A review of recent transaction activity since September 2008 reveals an interesting insight for Cape Cod commercial property and business sellers looking for the right buyer: your buyer may just someone you already know.
In far more than a handful of recent deals involving all kinds of commercial properties and Cape Cod businesses, the buyer has been someone the seller knows or is affiliated.
Most often this association is rooted in an existing business, landlord-tenant or employment relationship. In many other instances the buyer just happened to be an adjacent property or business owner. In business sales, an amicable deal with a competitor or supplier has brought some others to the closing table.
It appears these deals are being struck as private “off-market” transactions suggesting the phrase, “When you’re ready to sell, let me know. I may be interested,” is paying off for many motivated buyers.
Naturally, the primary reason why these buyers are particularly motivated is the synergistic benefit the opportunity typically offers. Since the property or business is familiar to the buyer, the lower degree of pre-purchase due diligence can be an added incentive. Bankers seem to be willing to warm up to these types of transactions as well. For some, dealing direct and the potential to save on transaction costs are often perceived as another mutual benefit.
Despite what appears to be a favorable outcome, there is some downside to selling to someone you know under a private transaction.
First, whether a business or property sale, choosing not to expose the opportunity to the open market will limit the chances of obtaining a maximum price and optimum terms which would otherwise be achieved through competitive bidding among multiple buyers.
Second, experience has shown that private sales tend to begin with some general conversation on the topic and then quickly ramp up from there. Absent proper planning and pricing this can put both parties in an awkward and sometimes untenable situation where they eventually ask, “How did we get here and this fast?”
Sound financial planning, legal and valuation assistance is the best hedge against these risks.
For motivated commercial property and business sellers looking to privately transact with someone they know, the take away here is this:
The prospective buyer is likely to have a unique benefit to leverage and a solid familiarity of your business or property. And to be confident you are striking the right deal, be sure to first obtain proper financial, legal and valuation assistance.
Joseph P. Egan is a MA Certified General Real Estate Appraiser with over 25 years of professional valuation experience. Through a specialization in commercial real estate and closely-held businesses, since 1991 he has completed over 600 appraisal, brokerage and consulting assignments concerning all types of commercial real estate assets and going concerns located on Cape Cod, Nantucket, and Plymouth County, MA. Clients served generally include attorneys, banks, corporations, developers, investors, and owners of closely-held and family businesses. Prior to relocating to Cape Cod, Joe worked in the New York Metro Area and throughout CT with leading regional and national appraisal firms such as Cushman & Wakefield. Please contact Joe here.
The number of commercial real estate transactions recorded on Cape Cod, MA through April 2008 was 25.4% lower compared with January-April 2007. This recent downshift follows a 39.3% drop in the first four months of 2007 and was the second largest decrease since 2000. Although notable, the lower YTD 2008 decline suggests the softened demand is moderating. Between 1999 and 2008, the median January – April change in the number of individual transactions was -10.6%.
