SS85: Understanding Off Market Apartment Buildings

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Spend a little time online, browsing websites or investment summaries of different real estate syndicators and you will probably see the term “off-market” mentioned. This is normally considered a selling point when the firm is looking for investors; but, what does off-market really mean?
In this episode, I am discussing commercial multifamily properties; with 5+ units. In residential (1–4 unit real estate), true off-market deals are much more common than with 5+ apartment complexes.
When you are selling an apartment complex, there are a few different listing options you can choose from.
- 1^st is non-exclusive, this is the least popular so I will touch base on it quickly but in this listing type; the seller does not agree to sell the property through any particular broker. The seller is merely telling a number of brokers the price he wants and the percentage of commission he is offering to pay. The brokers then start speaking to their clients and try to find a buyer. The problem with this listing agreement is that many potential buyers will be contacted multiple times by multiple brokers. Most potential and experienced buyers will then pass on the deal because it is not clear who they should be talking to. When I get contacted by multiple brokers for the same property; I will just pass because there is always confusion with non-exclusive deals and I want to speak to the broker directly who is working directly with the seller. Not always the case with this listing type.
- 2^nd is an exclusive listing that is public. If you have ever listed a house for sale with an exclusive listing and the agent, put it on the MLS; you just agreed to a public exclusive listing. The seller contracts and signs a listing agreement with 1 broker to sell the property by marketing through email blasts, US mailings, online brokerage websites, etc. in hopes of getting the highest and best offer.
  - Just a note here; you never want to have a sign placed at your apartment complex when you are selling it; this will create endless problems with tenants. Once the property sells; the new management will contact the tenants and explain that they are in now in charge. Listing agreements private or public should mention that no sign will be placed at the property.
- 3^rd is an exclusive listing but it is kept private. In this scenario, the seller signs an exclusive agreement with 1 broker to sell their property but wants it sold privately. They do not want it emailed to tens of thousands of random people. This is what most investors consider an “off-market” deal because it is not publicly advertised and marketed to the masses. The listing however will be emailed to hundreds maybe thousands of investors; these might be pre-vetted investors or investors that have purchased before or have actually spoken with a broker at their firm etc. but, the listing is still being offered to many investors.
- 4^th is a true off-market deal. This is when a buyer contacts a property owner directly and tries to purchase the property or hires a broker to contact a seller to assist them in purchasing the property. I was involved with a deal last year where the seller sold us a property since a partner of mine used to work at the firm that was selling it. That is a truly direct-to-seller off-market deal.
  - One caveat I want to make is that just because something is off-market in the 5+ multifamily space, don’t believe that you are going to get a deal. People reach out to me about how to purchase “off-market apartment buildings” and yes you might be able to get a minor discount; but most sellers; especially in larger complexes, are very savvy and sophisticated. Whenever I have spoken to owners directly, they always have a broker that they have spoken to in the past and that broker told them they could get 25% more or something ridiculous to get the listing. It is a long-term play when trying to buy direct. It is much different than single-family where you find someone behind on taxes and their utilities are shut off and a wholesaler offers them 50% of the property’s value and settles at 60%. Completely different sellers; in completely different situations. With 5+ multifamily, going direct, you are hoping to purchase the property for the market price without getting into a bidding war.
- Next time you hear that a property is off-market; speak to the operators and find out more details. How did they find the property etc? My favorite is when I am told that a property is being purchased off-market but, they say they won a best and final offer and I think to myself; how many other investors were bidding for this property? Not really off the market.
- Keep in mind though, the biggest investors, that purchase the most deals; are looking at all deals; public, private, and direct. They are also consistently buying during all portions of the market cycle. This is one way to be moved to the top of the list when brokers get a private listing.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing, understanding off market apartment buildings.

