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Dispositions: How Money Can Be Made in Real Estate
Jim DerMinasian, CCIM, CPM® ‐ Taurus Management Services, LLC ‐ Senior Vice President
Why Sell? • End of Projected
Property or Fund Hold Period
• Seeking Return of Capital
• Market Cycle Factors “Don’s Frothy Market”
• Seller Forecasting Higher Interest Rates
Hold/Sell Analysis• Analyze Expected Return
to Seller Now vs. Holding the Property
• Requires Understanding of Investor Objectives
• Requires an Updated Future Cash Flow Analysis, i.e. Argus, often an MAI Appraisal or Broker Opinion of Value “BOV”
• Update Leasing, Expense, Capital and Debt Assumptions.
Broker Selection • Asset Manager and/or Dispositions
Officer Evaluates Brokerage Team Market Reputation and Experience With Properties of Similar Type, Quality and Location
• Carefully Evaluate Each Brokerage Teams Workload‐ Current or Near Term Disposition Assignments
• After Selection the Listing Agreement is Signed
• Manager Provides Due Diligence Information to Broker
The Marketing Process
• Broker Issues a Press Release
• ”Teaser” Sent to Potential Purchasers
• Confidentiality Agreement Signed
• On to….
• The Offering Memorandum
The Offering Memorandum • Managers Play A Key Role In Helping
Brokers Prepare the “OM”
• Review Carefully Brokers Draft‐ Especially Building System Descriptions and Historical Financial Information
• Include a List of Capital Projects and Major Repair (Most Recent‐Most Valuable)
• Should Include Tenants Renewal and Expansion History
Tenant Relations When In Disposition Mode
• Resolve any tenant dispute issues before the disposition process (Minimizes estoppel execution problems)
• Ensure Tenant Contact Information Is Up To Date (Both Daily Contact and Lease Decision Maker(s)
• Alert All Tenants Of The Property Marketing Process
Tour Time• Manager Should Join the
Investor Property Tours With the Brokerage Team
• Read the OM Before The Tour
• Fiduciary To Seller/Current Owner – Honesty To Prospective Purchasers
Where From Here…• 1st Round Bids
• Often 2nd Round Bids
• Purchaser Interviews and Selection
• On To Purchase and Sale Agreement (P&S) – Engage An Attorney,
• Carefully Review P&S Dates, Reps and Warranties
Manager Disposition Value Add
• Ensure Standout “Curb Appeal”
• Review Engaging an Engineering Firm For A “Pre‐Disposition” Property Condition Report‐ You Don’t Want Any Surprises
• Ensure All Tenant Rental Payments Are Up To Date, Delinquent Rent is Difficult To Collect Post Disposition
Disposition Leasing Strategy
• Encumbrances – (i.e. Renewal Options, Right of First Offer..) ‐Avoid Granting Them Whenever Possible in Your Lease Transactions
• Review Tenant Roll For Potential Early Lease Renewals
• Or.. In a Landlord Favorable Decreasing Vacancy/Rental Growth Market “No Action” With Leasing May Be Your Best Strategy
• Why‐ Prospective Purchasers Often are Overly Aggressive In Their Rent Growth Projections
Service Contracts • Always Have An Updated List Of Service Contracts For Each
Property
• Also Maintain an Updated Executive Summary of Service Contract Terms
• Termination Rights Should Be a Maximum of 30 Days or Upon Sale