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Apartment buildings: Why the trend for off-market deals?

Everybody loves a “deal.” From consumer goods to services and even apartment buildings, buyers wa...

Everybody loves a “deal.” From consumer goods to services and even apartment buildings, buyers want to feel they made a good investment, and if possible, a better one than is available to the general public (or their competitors).

What is an off-market deal? Simply, when a vendor entertains an offer without exposing the property to the broader market of potential buyers.

Just excluding a property from MLS does not make an “off-market deal” — a brokerage firm might have a mandate to expose the property directly to buyers that make sense. In that case, the property is considered as having been marketed with a “quiet” but still competitive process.

How does it work? An off-market deal is typically initiated by a broker who sees the match between a specific building and a specific buyer.

The buyer is always someone in which the broker has complete confidence to close the transaction. In some cases, an off-market transaction is initiated by a vendor who trusts their broker will bring them the best offer, or by a vendor who values privacy above all else in the sale process, for personal or professional reasons.

Family ownership of apartment buildings

Private owners of apartment buildings in Canada (versus the U.S.) are generally understated folk.

We’ve had vendors who visited their own buildings “in disguise” and we personally know an owner who, for 20-plus years, has lived in his own high-rise and pretends he is the janitor!

A large percentage of apartment assets in Canada have not changed hands during the past 20-plus years, and much of the management has become, in many cases, a family affair.

Hence, in some cases it makes sense the final decision-maker might want to look at an offer without the headache of a full marketing process where everyone in the family might “have a word to say.” Instead, they seek to make an executive decision and, if the numbers work based on the offer received, exit elegantly.

We are in the process of selling a portfolio in Montreal. The owner asked us: “What is the top price I can get?” When we advised him, he stated that “For that price why go to the market? Just bring me the offer.”

We knew the top buyer, had mirrored their valuation approach, and made a match that made sense for both parties.

Brokering an off-market transaction

Of course, trust and reputation are key factors in getting both signatures on that offer.

First is trust from the buyer that we are not wasting their time and resources in bidding, and that we can obtain commitment from the seller. Equally important is trust from the seller that we indeed brought the best offer.

Key offer elements which prove unequivocally the seriousness of the buyer and the intention to close (such as tight deadlines and non-refundable deposits) are often elements in getting a deal done off-market.

Do you know who the best buyer is? What makes a buyer the best for a certain property is not necessarily their track record of previous acquisitions.

Simply knowing who bought last in a given market, for a top price, is no real guide.

For example, we thought we had a perfect asset in Montreal last year for a buyer who had previously bought similar product. When we approached them, we were told, “Sorry, we are over-leveraged in that market, but bring us something similar in another market.”

Timing is key and, especially for larger portfolios, the “best buyer” shifts constantly.

Knowledge of buyer strategy, market transactions and the ability to interpret trends are keys to obtaining top price for an apartment building asset.

Baron Realty specializes in matching buyers and sellers of apartment buildings. Ramona works in partnership with Mikael Kurkdjian and a team of real estate professionals to bring the best boutique-brokerage services to the apartment transactional space in Ontario and Quebec.

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