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Charles:
Spend a little time online, browsing websites or investment summaries of different real estate syndicators. And you’ll probably see the term off market mentioned. This is normally considered a selling point when the firm is looking for investors, but what does off market really mean? And this episode I’m discussing commercial multifamily properties. That’s five plus units in residential, one to four unit real estate, true off market deals are much more common than with five plus apartment complexes. When you’re selling apartment complex, there are a few different listing options you can choose. The first is non exclusive, and this is least popular as well, touch on it quickly. But in this listing type, the seller does not agree to sell a property through any particular broker. The seller is merely telling a number of brokers, the price he wants and the percentage of commission he is willing to pay the brokers, then start speaking to their clients and try to find a buyer. The problem with this listing agreement is that many potential buyers will be contacted multiple times by multiple brokers.

Charles:
There’s only so many of true commercial multi-family buyers out there most potential and experienced buyers will then pass on the deal because it is not clear who they should be talking to. When I get contacted by multiple brokers for the same property, I will just usually pass because there is a lot of confusion with non exclusive deals. And I wanna speak to the broker who’s number one, working directly with the seller, not like a second party that got it from that broker. And I wanted to talk to the broker who has the best relationship with the seller, which you don’t really know when you just get sent an email. Now, the second is an exclusive listing that is public. And if you’ve ever listed a house for sale with an exclusive listing and the agent put it on the MLS, you just agreed to a public exclusive listing the seller contracts and signs, a listing agreement with one broker to sell the property by making marketing through email blast, uh, USPS mailings, online brokerage website in hopes of getting the highest and best offer makes sense.

Charles:
And just a note here, you never want to have a sign, a physical sign placed at your apartment complex when you are selling it. This will create endless problems with tenants. And once the property sells, the new management company will contact the tenants, explain that they are now. Now in charge listing agreements, private or public should mention that no sign will place at the property, but it’s always an important thing that you need to request and, uh, require that it’s in that agreement. The third type is an exclusive listing, but is kept private in this scenario, the seller signs and exclusive agreement with one broker to sell their property, but wants it sold privately. They do not want to email to tens of thousands of random people. And this is what most investors, uh, consider an off market deal because it’s not publicly advertised in marketed to the masses, the listing.

Charles:
However, it will be emailed to hundreds, maybe thousands of investors in their CRM. These might be pre investors or investors that have purchased before, or have actually spoken the broker at their firm, et cetera. But the listing is still being offered to many investors. Fourth is a true off market deal. And this is when a buyer contacts a property owner directly and tries to purchase the property or hires a broker to contact a seller, to assist in purchasing a property. You know, I was involved with a deal last year where the seller sold us a property since a partner of mine used to work at the firm that was selling it. And that was a true direct to seller off market deal. Now, one caveat I want to make is just because something is off market in the five plus multi-family space, don’t believe that you’re going to get a deal.

Charles:
I mean, people reach out to me about how to purchase off market apartment buildings, and yes, you might be able to get a minor discount, but most sellers, especially in larger complexes are very savvy and sophisticated. Whenever I’ve spoken to owners directly, they always have a broker that they’ve spoken to in the past. And that broker told ’em they could get like 25% more or something ridiculous to get the listing. And it’s a long term play when trying to buy direct. It is much different than single family where you find someone behind on taxes and their utilities are just shut off. And a wholesaler offers. ’em 50% of the properties value and settles at 60%, um, completely different sellers, completely different situations. Uh, with five plus multifamily going direct, you are hoping to purchase the property for market price without getting into a bidding war.

Charles:
And that’s the big thing you can go in there and there’s not gonna be hopefully not gonna be someone else there to, uh, one up you and the bidding and, uh, get into some sort of best and final. Next time you hear that a property’s off market, speak to the operators and find out more details. How do they find the property? You know, et cetera. I mean like where do they come across it? My favorite is when I’m told that a property, uh, is being purchased off market, but they say they want a best in final offer. And I think that myself, how many other investors were bidding for this property? Not really off market. Keep in mind though. The biggest investors that purchase the most deals are looking at all deals, public, private, and direct. They’re also consistently buying during all portions of the market cycle. And this is one way to be moved to the top of the list when brokers get a private listing. So I hope you enjoyed, please remember to rate review, subscribe, submit comments, and potential show topics, global investors, podcast.com. Look forward to two more episodes next week. See you then

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