Loopnet real estate trash bin

26 Replies

So... if Loopnet.com is called commercial real estate trash bin, where do I look for commercial real estate investment opportunities like apartment buildings or strip malls?

Apartment buildings and strip malls are night and day different. I am 15 years in the business and a principal commercial retail broker and investor. I help buyers nationally.

What do I require from buyers?

I have them fill out a PFS (personal financial statement). I make sure they can commit to a one on one working relationship to help meet their goals. I make sure they will communicate on a timely basis. So capability, commitment, communicative.

I have a rule that I will put the same energy a buyer puts into me. If they are wishy-washy, do not communicate well, slow to respond even when the right property is found, dishonest about who they are working with, etc. then I give them NO TIME. If buyers want access to my network built up over 15 years of thousands of retail owners nationally then they have to commit as my client to get that.

@Matt Dabek - it’s more of where we are in the market cycle than anything. Deals can be found on loonet but they are few and far between. I put my first loopnet deal under contract this month. I’ve check the site consistently for several years. The best way to find deals in frothy market is the hard work route - off market and by leveraging relationships. They are out there you just have to be willing to go after them. 

Originally posted by @Matt Dabek :
So... if Loopnet.com is called commercial real estate trash bin, where do I look for commercial real estate investment opportunities like apartment buildings or strip malls?

 Depends on your price point. Under $1MM - you're best to reach out to a junior broker at a commercial firm. Over that, reach out to someone more established. The "good deals" aren't advertised because they go directly to established clients. The rest then reach costar, and the buyer-bait hits loopnet.

@Joel Owens and @Matthew Olszak - if I can pick your brains for a minute, I'm interested to hear your thoughts.

Primarily I am an investor growing my own portfolio.  I started with 2-4 family and have added a few mixed use properties and a mobile home park.  We are looking to add a self storage to our holdings at some point as well.  Generally speaking, we look for some form of distress (poorly managed, poorly maintained, or both) and roll up our sleeves to fix the problems, then hold long term.  We focus on multi-tenant properties, most of which currently have a residential component to them.  In time, that may shift, who knows, but having the potential for multiple tenants and looking for value-add opportunity are pretty constant.

I am a licensed broker with access to the MLS. I used to have premium membership with Loopnet, but don't do enough deals to justify the cost, so I use the free side and have a few searches set up to watch for properties that might interest me. Honestly, my license was more for my own education than it was to broker deals for others. I have not done a great job of networking with other agents/brokers, in part due to being unimpressed with the vast majority of the ones I have been in contact with.

With all of that, my question is - how do I go about finding and building a network of brokers to scout deals for me?  I don't do a huge number of transactions.  I've had years where I do 3 closings as principle and years that I haven't done any.  Should I be seeking one broker to build a strong relationship with or should I be building a network?

As I transition from 2-4 unit multifamily (which are fairly easy for me to sniff out and close) to more illusive commercial properties, I need to change my tactics. I've closed a few that I found on the MLS and do have a small network of people that call me if they stumble across something of interest, but I would like to see more leads on properties coming my way.

Thank you in advance for your insight.

Good question. Seems like everything on Loopnet around here is overpriced by about 30%.

@Matt Dabek . What's your ability to close? Can you close a $1M deal  in the next 30 days?

If you can close deals, brokers will send you deals.

You use loopnet to find out who brokers are and get on their radar. 

1. You'll have to pick up the phone and call them individually

2. Contact a broker

Unless you have ungodly amounts of money and/or a seasoned investor, I would just call an agent. 

In my area, most good deals hit the commercial MLS and go pending instantly because they already had a buyer in their database. Some deals will never even show up because they were sold privately. You can get set up on an alerts for multi-family/retail and at least be able to see them come online. But your area could be completely different!

1 to 1.5 million dollar deal is very small for an established commercial broker. ESPECIALLY if it is a value add deal it will be a pain in the @ss to close it for  a low fee. For commercial broker 20,000 to 30,000 is small fee.

Example a Starbucks existing lease selling for 2 million NNN STNL and make close to 3% on it for 60,000. That versus say a retail strip center with 10 mom and pop tenants for 2 million where lease is 50 pages each for 500 pages to review and other docs could reach 1,000 total to review.

The experienced broker looks at 1. How hard it is to find what the buyer wants? and 2. What will the headache factor be to close on the property for time involved and return? 

So a broker do they want to close 10 (30k deals) or 1 (300k commission deal)?

