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  • Writer's pictureJennifer Bernstein, CCIM

Navigating Through Selling Commercial Real Estate: Insights and Strategies

The decision to sell a commercial property is significant, encompassing a range of considerations from timing to financial implications. This guide provides a comprehensive overview of the process, costs, strategies for quick sales, buyer expectations, and tax implications associated with selling commercial real estate.

How to Sell a Commercial Property

Selling commercial real estate successfully starts with a strategic approach. Partner with a commercial real estate broker who has a track record with properties similar to yours. Their expertise in your specific market can significantly influence the success of the sale, from setting the right price to marketing effectively and negotiating terms.

Cost of Selling Commercial Real Estate

Selling commercial property involves various expenses, which can affect the net proceeds from the sale:

  • Brokerage Fees: Depends on the brokerage specialty, complexity, transaction value, property type and deal complexity. Discuss directly with your broker.

  • Legal Fees: Necessary for navigating contracts and legal hurdles, these vary based on the property and transaction complexity.

  • Closing Costs: Including survey, title searches, transfer taxes, any outstanding debts or liens, and potential prepayment penalties on existing mortgages. If there are tenant(s) in the building you are selling, be prepared for a credit against the purchase price to account for the tenant security deposits.

  • Preparation Costs: Expenses incurred to make the property more attractive to potential buyers, such as minor repairs or cosmetic improvements.

When to Sell

Timing is crucial in maximizing the value of your commercial real estate:

  • Market Conditions: Sell during a seller's market, when demand exceeds supply.

  • Economic Climate: Consider macroeconomic indicators like interest rates and economic growth.

  • Property Performance: Strong occupancy rates and stable income streams can attract more buyers and command a higher price.

  • Personal Strategy: There could be factors that make it most advantageous for you to sell regardless of the market.

Overall Selling Considerations:

To accelerate the sale:

  • Price It Right: Competitive pricing is key. Even if you are not trying to sell quickly, pricing a property right is ideal for everyone. If you are overpriced, the property can get stale, buyer leeriness comes into play and it will sit on the market. When properties are priced too high, buyers tend to avoid placing offers if they feel like it's just a waste of time to try.

  • Condition: First impressions matter to potential buyers and the perception of the property being well maintained will help versus possibly neglected. If the property is a fixer-upper, or not completed it will be considered in the final offer price.

  • Tenants: Did you play checkers or chess with your property strategy? The income approach to pricing a property is a very common way to value commercial property since there are not many great comps available. The lease rates and the escalation terms make a huge impact on the value of the property, in addition, the tenant mix can also create vulnerabilities or hedge your risk. Carrying out a well-thought-out strategy will build higher values for your properties.

  • Offer Terms: Flexible terms, transferrable loans or seller financing can make your property more appealing.

  • Marketing Strategy: Utilize online platforms, professional networks, and targeted marketing to reach potential buyers. Ask your broker what their strategy will be in garnering interest and what the timeline they believe will be a reasonable estimate.

Buyer Considerations

Buyers typically look for:

  • Location and Accessibility: Prime locations with easy access are highly sought after.

  • Income Potential: Properties with strong lease agreements and reliable tenants are attractive. Lease terms that are overly restrictive to a landlord can have a negative impact.

  • Physical Condition: Well-maintained properties require a less immediate investment.

  • Market Trends: Emerging areas or industries can offer growth potential.

Tax Implications

Selling commercial real estate can have significant tax consequences:

  • Capital Gains Tax: The difference between the purchase price plus the improvement costs and the selling price may be subject to capital gains tax.

  • Depreciation Recapture: The IRS requires sellers to pay tax on the depreciation benefits they've claimed during ownership.

  • 1031 Exchange: This provision allows sellers to defer capital gains taxes if they reinvest the proceeds into a like-kind property under specific conditions.

  • It is important to speak with your CPA regarding your situation to see what is best for you.

Anthony Gonzales Lists Industrial Property For Sale

Selling commercial property is a multifaceted process that demands careful planning and execution. By understanding the costs involved, timing the market right, preparing your property effectively, and considering the tax implications, you can navigate the sale more smoothly and potentially increase your returns. Engaging with a seasoned commercial real estate broker can provide the guidance and expertise needed to make informed decisions throughout the selling process.

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