Why Most "buyers" Will Lose Out On The Best Commercial Real Estate Deals

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Are you a buyer looking to take advantage of the historical price dip in Las Vegas commercial real estate? Investors commonly hear about steals in the Las Vegas commercial real estate today like apartments selling for $10,000 per door or retail centers at $40 – $50 per square foot and think now would be a great time to jump in and buy, however most investors will likely watch this market pass them buy without being able to buy anything. The reason for this is simple – the average private investor simply is not prepared to buy a truly distressed asset. Investors poking around Las Vegas commercial real estate assets notice that opportunities are available in all asset classes for pricing that is well below replacement cost. For instance, retail centers can be purchased at $70 – $100 per sf, office and industrial at well below $75 per sf and multi-family properties at $15,000 – $20,000 per door. For a savvy cash buyer, this represents huge opportunity to come in, buy well located properties at steep discounts but in order to do this, investors need to be realistic about what it takes to hold an asset through this cycle and have a sound strategy for lease up. This includes understanding the demand for space within that sub-market, the costs to lease up and realistic market rates. All too often, buyers come to me looking to steal a property then lease it up quickly for above what everyone else is paying in the area. This is not possible because if a property is easily rentable, it will not be as severely distressed and should be able to carry its operating costs and The answer is simple supply and demand coupled with good old American capitalism. An old friend of mine, Ron, who made a killing after the real estate crash of the 1980’s had a simple formula for buying distressed properties.
 
1. Don’t “low-ball” properties because banks and other sellers will label you a bottom feeder and stop dealing with you. Offer realistic pricing and show that you are capable of closing.

2. Be prepared to act in a reasonable time frame. If you need more than 60-90 days to close, you’re probably not competitive in this market place. To really steal properties and/or notes, you have to be prepared to close much quicker.

3. Once you’ve bought something, offer extremely low lease rates to start coupled with high commissions to lease up the property.

4. Most importantly of all, don’t be afraid to pull the trigger because otherwise you will miss the “bottom”!
 
So, while most private investors are looking to bargain basement pricing, the REIT’s and other institutional buyers are quietly buying good properties while they are available at reasonable prices. Ultimately what will likely happen is that as the economy improves, so will the performance of many assets and the opportunity to buy at the bottom will have come and gone with most investors having stood by chasing pricing that never really existed in the first place.

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