These days I do not touch small price value add unless I am the sponsor getting a big payoff on the back end for equity gain or the property is value add but a high price point where I can make close to 6 figures in commission or more. The smaller value add deals to broker just take too much time to work on. There are smaller commercial brokers that work on the 1 million or so space. Might be best to connect with those. A lot of 1 million for instance is retail condo space, rural retail, or rougher type areas with low rents. 1 million in commercial is like 50,000 house in residential. I know it sounds like a lot the 1 million but when I look at tons of properties every week nationally for clients the 1 million range is extremely limited.

@Joel Owens - understood. Several years ago, I was taught by a seasoned investor/lender that it takes about the same amount of time to put together a $ 50,000 deal as it does a $ 5,000,000 deal, so he focuses on larger deals. That is essentially where I am at now with my investments, looking for larger deals to put together (larger by my own standards).

I understand time leverage and how it goes along with money leverage, they are both important factors. I will keep my ears open and begin to look for a junior broker looking to earn some stripes and grow along with me.

Be careful jumpting to conclusions about Loopnet....As they say.....One man's trash is another man's treasure.  I've bought two storage facilities that I found on loopnet (and had a student buy a third).  First one was bought for $330K and sold for $1.8 Million after $400K in expansion money infused into it.  Second one was bought $465K and is worth $860K today.  Last one (my students) was bought for $400K and is projected to be worth $850-900K within 24-36 months.  

I remember when LoopNet was 39 bucks a month! lol

Way back in the day. They merged with Co-star which segments every piece of data they can to fee brokers and other subscribers as much as possible.

I find LoopNet has a lot of junk on it now. Occasionally you will find a seller who listed high and now is motivated so by  calling or checking you might land a deal that everyone forgot about. Additionally sometimes there are smaller brokerages without much networks that list a property for a seller. Those in some cases can be a good deal.

For me Loopnet 10 years ago or so had more quality product available. These days I view it as maybe 10% of properties for a deal. The rest of the stuff I find off market for my clients or other brokerages I have relationships with that give me first looks for myself or my clients. I am a known commodity they would rather do business with as they know how I conduct business and qualify my buyers.

No subscription service is going to deliver deals with any consistency. Costar is the best and its not even all that good but good enough to buy. If you are going to be serious, you Costar as a tool, not as a magic bullet

As a developer, if I just got in my car and drove to get phone numbers off of commercial property signs, what percentage of those signs would be overly priced and not feasible to make a profit from? (like 99% right?) Often, the hotter the market, the more I would be spending my time sifting through all the delusional pricing.  Loopnet, is just a reflection of those silly priced property signs.  Once in a blue moon I will find something but its never in a hot-hot area, just a modest deal to earn some money with at best. 

In commercial lands, you got to either have a seller that MUST sell (or extremely compelled) or a buyer that MUST buy..ditto. How many listings are just sitting there waiting for "someone to just come a long" and make a silly offer? Baffels me but it seems like over 90%.

The best deals, I have to go get with a lot of work. There are many post on this board that give all kinds of really good strategy about forming relationships even with brokers with over priced listings, they know they are over priced but want to make contacts, so contact them. Brokers with big loopnet ads, can get really good leads they can't list but if they learn to trust you, might deliver for you.  

Getting deals takes lot of work, lot of thinking outside of the box, its not easy, Loonet is just a reminder of 

@Matt Dabek

Lots of good info on this thread

The one thing I'll add is that unrealistically high asking prices in the commercial arena are driven by unrealistically high appraisals. Seems like most commercial appraisals base valuation on a best case assumption; this is inherent in the way appraisals are performed. Since 2 of the 3 methods of appraising properties are actually based on comps sold - one on sale prices, the other on income, the bias is that the properties that don't sell are not included in the analysis. My opinion is that the properties that do sell are the ones able to attract higher bids, thereby biasing the analysis upward. When a distress sale occurs the appraiser either disregards it as a ‘forced sale', or adjusts the comp upward because of the distress situation. After 35 years as a broker, investor, lender and syndicator in commercial property, having completed over 600 commercial property purchases or financings, and having read over 5000 appraisals, my opinion is that on average commercial appraisals are 15 % higher than real market value. So it's not surprising that a seller, believing his property is worth 15% more than it is, decides to put his property on the market adds an additional 10-15% for negotiating room or just to see if he can get a higher offer. There you have the 30% over market asking prices for Loopnet listings mentioned in this thread.

People who really want to sell their property ASAP should conduct an auction, thoroughly advertised to interested buyers. I successfully did just that with a small downscale apartment complex I owned in Arlington Texas, in a very rough neighborhood. The natural buyer was the University of Texas at Arlington, but when I had the property listed for 6 months they were the only offer at an unacceptable price of $185,000. When the listing expired I was approached by a broker who suggested we auction the property and he had half dozen buyers who would bid, he told me we should make the auction absolute with a minimum bid of $195,000, but if $195 was the best we got he would forgo his commission. The results were that UT Arlington bid $205,000, $20k over there best offer, but lost out to the high bid of $222,500.

