At some point in time, owners of underperforming properties have likely posed the question, “To sell or not to sell?” Although the question is simple, the answer is not, according to Gary DeClark, Senior Vice President with CBRE’s Valuations and Advisory Services.
“Different scenarios call for different approaches, and, no two properties are exactly alike,” said DeClark. “But at some point, owners of underperforming properties often have to ask themselves, should they renovate and hang on, or, should they simply sell now?”
When faced with this question, DeClark recommends owners analyze these five steps to determine what would be the best course of action for their particular asset:
- Zero in On the Existing Market Scenario– Analyze the current market and look at occupancy and development trends. Identify the rent and expenses for the market and compare them to the property rent and expenses to get the big picture.
- Sell Now – Consider if it is better to sell now if you do not have certain resources, including, but not limited to: expertise, money, ability to secure funding, time or patience.
- Renovate to a Reasonable Level to Gain Market Acceptance – Realize something may have to be done to bring the property to a rentable level (e.g., a new HVAC unit, tear up damaged carpet, or repair/replace the roof as maybe needed). The property owner should consider targeting a different type or level of tenant and recognize that a negotiation exists between tenant and landlord for build-out costs that meet both local market standards and tenant needs and desires.
- Know Your Market – Revisit an overall market analysis periodically and determine how your property compares to others and what sets your space apart. Project what the property might fetch in the future and conduct regular assessments of the scenario to conclude whether changes are necessary to maximize value.
- Achieve Your Goal: Maximization of Your Economic Asset– It’s important to aim for flexibility and short-term obligations to get stabilized occupancy. Over time, this will aid in driving the value up without incurring a lot of needless expenses. Everything in the maximization of your asset is a function of cost incurred versus benefit returned.
“Be sure not to neglect your income tax ramification as you’re going through these steps and decide on your own how you should best proceed,” said DeClark. “Nothing is 100 percent guaranteed, however. If you are capable yourself or if you hire the right real estate consultant agent, be it broker or advisor, you can achieve economic maximization.”