S.E.C. Real Estate Observer

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It is my observation that the typical commercial brokerage company has within their stagnant exclusive listings many potential transactions. However, many brokers don’t seem to be able to find them so they spend hours cold calling for new products and clients.

Why does this happen? First of all, many brokers think that probably the only potential transaction is to a Buyer that has cash or can bring financing. Many suggest the only action to take with inactive listings is to convince the client to lower his asking price. This may not best serve the clients and their goals, thus nothing happens.

The reality is that there are many more potential transactions when considering exchanging of equities than there ever will be only looking for cash buyers. These exchanges can create the “benefits” that your client is seeking and by exchanging, there are many more potential “takers” for their property than just cash buyers.

How does one analyze his company’s listings to find these transactions?

1. Review everything you know about each property and the “benefits” to give a new owner. Will it provide cash flow? A good opportunity for growth in value? Pride of ownership? Little management?
2. Review what your client’s capabilities are.
   1. Why are they selling? Maybe only to reinvest in something they like better? Will they add cash or equities in other properties to exchange up to a larger investment that they like?
   2. What types of other real estate do they own or have experience with? What types of real estate do they prefer?
   3. Do they own your listing free and clear or what is the current financing? Is it assumable or easily financed? Can they make it free and clear?
   4. If this is a problem-based sale do you understand their situation fully? Do they have negative cash flow they cannot handle? Do they have developable land but no expertise or resources to develop themselves? Do they need to dissolve a partnership?

The above are only a few of the counseling questions that need to be known to do a complete job of representing clients and finding successful transactions. Counseling finds transactions!

Examples of exchange transactions closed with counseling:

#1: Seller has free and clear office building that is 60% occupied.

Buyer would like to own but doesn’t want to borrow in this economy. Potential Buyer is found to own a good commercial site that is not selling in this market.

Broker suggests that Buyer create a 40% LTV down payment note against the commercial lot to give to Seller and the Seller carries back 60% LTV financing on the office building. Transaction closes with Buyer activating dead equity while waiting for a land buyer. Seller gets out of management and has a permanent income stream. Seller gets his down payment in cash when the land actually sells.

#2: Seller is a bank with a foreclosed irrigated farm for sale. No current cash buyers seem to be available at or near the asking price the bank needs.

Buyer prospect found but has no down payment cash available. In counseling Buyer, the Broker learns prospect owns a lake cabin free and clear. Broker suggests that the Buyer offer the cabin as the down payment and ask the bank to create the balance of the financing. Exchange transaction closes.

Selling bank discounts the cabin by 50% and sells immediately for cash. Even with the large discount on the cabin, the total net on the farm is substantially higher than the price potential from cash prospects previously found.

#3: Seller listed a 103 room motel that had excellent cash flow but required major remodel and upgrade to keep franchise. Seller currently had other priorities and didn’t want to finance this large rehab.

Cash Buyer prospects were very few and initial prospects wanted to severely discount the property due to rehab necessary.
Broker attended a national marketing session and found a motel contractor that wanted to do the rehab but didn’t have the ability to put cash in for down payment or secure the final larger loan needed. Broker located a third investor that liked hotels and had some condos in another state that he owned free and clear and was willing to let them be used for the down payment plus qualify for the loan. Transaction successfully closed because all parties achieved the benefits they were seeking. Motel Seller sold the condos for cash a few months later.

Summary: Find these transactions and it will be fun and profitable for the client and the broker. Counseling and exchange formulas are the key! Anyone can attend Society classes to learn if you need more knowledge.

Why not perfect counseling and creativity skills to find transactions for clients and inventory that you already control?