BTW, the appraisal on this property was $250,000. Interesting from two perspectives. One is that whenever at all possible appraisers like to come in at the roundest number available, to underscore the inexactness of their appraisal value, secondly the appraisal did not adequately adjust comps for just how undesirable the neighborhood of my property was. Using a standard management fee percentage understated the management fee necessary to compensate for the additional time a manager had to spend on a property like the one I owned due to high tenant turnover, evictions, tenant property damage, drive by shootings, gang harassment, etc.

I like properties with below market rents for commercial. If tenant leaves I have upside. Retirees with gobs of money just looking for a straight return tend to care less about being off by 10 or 20% because they eventually kick the bucket and leave it to their heirs. 

There are lot's of properties I look at and scratch my head saying those will lose money in the future. The rents for that box size have nowhere to go but down. Basically the developer has put in top or above markets rents to amortize TI tenant credits and get money back out  when they sell. They get rich and buyer gets poor when equity erodes down the line. 

That's what happens when the minnows swim with the Megladon's in the ocean.

Originally posted by @Don Konipol :

@Matt Dabek

Lots of good info on this thread

The one thing I’ll add is that unrealistically high asking prices in the commercial arena are driven by unrealistically high appraisals. Seems like most commercial appraisals base valuation on a best case assumption; this is inherent in the way appraisals are performed. Since 2 of the 3 methods of appraising properties are actually based on comps sold - one on sale prices, the other on income, the bias is that the properties that don’t sell are not included in the analysis. My opinion is that the properties that do sell are the ones able to attract higher bids, thereby biasing the analysis upward. When a distress sale occurs the appraiser either disregards it as a ‘forced sale’, or adjusts the comp upward because of the distress situation. After 35 years as a broker, investor, lender and syndicator in commercial property, having completed over 600 commercial property purchases or financings, and having read over 5000 appraisals, my opinion is that on average commercial appraisals are 15 % higher than real market value. So it’s not surprising that a seller, believing his property is worth 15% more than it is, decides to put his property on the market adds an additional 10-15% for negotiating room or just to see if he can get a higher offer. There you have the 30% over market asking prices for Loopnet listings mentioned in this thread.

People who really want to sell their property ASAP should conduct an auction, thoroughly advertised to interested buyers. I successfully did just that with a small downscale apartment complex I owned in Arlington Texas, in a very rough neighborhood. The natural buyer was the University of Texas at Arlington, but when I had the property listed for 6 months they were the only offer at an unacceptable price of $185,000. When the listing expired I was approached by a broker who suggested we auction the property and he had half dozen buyers who would bid, he told me we should make the auction absolute with a minimum bid of $195,000, but if $195 was the best we got he would forgo his commission. The results were that UT Arlington bid $205,000, $20k over there best offer, but lost out to the high bid of $222,500.

BTW, the appraisal on this property was $250,000. Interesting from two perspectives. One is that whenever at all possible appraisers like to come in at the roundest number available, to underscore the inexactness of their appraisal value, secondly the appraisal did not adequately adjust comps for just how undesirable the neighborhood of my property was. Using a standard management fee percentage understated the management fee necessary to compensate for the additional time a manager had to spend on a property like the one I owned due to high tenant turnover, evictions, tenant property damage, drive by shootings, gang harassment, etc.

 You said there's 3 methods of appraising. What are they?

Originally posted by @Matt Dabek :
Originally posted by @Don Konipol:

@Matt Dabek

Lots of good info on this thread

The one thing I’ll add is that unrealistically high asking prices in the commercial arena are driven by unrealistically high appraisals. Seems like most commercial appraisals base valuation on a best case assumption; this is inherent in the way appraisals are performed. Since 2 of the 3 methods of appraising properties are actually based on comps sold - one on sale prices, the other on income, the bias is that the properties that don’t sell are not included in the analysis. My opinion is that the properties that do sell are the ones able to attract higher bids, thereby biasing the analysis upward. When a distress sale occurs the appraiser either disregards it as a ‘forced sale’, or adjusts the comp upward because of the distress situation. After 35 years as a broker, investor, lender and syndicator in commercial property, having completed over 600 commercial property purchases or financings, and having read over 5000 appraisals, my opinion is that on average commercial appraisals are 15 % higher than real market value. So it’s not surprising that a seller, believing his property is worth 15% more than it is, decides to put his property on the market adds an additional 10-15% for negotiating room or just to see if he can get a higher offer. There you have the 30% over market asking prices for Loopnet listings mentioned in this thread.

