Dispositions: How Money Can Be Made in Real Estate

Jim DerMinasian, CCIM, CPM® - Taurus Management Services, LLC - Senior Vice President

Why Sell? • End of Projected

Property or Fund Hold Period

• Seeking Return of Capital

• Market Cycle Factors “Don’s Frothy Market”

• Seller Forecasting Higher Interest Rates

Hold/Sell Analysis• Analyze Expected Return to

Seller Now vs. Holding the Property

• Requires Understanding of Investor Objectives

• Requires an Updated Future Cash Flow Analysis, i.e. Argus, often an MAI Appraisal or Broker Opinion of Value “BOV”

• Update Leasing, Expense, Capital and Debt Assumptions.

Broker Selection • Asset Manager and/or Dispositions

Officer Evaluates Brokerage Team Market Reputation and Experience With Properties of Similar Type, Quality and Location

• Carefully Evaluate Each Brokerage Teams Workload- Current or Near Term Disposition Assignments

• After Selection the Listing Agreement is Signed

• Manager Provides Due Diligence

Information to Broker

The Marketing Process

• Broker Issues a Press Release

• ”Teaser” Sent to Potential Purchasers

• Confidentiality Agreement Signed

• On to….

• The Offering Memorandum

The Offering Memorandum • Managers Play A Key Role In Helping

Brokers Prepare the “OM” • Review Carefully Brokers Draft- Especially

Building System Descriptions and Historical Financial Information

• Include a List of Capital Projects and Major

Repair (Most Recent- Most Valuable) • Should Include Tenants Renewal and

Expansion History

Tenant Relations When In Disposition Mode

• Resolve any tenant dispute issues before the disposition process (Minimizes estoppel execution problems)

• Ensure Tenant Contact Information Is Up To Date (Both Daily Contact and Lease Decision Maker(s)

• Alert All Tenants Of The Property Marketing Process

Tour Time• Manager Should Join the

Investor Property Tours With the Brokerage Team

• Read the OM Before The Tour

• Fiduciary To Seller/Current Owner – Honesty To Prospective Purchasers

Where From Here…• 1st Round Bids • Often 2nd Round Bids • Purchaser Interviews and Selection • On To Purchase and Sale Agreement (P&S) – Engage An

Attorney, • Carefully Review P&S Dates, Reps and Warranties

Manager Disposition Value Add

• Ensure Standout “Curb Appeal” • Review Engaging an Engineering Firm For A “Pre-Disposition”

Property Condition Report- You Don’t Want Any Surprises • Ensure All Tenant Rental Payments Are Up To Date,

Delinquent Rent is Difficult To Collect Post Disposition

Disposition Leasing Strategy

• Encumbrances – (i.e. Renewal Options, Right of First Offer..) -Avoid Granting Them Whenever Possible in Your Lease Transactions

• Review Tenant Roll For Potential Early Lease Renewals • Or.. In a Landlord Favorable Decreasing Vacancy/Rental Growth

Market “No Action” With Leasing May Be Your Best Strategy

• Why- Prospective Purchasers Often are Overly Aggressive In Their Rent Growth Projections

Service Contracts • Always Have An Updated List Of Service Contracts For Each Property • Also Maintain an Updated Executive Summary of Service Contract

Terms • Termination Rights Should Be a Maximum of 30 Days or Upon Sale

Questions and Answers• Ball’s in your court. Ask them… I’ll answer them…