenant to owner/landlord. Vacancy rates have dipped and the quality of the product on the market has significantly decreased, says George J. Pofok, CCIM, SIOR, senior vice president at CRESCO.

“As the market and the economy continue to improve, with the lack of quality product out in the market, I think we’re going to see more multiple-bid situations,” Pofok says.

Smart Business spoke with Pofok about what to do when you’re competing for commercial property.

What determines if a property might have multiple bidders? Is it the type of building or location?

Right now, multiple offers are happening more with industrial properties as opposed to office — and a lot of that has to do with the quality of the building. Class A Industrial buildings are in limited supply. So, a property’s cleanliness, building amenities and ceiling height make it more desirable and thus more likely to be competitive.

Location is important, including freeway accessibility, being near public transportation and your labor force, but amenities to a building sometimes outweigh location. If you were to build a new industrial building today versus purchasing another facility already equipped, there are cost savings in addition to being able to get widgets to the market quicker.

How does the bidding process typically work with more than one bidder?

Everything ends up being a one or two-step process, usually. The seller might give you a revised counter or just send you a letter saying, ‘We have multiple bids. Give us your highest and best offer.’ Then, you’ll have a couple of days to a week to respond. Obviously, getting your response in by the timeline the seller dictates is critical, but the terms of the offer are what drives everything.

There can be a lot of back and forth or the seller may end up picking a lead horse, and then try to fine-tune the economics with that bidder. They may like your offer but have one objection. They’ll come back to you about that objection.

So, how can you make your offer the most attractive one?

You’ll need to consult with your broker and your lawyer, and most importantly not play games. If you’re going to play games, you’re going to lose. Many buyers or tenants still think, ‘I’m going to get this great deal on this building.’ When in fact, the market has shifted in favor of an owner/landlord.

You want to be as highly competitive and flexible as possible. In addition to increasing your offer, some advantages a buyer or tenant can use are to pay cash or increase the amount of earnest money. Earnest money is put toward the down payment when the transaction is finalized but may be kept by the seller if the buyer defaults on the purchase.

It helps if you’re able to shorten the amount of days you have requested for due diligence or financing contingency, where you apply for lending. For example, 90 days may be too long under these circumstances; something in the 45-day range is better.

Also be flexible when negotiating reps and warranties. Buyers sometimes ask for the owner to warranty and represent various issues regarding the title or environmental concerns for an extended period of time. However, owners just want to sell, cut the cord and be done. Consult with your attorney when discussing these issues. Money talks. So, increasing your offer from a purchase price perspective is critical, but it’s not the ultimate factor. If an owner has two offers and one is for $50,000 less, but the terms in the lower offer are much more palatable with less due diligence and more earnest money, he or she may be willing to take the lower offer. Sellers and landlords are going to look at everything.

Are buyers assuming more risk under these circumstances?

At times, yes, it’s riskier. You may take a little more risk than you’d prefer. If the terms of the deal get too onerous, walk away. There will be other opportunities, but it needs to make sense. That’s why you definitely want to leave the emotional part out of it. Look at it from a business perspective, and put together the best offer you can.

George J. Pofok, CCIM, SIOR, is a senior vice president at CRESCO. Reach him at (216) 525-1469 or [email protected].

Insights Real Estate is brought to you by CRESCO