Pros & Cons of Selling “Off-Market”by Jim Tucker, CCIMNetWorks Commercial Real EstateRichmond, VAwww.NetWorksCRE.com

As brokers, our pledge to our clients is “to secure the highest price and best terms from the largestpool of qualified buyers at any given point in time.” Techniques we typically engage to accomplish thisinclude public auctions, sealed bids, and extensive advertising by which we hope to create a competitiveenvironment that will enable us to drive up the price. This is usually achieved through the use of signs,advertising, direct marketing, etc. Any attention-getting methods should be used to get the word out thatthis asset is for sale. Aptly described as “on-market” selling, this is also sometimes referred to as “pushmarketing” referring to the broad dispersal of information to the market.

And, in a “sellers’ market” with an abundance of ready, willing and qualified buyers, this is a suitablechoice as we have seen in recent history. However, there are many purchasers who refuse to participate inauctions or anything that looks remotely like one that narrows the pool of potential bidders. With a limitednumber of buyers, it is questionable if you are getting adequate exposure to the "right" buyers. Today, withmany ‘acquisition funds’ being formed to take advantage of historically low pricing and potential windfallopportunities to acquire distressed properties and loans, more and more “off-market” transactions are beingrecorded.

Exactly what is an “off-market transaction?”

It is simply the purchase or sale of investment property, which takes place, or is negotiated, outsideof a formal, public marketplace. The transaction is negotiated in a private environment that is controlled bythe seller and/or seller’s broker. When a property is said to have traded "off-market", there is a degree ofsecrecy or privacy about the transaction which is not for public knowledge.

What are some reasons sellers or buyers would opt for an off-market transaction instead of an on-market one?

First from the sellers’ perspective… We know that some buyers will offer top prices merely to getinto contract and control the property and attempt to “re-trade” or reduce the price. If the contract failsand the seller returns the property to the market, it may be perceived as flawed and de-valued. Additionally,placing a property “on the market” will cause a great deal of activity which will include possible disruption atthe property that can affect the tenants, employees, vendors and service personnel. This can disturb rentcollections, daily operations or instigate disputes and even loss of tenants; all legitimate concerns or risks ofan on-market process.

From the buyers’ perspective… On-market deals sometimes have a higher cost of admission witha lower success rate than that of an off-market situation. Money has to be spent on attorneys, due diligence,engineers, architects etc. without any guarantees. Many buyers will shy away if they aren't sure they can besuccessful. Some purchasers feel that there is little satisfaction in out-bidding other knowledgeable players orother speculators who may or may not be capable of finalizing the transaction.

We know that some buyers prefer "off-market" transactions. They may even pay a premium for theprivilege of receiving a private showing or first opportunity to buy. In an off-market deal all parties have

more control over the privacy of the transaction. If the deal is complicated or problematic, sellers mayprefer to go off-market to a handful of known candidates with experience in these issues.

Sometimes off-market deals will generate more qualified bids and even higher bids in an effort topre-empt an auction. Buyers may feel there is more certainty about the chances of acquiring the propertyby avoiding the on-market process. However, unless the seller and broker are certain of the market value ofthe property and can verify that the purchaser is paying a premium above that value, the price may notalways be the highest achievable price in the open market. Inviting only select bidders to submit an offer issometimes referred to as “pull marketing” as only what are believed to be “qualified” buyers are notified.

Technology is playing a larger and larger role in both on- and off-market transactions as the abilityto push property offerings to broader global markets is enhanced and the ability to target qualified buyers isas well. Owners can be well-served by discussing the options with an experienced commercial real estatebroker with proven qualifications in both on- and off-market transactions to determine the best approachthat will yield the highest probability of success while minimizing any risk associated with either process.

At NetWorksCRE we provide a proven and patented transaction process for our clients to conduct off-market transactions. With our access to this transformational tool, you can price your potential asset against the“bids” of purchasers with the confidence of full anonymity before engagement of a purchaser. Transactions areconducted in privacy within a “deal room” that provides confidential full-disclosure of buyer qualifications to sellerand property due diligence materials to the buyer.

For sellers with a fiduciary obligation, or simply the sense of owing the best result to their partners,shareholders or client, the system we use provides current demand and pricing analytics that aid in determiningnot only the “best” price, but a short list of qualified buyers. A speedy, well-priced, well-matched sale is sometimesfar preferable to the imprecise, slow and costly public offering. Our system can also work concurrently with apublic offering when policy requires public marketing.

For a private demonstration of this patented transaction process, contact Jim Tucker, CCIM at (804) 794-9119 or Jim@NetWorksCRE.com