Property values are soaring, and interest rates are at near-record lows. It’s no wonder many commercial property owners are considering selling their assets to take advantage of one of the strongest sellers’ markets in recent history.
Much like preparing to sell a home, commercial properties need to be appealing to potential buyers. But unlike your home, which might be improved significantly with some simple landscaping and a fresh coat of paint, commercial properties need more than just a physical facelift. They also need fiscal preparation.
Physical Preparation for the Sale
On the physical side, sellers often focus on the interior of their building and forget to pay attention to a buyer’s true first impression: the parking lot. Fresh striping, neatly placed curb stops, and a pothole-free parking area are some of the most important details that are overlooked by commercial sellers.
Although few commercial sellers would consider their roof part of a first impression, today’s buyers conduct their own research online, which includes looking at aerial imaging via Google Earth and other apps. Sellers need to check these services to see the condition of their roof when the most recent satellite images were taken. If a roof was in poor condition at the time of the image, special attention should be given to improvement to convince sellers that the needed repairs have been made.
Major cosmetic changes aren’t necessarily essential when preparing a building’s interior for sale. Many buyers will want to change an interior layout or design after purchase and are ready to absorb that expense. Some issues, however, are important to repair. Obvious water damage or cracked flooring, for example, might lead a prospective buyer to believe that a building has significant structural damage.
Fiscal Preparation for the Sale
While presenting a physically appealing building is important, offering a fiscally appealing investment is absolutely vital to selling your commercial property. Smart investors are aware that it’s easier to cure deferred maintenance issues than it is to cure financial issues. Buyers will look closely at financial documents and pay close attention to the property’s income and expenses before making the decision to buy.
For a potential purchaser, a steady income stream is likely to be a top priority. A property with high-quality tenants committed to a lengthy lease translates into a predictable income stream. Owners should think strategically before making the decision to sell and shore up their lease terms with tenants before listing a property on the market.
While the financial documents related to the property’s income are important, buyers may also want to see the financial documents of the tenants currently housed in the commercial property. Potential purchasers will want to see strong and organized financial documents for a facility’s tenants, including the tenant’s income stream through multiple business cycles and even personal financial data on the tenants. This data will provide peace of mind that the property will produce income over the long term.
Smart buyers will also be inquisitive about a property’s expenses. These expenses can fall into two categories: controllable and noncontrollable.
Some operating expenses are completely unavoidable. Property taxes, insurance and utilities represent noncontrollable expenses. While insurance rates can be negotiated and utility payments may fluctuate slightly, these expenses are fairly consistent and necessary costs.
While noncontrollable expenses are a concern for any investor, a seller’s attention to controllable expenses will definitely make a property more marketable. A building without costly upcoming maintenance expenses will be more appealing to buyers. Additionally, features like recent capital improvements designed to produce long-term savings will be appreciated by prospective purchasers, especially if the improvement eliminates a costly monthly lease. Replacing a leased HVAC with a new system or removing troublesome trees that require constant maintenance would be appreciated by potential buyers.
Gary Tasman is the Founder of Cushman & Wakefield Commercial Property Southwest Florida and serves as its CEO/Principal Broker. The firm provides commercial real estate solutions, locally and globally, in every stage of the real estate process, representing clients in buying, selling, leasing, financing and valuing assets.