Why Are Off Market Pipeline Deals Better?

 

 

Page Contents

 

• Why Are Off Market Properties so Superior to On Marketed or Listed Properties in the Commercial Real Estate Space?
• Where to Look for Off Market Opportunities
• Opportunity Beyond Off Market Pricing

 

Many of your greatest opportunities across your entire investment portfolio are going to come from off market opportunities.

 

 

 

Why Are Off Market Properties so Superior to On Marketed or Listed Properties in the Commercial Real Estate Space?

First of all, it’s a numbers game. It’s a numbers game because there’s so much fewer off market opportunities that those with the biggest pipelines will be able to see the largest disproportionate opportunities in that space. Vertical integrated companies that have a brokerage or a third party advisory firm that’s affiliated with them, much like Stratiq Capital, are able to tap into this network and be able to look across the market at off market opportunities that may come in through their brokerage and advisory networks. This gives a substantial opportunity to outperform the rest of their competitors because they have this off market deal blow. Additionally, whenever you buy at market or buy a listed asset, you’re buying at market, you’re not buying below market because the entire market has seen the opportunity and is judged or dictated whether or not this opportunity is at a par price or if it’s below price. Right. The pricing arbitrage, if it’s available, has already taken place because the entire market has seen the opportunity. So the off market opportunities have the option and the opportunity to be able to outperform because this pricing arbitrage has not already occurred.

 

Where to Look for Off Market Opportunities

Additionally, when you look at things like auctions, you have these online options where everyone has seen this and they look at how great this building starts at such and such price, way below market value. The reason why they do that is to track more investors into these auction marketplaces to be able to drive up the prices. In fact, a lot of these auctions will typically solicit and receive 50, 60, 70, 80 bidders on a specific opportunity. Well, that is not a place where a buyer’s conducive to be able to have a great opportunity to acquire below market. And so auctions tend to be the inverse of what you would hope they would be in the commercial real estate space. So what do we do when we’re looking at off market opportunities, off market pipelines as we build those, we’re looking for mispriced opportunities. We’re also looking for properties that are miscategorized. Maybe a property is categorized as an office, but it could be easily retrofitted to be a retail space or a multifamily space. You’ve seen this happen a lot in the Northeast right now where office to multifamily conversions are averaging $280 per square foot. And those are very, very hot in building affordable housing in the densest urban areas, especially in places like Manhattan and Boston. You also have the opportunity that the off market acquisition is mispriced. It’s not priced based on maybe land value or cash flow. It’s priced based off of some subjective value in the seller’s mind that he wants to obtain.

 

Opportunity Beyond Off Market Pricing

Also you have this idea of what if a user is also the owner of a property? What opportunities does that give you when you’re negotiating off market acquisition? It gives you the opportunity to do a sell lease back for a temporary time period at rates that are prenegotiated. So you have to negotiate the lease as well as the purchase for a stipulated amount of time, maybe one year, two year, three years. And you can actually market the property for at least for another tenant to really minimize your downtime for any vacancies. And so it’s a great opportunity to be able to effectuate both the size of the payment cycle both on the income lease side and also on the investment side.

So off market properties are really where a lot of the values that we had because you had the opportunity to find miscategorized mispriced mislead and missed marketed properties on a regular basis and having a depth of pipeline and a depth of network within the specific brokerage communities is really key to developing this. Hopefully this helps you better understand the superiority of off market pipelines versus merely on market pipelines of commercial real estate assets.

At Stratiq Capital, we specialize in successfully partnering with investors on their next big project. For more information and guidance on investing connect with one of our investment experts today.