Creative Ideas Needed to Motivate a REIT to Sell me a Property

Commercial Real Estate Investing
8yFollow

Creative Ideas Needed to Motivate a REIT to Sell me a Property

Account Closed
Developer · MI · Member since 2017 · 23 posts · 4 votes

I have a somewhat unique situation in which I'm stuck.

I own a building and operate a business out of it. It shares a common wall with another building that it has been vacant for over 5 years. I'd like to purchase the vacant building and expand my business (open portions of the wall).

The building is owned by a REIT (owner) and is leased to a major bank which closed in our market over 4 more years ago. The bank (absentee tenant) is in a NNN lease that pays the owner. The owner's paid around a $1M and have been enjoying about a $100K annual return for approximately 16 years to date.

The owners' portfolio which owns the property that I'm interested in includes about 60 other properties all with the same tenant; only a few are vacant.

The tenant presumably has been making all of their payments, so the owner has no motivation to sell at this time.

I have several reasons for which I'd like to own the building...and others in town have been interested in it for years as well.

The value of the "building" if it was vacant would be around $750K.

I've made two offers (over $1M) over the past year or so both of which have fallen on deaf ears. They say they are cross collateralize and not interested in selling. Once this lease is up (eventually) they will be very motivated to sell (I'm sure) but that is a way off and I'd like to be first in line.

The tenant is interested in subleasing the space but I don't have any desire to do that without any assurance that i will control the space in the long run.

Any ideas as to how to entice the seller to make a deal? I'd be willing to pay a bit of a premium for the space.

They have another vacant (but performing) location not far from here (leases are coterminous) that I would purchase as well if it helped.

0Reply
34 views

Most Popular Reply

Omar Khan
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y

@Account Closed If this is any respectable REIT, you will not get through to the CFO. These companies aren't mom-and-pop operations run by some mid-level executive.

The point about cross-collaterialization isn't wrong. They are managing from a portfolio level whereas non-institutional investors manage at the property level. Different perspectives lead to different strategies/outlook. 

Best bet: Continue to develop a relationship with their broker and do some LinkedIn/Google searches to see who is on the investment team at this REIT. Reach out to them and develop a relationship to understand their acquisition and divestiture criteria. Once you start speaking their language, you will be in a better position to communicate.

This strategy might take longer but has a higher probability of success. Randomly calling senior executives shows that you're an amateur and will not help you be taken seriously.

1Reply
See this reply in the discussion

9 Replies

Jump to latestLatest
  • Jean Coquilla
    Member since 2018 · 12 posts · 5 votes
    8y

    Have you tried calling the cfo or dispositions with an offer for both buildings separately?  Be determined and get through.  Use your personality.  My clients have been some of the biggest  who are in Real Deal frequently and they don't mind if I call them on the cell phone.  Leave a message and tell him you'd like to send an offer over.    

    0Reply
  • Jean Coquilla
    Member since 2018 · 12 posts · 5 votes
    8y

    After discussing terms, If you send a contract rather than a LOI you'll be considered more serious. If you put in the contract a short due diligence or hard deposit they will take notice.

    0Reply
  • Account Closed
    OP
    Developer · MI · Member since 2017 · 23 posts · 4 votes
    8y

    Thanks for your reply @Jean Coquilla. 

    I haven't personally made contact but over the past 3 years I've had two strong commercial realtors make contact to the owner's representative on my behalf. In the first instance, we made some good headway and had send personal feel good stories about our business and a handwritten note from myself. This proceeded a bona fide 7 figure purchase contract. No response from the seller.

    Shortly thereafter the seller bundled this asset with about 60 and attempted to sell as a package...unsuccessfully. 

    So about a year ago I - again - tried to cherry pick the vacant parcel with a different realtor. They too had a different representative.  After several conversations in which their rep said they weren't interested in selling...we made another 7 figure offer. (both probably had $50K earnest money). Again, nothing. 

    Recently made another call...they aren't interested in selling.

    I'm anxious to control this building in the long term as it effects my business. And there are others in this market that I'm sure have made offers (one had an option for a period as they tried to find a new bank to take over...it fell through several years ago).

    The problem, I think, is that based on the lease this asset is worth $1.6M - $2.4M somewhere between a 6% and 4% cap. Vacant, it is worth about $750K. 

