I came to InSite after decades in the world of finance as a lender. I have completed hundreds of valuations, in all product types, of properties ranging in value from $400,000 to $40 Million.
From asset valuation to cash flow analysis, loan reviews to loan resolution strategies – I stepped into commercial real estate with a perspective deeply rooted in analysis and underwriting.
I have found that when it comes to selling a property, the conversation with the seller follows the same process I have followed for over 20 years.
VALUATION FROM A FORMER BANKER
At InSite, we aspire to provide value to our clients. For us, this is in their initial valuation.
My process is both simple and thorough. I meet with the client, tour the property and present my findings with an offer to list based on my combined experience with both lenders and investors.
I present:
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- Comparable sales
- Market rents
- A recommended sale cap rate
- Values and justification of the list price
- Marketing plan
Most of the time, sellers want to sell for more than the market will bear and ultimately, what an investor will pay.
With my diverse background, I am able to outline each scenario with concrete data and supporting facts. This allows the client to better understand the value of the building – in relation to the current market – rather than what they think it is worth.
I arrive at the property price by:
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- Running sales comps
- Running my own cap rate NOI analysis
- Comparing the two and recognizing where they intersect
I create and run these numbers myself, just as I did for decades as a lender.
My review of market comparables is always accompanied by an analysis of the upside of the property.
A close, thorough review can turn a stabilized or fully occupied property into a value-add opportunity for the right investor. It also can enable the seller to maximize the value of their property.
FOR EXAMPLE:
We had a 93 year-old owner of a retail building with two tenants at $8.50 / sf gross. However, even a conservative analysis of the market rental rate would be $12.00 / sf.
A savvy broker should not just look at the existing leases, but also examine the upside. This instantly converts it from a stabilized asset (though it is stable) to a value-add – which is far more attractive to an investor.
UNDERSTANDING THE PROPERTY FUNDAMENTALS – EVEN IF THE APPRAISER DOESN’T:
We recently marketed a land site for sale. Although it was marketed as a redevelopment, we received significant interest in the existing building. A credible prospective buyer submitted an offer to purchase the property and began the financing process.
The lender sent an appraiser to justify the acquisition price for the buyer’s loan. The appraiser struggled to understand the property pricing when he compared the building to others in the area. In fact, he discounted the value of the building when compared to those other properties because of its condition. His calculation of price per square foot was significantly out of line with the stated purchase price.
I was able to explain the difference between the building’s value and the land value, and show the entire set of comparable local land sales that corroborated the valuation.
If the appraiser had continued to value the building rather than the land, the buyer would have been required to double his down payment and in all likelihood would not have considered the purchase.
The property is under contract now, and we anticipate it will close soon.
VALUE THROUGH EDUCATION
Most sellers come in with a pre-conceived notion of what they want from a building. Often, they already have an idea of their market comparables because they are actively communicating with other building owners in their immediate area.
But when sellers are less sophisticated, I step in as the educator.
If there are expectations based on past market conditions that may not apply in the market of today, I am the educator.
In instances when sellers are forced to re-evaluate their motives for selling because they will not be able to achieve the price they initially hoped for, I am the educator.
My unique background has allowed me the ability to see both sides of this world – it has also proven to be an asset and provide tremendous value to my clients.
To learn more about the intersection of finance and brokerage, I would welcome the opportunity to have a conversation. Please connect with me on LinkedIn or send me an email at andrew@insitecommercialrealty.com. I currently serve clients throughout Northern Cook County, Lake County, McHenry County and DuPage County.
Learn more about Andrew Prunty.