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Tony Seruga, Yolanda Seruga and Yolanda BishopCommercial property sales are booming. According to current estimates, investors will invest about $200 billion into U.S. commercial property just this year, and the number increases annually. Most analysts expect an increase boost in the near future, short term, as investors reallocate their capital from the increasingly squishy stock market to the stable real estate market.
This is a very smart move, especially when you're working to create a stable center for your investments. Commercial real estate has been historically very stable indeed, with an annual rate of return ranging from 6 to 9 percent.
Another way to look at the profit potential of commercial property: follow the foreign money. In 2003, foreign investors poured $5.5 billion into American real estate. The major metropolitan markets they had been using are starting to dry up now, and smart foreign investors are moving to the secondary markets, the Milwaukee's and St. Louis's of the U.S. And these investors are finding that commercial properties in these locations are just as profitable, if not more so, as the largest cities.
Foreign investors are not the only ones picking up commercial property. Businesses besides the big boxes of Wal-Mart and Kroger are starting to consider purchasing more than just the space they need; instead, they're looking at the control and profit potential of owning strip malls that their stores anchor, or of following the strategy of many duplex owners and renting out space in buildings they are not using. This trend only pushes the value of commercial property higher.
So how can you cash in on these trends when selling commercial property?
Start with your marketing plan: whom are you advertising to? If you're focusing on a local market, you're cutting out a huge source of income. Global investors have money, and they're not afraid to use it. Buyers wanting to combine business residence and leases to others in one property are out there too. But how do you find them?
Marketing Models To Attract Investors To Your Commercial Property
One of the first things you should look at to attract these new investors to your commercial properties is how you're advertising. If you don't come in contact with global buyers personally, you may need to start looking at the newest, most global advertising option: online. This may mean doing several other things: creating a website that is attractive to a global market, advertising in appropriate foreign online and print publications, and - most importantly - translating your site to another language that your investor can understand.
You'll also need to think about the ways these other countries do business, and don't be afraid of stereotypes if they are accurate. German companies, for instance, are very conservative and purchase primarily commercial properties that are very stable, with minimal tenant rollover and with long-term leases that tenants have been in for a while. British investors - and investors in some other countries - are interested in the U.S. market partly because the weak dollar versus their currency has dropped the price of American real estate.
You'll find similar differences in each of these countries: Australians like to partner with American companies, and Israelis are taking advantage of loosened government restrictions to invest more capital overseas. Your best bet may be to identify the nationalities of investors you think would be interested in your commercial properties, and then become an expert on their special situations that make American real estate a great bargain.
This goes for domestic investors as well. Each investor is a little different, and they're coming from a different place financially and in their needs. You may be able to see better than they the advantages of purchasing a given commercial property, and if you can just educate them on the advantages that will accrue specifically to them, you will close the sale.
One other thing to emphasize to foreign investors: unlike real estate purchases in many countries, in America it is very easy to liquidate your interests in commercial property, and that property is unlikely to be seized by the government in some redistribution scheme, as has happened and may happen again in many other world markets.
Another great source of potential investors in your commercial property is funds - not the traditional REITs, but rather pension funds, corporations, and real estate partnerships, among others. While REITs have been soft lately, other funds with more diversified holdings are booming. Marketing your properties to these others can make an enormous difference in what you're able to sell, and what price point you can look for.
Look also for unique opportunities, using the "one man's junk is another man's treasure" principle. In one case, an enterprising real estate investor found a company that did environmental cleanups for other companies. He convinced them that serious money could be made in purchasing sites labeled environmentally hazardous at bankruptcy prices, cleaning them up, and then reselling them. This model proved very lucrative indeed.
Sensitivity to where the buyer is emotionally can also net a serious profit. Some clients are ready for a challenge or a risk; others really are not. Sell to this very personal preference, and you'll find clients where you thought none existed.
Divide your potential buyers into categories: the risk-takers, who are ready to build properties on spec or rehabilitate properties thought too dangerous by other investors; the value-adder, who wants to take on commercial properties that have good value now and increase that; or the passive investors, who just want to buy safe properties and make money on the rents. There are other categories, and you should develop your own to adhere to your unique niche in the real estate business.
There are as many types of investors you can attract, as there are types of investment properties. Focus on flexibility and creativity, and you'll prosper.
Tony Seruga, Yolanda Seruga and Yolanda Bishop of
http://www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.