People who really want to sell their property ASAP should conduct an auction, thoroughly advertised to interested buyers. I successfully did just that with a small downscale apartment complex I owned in Arlington Texas, in a very rough neighborhood. The natural buyer was the University of Texas at Arlington, but when I had the property listed for 6 months they were the only offer at an unacceptable price of $185,000. When the listing expired I was approached by a broker who suggested we auction the property and he had half dozen buyers who would bid, he told me we should make the auction absolute with a minimum bid of $195,000, but if $195 was the best we got he would forgo his commission. The results were that UT Arlington bid $205,000, $20k over there best offer, but lost out to the high bid of $222,500.

BTW, the appraisal on this property was $250,000. Interesting from two perspectives. One is that whenever at all possible appraisers like to come in at the roundest number available, to underscore the inexactness of their appraisal value, secondly the appraisal did not adequately adjust comps for just how undesirable the neighborhood of my property was. Using a standard management fee percentage understated the management fee necessary to compensate for the additional time a manager had to spend on a property like the one I owned due to high tenant turnover, evictions, tenant property damage, drive by shootings, gang harassment, etc.

 You said there's 3 methods of appraising. What are they?

Sales Comparison Approach (comps) - Develops a value based upon comparable sales. This is what residential appraisals use (under 5 units) and is what most think of when they hear appraisal.

Income Approach - Value based on the income a property produces.

Cost Approach - How much it would take to build new minus depreciation.

The appraiser should consider all 3 then explain why 1 is more appropriate than the rest.

Originally posted by @Matthew Olszak :
Originally posted by @Matt Dabek:
Originally posted by @Don Konipol:

@Matt Dabek

Lots of good info on this thread

The one thing I’ll add is that unrealistically high asking prices in the commercial arena are driven by unrealistically high appraisals. Seems like most commercial appraisals base valuation on a best case assumption; this is inherent in the way appraisals are performed. Since 2 of the 3 methods of appraising properties are actually based on comps sold - one on sale prices, the other on income, the bias is that the properties that don’t sell are not included in the analysis. My opinion is that the properties that do sell are the ones able to attract higher bids, thereby biasing the analysis upward. When a distress sale occurs the appraiser either disregards it as a ‘forced sale’, or adjusts the comp upward because of the distress situation. After 35 years as a broker, investor, lender and syndicator in commercial property, having completed over 600 commercial property purchases or financings, and having read over 5000 appraisals, my opinion is that on average commercial appraisals are 15 % higher than real market value. So it’s not surprising that a seller, believing his property is worth 15% more than it is, decides to put his property on the market adds an additional 10-15% for negotiating room or just to see if he can get a higher offer. There you have the 30% over market asking prices for Loopnet listings mentioned in this thread.

People who really want to sell their property ASAP should conduct an auction, thoroughly advertised to interested buyers. I successfully did just that with a small downscale apartment complex I owned in Arlington Texas, in a very rough neighborhood. The natural buyer was the University of Texas at Arlington, but when I had the property listed for 6 months they were the only offer at an unacceptable price of $185,000. When the listing expired I was approached by a broker who suggested we auction the property and he had half dozen buyers who would bid, he told me we should make the auction absolute with a minimum bid of $195,000, but if $195 was the best we got he would forgo his commission. The results were that UT Arlington bid $205,000, $20k over there best offer, but lost out to the high bid of $222,500.

BTW, the appraisal on this property was $250,000. Interesting from two perspectives. One is that whenever at all possible appraisers like to come in at the roundest number available, to underscore the inexactness of their appraisal value, secondly the appraisal did not adequately adjust comps for just how undesirable the neighborhood of my property was. Using a standard management fee percentage understated the management fee necessary to compensate for the additional time a manager had to spend on a property like the one I owned due to high tenant turnover, evictions, tenant property damage, drive by shootings, gang harassment, etc.

 You said there's 3 methods of appraising. What are they?

Sales Comparison Approach (comps) - Develops a value based upon comparable sales. This is what residential appraisals use (under 5 units) and is what most think of when they hear appraisal.

Income Approach - Value based on the income a property produces.

Cost Approach - How much it would take to build new minus depreciation.

The appraiser should consider all 3 then explain why 1 is more appropriate than the rest.

 How exactly do you figure out income approach?

@Matt Dabek Cap rate = NOI/Sales Price is a good place to start for the income approach. If you know 2 of these variables you can solve for the last one. Obviously don't believe any advertised cap rate/NOI figures without verifying against actual operating statements etc. during due diligence.