The Two Critical Factors in Selling (or Not Selling) Commercial Real Estate
Part II: Property Pricing
Written By Mark Hulsey

In Part I of The Two Critical Factors in Selling (or Not Selling) Commercial Real Estate Part I: Market Demand , I suggested there are two main reasons why commercial properties don’t sell. I discussed how understanding Market Demand is not only critical to the disposition process, but it’s often misunderstood. In Part II, we are going to dive into property pricing.

But first, let’s revisit the Q&A mentioned in Part I of this article:

Question: But why isn’t it selling?

Answer: Here it is, when selling commercial real estate, it often comes down to two things: Market Demand and Pricing. Sure, selling commercial real estate is a lot more complicated than selling a bag of potatoes, but they both come down to market demand and pricing.

Property Pricing:

Too often, when selling (or leasing) commercial real estate, pricing becomes the only strategy people consider. It’s easy to say, “it’s overpriced.” But that’s not always the case, as discussed in Part I about Market Demand. It’s easy to tell a Seller that if they would just lower the price, they could probably sell it. Well of course, that’s logical, but surely not always prudent when you are trying to maximize the equity in a property for your client. If the property or asset is priced at market value, then a price reduction is not always the answer.

Let’s start with establishing the listing price range which is a detailed financial process of Market Analysis combined with Income Analysis. Throw into the mix several variables including zoning limitations, tenancy, parking, environmental issues, capital improvements, taxes, etc., and now it’s time to reconcile it all and come up with the listing price range opinion for the Seller.

Ultimately, the decision for the listing price is that of the Seller. A quality commercial broker will be involved in every aspect including providing data, market trends and their own opinion, but it comes down to the decision of the Seller. This is where pricing the property can go sideways. Not all, but many sellers believe their property is worth more than it is. Most of us have been guilty of this in one way or another. It’s human nature. This is where solid commercial broker guidance comes into play. We want to avoid sellers getting in their own way; it’s part of our job.

Most successful commercial brokerages are not interested in “buying a listing.” If you’re not familiar with that industry phrase, it simply means a broker will take on an overpriced listing just to add it to their inventory, knowing it likely will not sell. That’s why you will sometimes see nonsensical pricing on commercial properties (and residential, too, for that matter). Either they don’t know what the product is trading for in the market and they’re taking their best guess, or they’re just slapping some silly price on it that the Seller thinks is okay. That doesn’t work.

So now, the property has been out of the market, for let’s say 6 months, and there have been no offers. The broker and Seller need to have a talk about what's going on with the listing and review activity, in addition to feedback, online tracking data, and market activities. If the property has received the proper marketing and advertising, broker follow-up, and status reports to the Seller, then it’s usually time to start talking about pricing. This is when a good broker will reference the original valuation and comparable docs, while also doing a market update to fully understand what the competitive landscape looks like for the subject property. The data and listing history should speak for itself.

Continue below to read more......
Pre-Market Listing
9061 Flying Cloud Dr, Eden Prairie
4.31 ACRES ZONED MEDIUM RESIDENTIAL
LIST PRICE: $3,195,000

4.31 acres ready for development! Located in the strong residential district of Eden Prairie. Zoned for Medium Density Housing, this site is perfect for an experienced residential developer to bring much needed product to the area. Per the City of Eden Prairie, Medium Density Housing consists of 5 to 14 units per acre. Please reference the Zoning Information page for more detail on this topic. The City of Eden Prairie also indicated that they would be open to a mixed-use project if the development plans match the vision of the City. For more information please contact Mark Hulsey or Hayden Hulsey, CCIM .
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RECENTLY SOLD
SOLD - NNN Retail
7711 Mitchell Rd, Eden Prairie

Net-Lease Investment Sale. $2,270,000 . Cap Rate 5%. 8,276 SF. 20 years remaining on lease. Mark Hulsey, Broker of Record.
SOLD - Flex Office/Industrial
293 Como Ave, St. Paul

51,000 SF - $950,000 Industrial Investment Sale to Professional Investment Group.
Hayden Hulsey, CCIM and Mark Hulsey handled the full transaction.
SOLD - Northeast Mixed Use
1627 Washington St NE, Minneapolis