    There is 4 years left on the lease in which the owner's will net around $392,000. Presumably $750K+$392K=$1,142,000 should be an attractive offer (I'd think). But I'm sure I'm not looking at it like an institutional investor. 

    Any ideas how to approach this differently? I'd be happy to buy an option, sublease with a first right of refusal, etc...

    0Reply
  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    @Account Closed If this is any respectable REIT, you will not get through to the CFO. These companies aren't mom-and-pop operations run by some mid-level executive.

    The point about cross-collaterialization isn't wrong. They are managing from a portfolio level whereas non-institutional investors manage at the property level. Different perspectives lead to different strategies/outlook. 

    Best bet: Continue to develop a relationship with their broker and do some LinkedIn/Google searches to see who is on the investment team at this REIT. Reach out to them and develop a relationship to understand their acquisition and divestiture criteria. Once you start speaking their language, you will be in a better position to communicate.

    This strategy might take longer but has a higher probability of success. Randomly calling senior executives shows that you're an amateur and will not help you be taken seriously.

    1Reply
  • Account Closed
    OP
    Developer · MI · Member since 2017 · 23 posts · 4 votes
    8y

    Thank you @Omar Khan, I appreciate it. It's good advice.

    It's just frustrating. There is a building, that I can use and willing to pay for, that will sit vacant for over 8 years. 

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    8y

    Problem is sounds like it is a greedy seller. What I mean is they do not want or have to sell so only might consider it if they get a (knock your socks off) offer.

    You are trying to offer them a slightly what you believe to be above market offer and hope they are interested. They seem not motivated at all.

    I have had REIT's before say they were looking for a 1031 buyer with a short fuse who would pay a premium just to avoid taxes. You have to keep working it and ultimately still they might just sell all of it to another investment company and nothing you can do but follow up with that company and see if they would parcel it out.

    Have you been able to look at the banks lease? Do they have a ROFR in place with a set price etc.? Maybe you could work that angle if the ROFR rights transfer to the assignee. 

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    0Reply
  • Account Closed
    OP
    Developer · MI · Member since 2017 · 23 posts · 4 votes
    8y

    @Joel Owens, that's an interesting thought...I hadn't considered asking if the existing lease had a ROFR in it...i wouldn't think so, but it's worth asking. I have a contact for the tenant that I'll follow up with. Thanks!

    0Reply
  • Jean Coquilla
    Member since 2018 · 12 posts · 5 votes
    8y

    It just depends on the REIT. Not all reits are institutional. Some reits are private. The backdoor is their attorney, cpa, cfo or one of the partners. But it still doesn't mean they will say yes. Some of my mom and pops own thousands of units but they are private and NOT a reit. I give them rent rolls directly from owners so they deal directly. Omar, believe it or not I have closed escrow on some large buildings. Going directly through to owners is NOT for amatuers.

    0Reply
  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    8y
    Originally posted by @Omar Khan:

    @Account Closed If this is any respectable REIT, you will not get through to the CFO. These companies aren't mom-and-pop operations run by some mid-level executive. 

    The point about cross-collaterialization isn't wrong. They are managing from a portfolio level whereas non-institutional investors manage at the property level. Different perspectives lead to different strategies/outlook. 

    Best bet: Continue to develop a relationship with their broker and do some LinkedIn/Google searches to see who is on the investment team at this REIT. Reach out to them and develop a relationship to understand their acquisition and divestiture criteria. Once you start speaking their language, you will be in a better position to communicate.

    This strategy might take longer but has a higher probability of success. Randomly calling senior executives shows that you're an amateur and will not help you be taken seriously.

     Agreed, also the main factor is whether this product still fits their investment portfolio, if its crossed, they won't disrupt the entire portfolio just to make a $100k.

    My experience in getting REITs to sell is to really do your homework and show that this property (and others) don't fit their investment thesis anymore. Whatever market changes, interest rate, etc. Show that its in their best interest to sell. Common one are buildings falling into disrepair/major capex needs. Those are projects that most buy and hold REITs want.

    Re; the lease, it likely has a non disclosure clause, so I doubt anyone is going to share it with you.

    Offer them $1.5m and offer to buy all similar items in their portfolio. Other than that, its a free country and they don't have to sell especially if the tenant keeps paying rent.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free