The multifamily investment arena is highly active in the third quarter of 2021 with so much previously pent-up capital entering the market. When the market is this robust, many deals get done “off-market” and unsolicited offers for properties become more common. Sellers, buyers and brokers need to know how to navigate these situations. Here is my advice for sellers, buyers and brokers managing today’s market.
If you receive an unsolicited offer for your property, you should do the following three things:
1. Check the credibility of the buyer. What else has the buyer closed recently? This will tell you whether or not they are well-capitalized. What other properties do they own in the same market? This will tell you if they understand the local area or are attempting to tie you up, then learn the local market. Also ask the buyer for references from other sellers, attorneys, lenders and brokers.
2. Go to trusted sources — lenders, brokers, appraisers — to get a quick check on the price you’re being offered. Only go to sources you trust will be looking out for your best interest, not those who are interested in trying to insert themselves in your current deal, and ask their opinion on the price being offered.
3. Look in the mirror. Be honest with yourself. Would you pay this price for the property? It’s critical to answer this question. If the answer is no, you kind of just did pay that price, didn’t you?
If you identify something you really want to buy and decide to make a run at it, do these two things:
1. Keep in mind the advice given to sellers above. Know that a part of the process should be to check out your credibility. Prepare a bio on yourself and your company. Have references on hand and teed up and expect a call from the seller. You should also prepare a proof of funds for the downstroke on the deal — perhaps submit it along with the offer rather than waiting for it to be requested. The more you explain who you are and the probability of closing, the better chance you have of getting engaged.
2. Consider bringing an intermediary on board. This should be someone who has credibility in the market — a broker, lender, attorney, etc. — who has an existing relationship with the seller and can help open a door. This person can also advise you on an appropriate price to offer.
If a client calls you about an off-market opportunity, here are a few things to keep in mind:
1. If an owner calls you about an unsolicited offer they received, this means you have a good relationship with them and they are following my advice above for sellers. It is critical to your own credibility and code of ethics that you give them an honest opinion. If the offer is one that surprises you, tell them that. If you know the market would go higher if the property was marketed, tell them that. If you are unsure, tell them that.
2. If a buyer calls and wants you to help them pursue something they’ve identified, they are also following the advice above for buyers. If the buyer is an existing client with whom you have a relationship, help them prepare everything they’ll need for credibility with the seller. If you do not know the buyer and they’re engaging you because you know the owner, make sure you do the legwork upfront to determine their credibility before going further.
Two calls I received are coming to mind as I write this advice to brokers. One was from an owner who asked the gross rent multiplier his building should trade. I told him approximately 12.5 and asked why he was asking. He said he has an offer on the table for 13.5. I said, “You should take (investor’s name)’s offer and run.” He was silent for at least 10 seconds before asking how I knew that buyer was the one who made the offer. I told him that he is the only buyer paying those prices right now, and he knocks on even more doors in that area of Chicago than any of my brokers. I told him the buyer is highly credible and will close at the price offered, so if he wants to sell, he should take it — no one will beat that price. The client appreciated my advice and did just that.
Another call I received is actually a deal I have under contract right now. The owner bought the building three years ago. I reached out at that time and told him he got a fantastic price. I’ve talked with him at least a dozen times over the past two years about selling the building for quite a profit. He called a few weeks ago and said he had received an unsolicited offer. He asked my opinion of the offer; I asked for his financials. After a day of underwriting, I told him his building was worth more like 110% of the offer. He was unwilling to list the property but encouraged me to bring my best buyer. Two hours later, I sent him an offer for 110% along with all the buyer credentials described above. We are currently under contract and hopefully closing next month.
My point with the above stories is to be honest with the client. If it’s a good deal, let them know. If you can do better, deliver.
I hope this helps sellers, buyers and brokers navigate a very exciting time in the multifamily market. I wanted to write more advice, but I don’t have time right now — I’ve got to go put together those unsolicited, off-market deals while the environment is so good for everyone!