$1,050,000 Prime Northeast Mixed-Use Investment Sale. Hayden Hulsey, CCIM represented the Seller as part of a 1031 Tax Exchange.
 SOLD - Minneapolis Office
121 Washington Ave S, Minneapolis

10,000 SF, 3 Unit Office Condo Sale on street level in Prime Downtown Minneapolis. Hayden Hulsey, CCIM handled the transaction.
 SOLD - Cottage Grove Automotive
7470 E. Point Douglas Rd, Cottage Grove

4 Bay Automotive. Sold to the City of Cottage Grove. Results Commercial and Mark Hulsey represented the Investment Seller.
SOLD - Seward Neighborhood
2801 E. 26th St, Minneapolis

Excellent urban office sold to longtime established Somali Success School. Mark Hulsey represented the Seller.
The Two Critical Factors in Selling
(or Not Selling) Commercial Real Estate
Part II: Property Pricing
Continued......

Options Beyond Price Reductions:

There are other basic strategies to consider outside of reducing the price on a market-value asset. First, why not put more marketing dollars into a targeted market campaign to ensure the property is getting in front of the true potential buyers that need to see it? What about a broker commission incentive…or a roof allowance that can be escrowed to take care of a key problem all buyers keep mentioning? How about a social media campaign reaching the building owners in the neighborhood letting them know this property is for sale? Guaranteeing rent for 3 - 6 months instead of dropping the price by another $25,000? This list could go on and on.

Not only is this about the listing broker’s prowess at finding a buyer to get to a successful closing/funding, but it often comes down to the Seller’s motivation to sell. From the moment our firm considers taking on a listing to market and sell, we need to clearly understand the level of seller motivation. RE/MAX Results Commercial Group has bank clients that expect us to dispose of the REO inventory within 6 months or less. A net lease asset is often expected to sell in 3 - 6 months. On the other hand, we have sellers that are working on a three-year timeline to sell prime commercial development land.

Seller motivation can vary dramatically in commercial sales. It’s the broker’s job to adjust their marketing and pricing strategy to match the Seller’s expectations along with their motivation.

There’s no reason, when selling commercial real estate, to make pricing the ‘elephant-in-the-room’ and allow it create tension in the disposition process. If a property is priced properly, then a Seller should expect more from their broker than the same old, "drop-your-price" line.

As mentioned, in Part I of this article, sometimes it’s just that one buyer that the property is a perfect match for the current market price. Perhaps, the listing just needed more work and time to get the best buyer match.

Once we have a good understanding of the two critical factors why some commercial properties don’t sell as quickly as others, then we can adjust our strategic sales direction to get the property sold and closed. 


Mark Hulsey
Managing Broker
Active Listings
Land Sale Next to Topgolf
6500 Camden Ave, Brooklyn Center

$685,000. Incredible development opportunity for restaurant or event venue next to the highest grossing Topgolf in the US.
Turn Key Dental Office
17 E. 38th Street, Minneapolis

$450,000. Fantastic South Minneapolis location. Selling the building with dental equipment including all FF&E. Great dentist satellite office.
NNN Medical Office - DaVita Dialysis
5657 257th St, Wyoming

$2,748,389. Net-lease investment sale. Cap Rate 6.0% with 10 years remaining on lease.  Contact Mark Hulsey for details.
Prime Main St Retail Location
700 Main St, Anoka

$875,000 , Beautiful 8,100 SF, built in 2006. Highly visible location perfect for retail or office use. One-of-a-kind exceptional property.
LAND - Prime Office Development
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.78 acres in convenient Inver Grove Heights location next to Gerten’s Greenhouse . Excellent site for office development.
Centerville Office Condo
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2,400 SF office condo in turn-key condition and priced to sell. Built in 2004. Contact Douglas Harris for details.
RE/MAX Results – Commercial Group
RE/MAX Results – Commercial Group, founded in 2003, is a Top-Rated, Commercial & Investment Real Estate Brokerage Firm based in Minneapolis/St. Paul, Minnesota. Our seasoned and CCIM trained Brokers focus on Office, Retail, Industrial, Multi-Family / Apartments, Land, and Net-Lease Investments.
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