2021 may prove to be one of the greatest buying opportunities since the Great Financial Crisis. Private equity and individual investors looking to expand portfolios would do themselves well to focus on business development and dealflow heading into the new year. Many of the best deals never hit the market, so how do you find out about these "off-market" properties? Let's talk about what that looks like and how to expand your sphere of influence to increase your chances of landing a great investment.
Be "Top of the Mind" - Industry thought leader and fellow CCIM Instructor, Blaine Strickland, wrote a book entitled "Thrive" which was directed more towards commercial real estate brokers, yet holds valuable insights for cre investors as well. In his book he argued for brokers to find 125 VIP's who held the following characteristics: they were willing to work with you and they could potentially introduce a deal to you in the next 5 years. The math says that there are 13 weeks in a quarter and if you contact just two of your VIP's a day, you will have contacted your entire list by the end of the quarter. Then just start over again. We can tweak this a little for investors and say that you should be contacting a wide variety of players to increase your sphere of influence and you can probably halve that number and be successful. Can you make one phone call to a commercial real estate broker while eating lunch? How about one call to a mortgage broker in the afternoon? Imagine the insights you would have into your marketplace, the capital markets, off-market deals etc. Do you think they are more likely to remember you when a sweet deal comes across their desk?
Have clear goals - I will argue vehemently that if you don't have clear investment goals you shouldn't be looking for deals anyway. But let's imagine that you have a very clear understanding of your investment objectives, timing, and exit strategy. Do your VIP partners understand this? You are in the market for opportunistic and value-add industrial. Brokers send you NNN retail and wonder why you never respond. Are they going to continue sending you deals if you have your wires crossed? Probably not, which leads into the next strategy...
Communication - You've made the calls, made a plan, what next? Have clear communication with your VIP partners regarding how deals are going to close. How is your financing structured? Are you utilizing exchange funds from another deal to close the next one? Are you needing to coordinate with other stakeholders for equity in a syndication or partnership? A large portion of the deals that I've had blow up have been from investors not clearly communicating stakeholders, timelines, or information important to the deal, including equity, contingencies, and funding. Don't waste everyone's time and money (including yours) if you haven't made these things clear in advance.
Sympathy in chaos - Finding deals is really fun. Closing deals can be stressful and chaotic. Inspections, financing, timelines and construction costs can keep you up at night for the next 30-90 days. If a deal goes sideways, what then? Well think about the VIP that brought you the deal. Chances are it's a broker that just lost a lot of time and their only source of income... commission. How do they feel? Probably not good and a little salty because something wasn't communicated properly. Get together with that VIP, be sympathetic and try to determine what went wrong. Working towards finding out those solutions will help heal the wounds, have clearer understanding of future deals, and get you both excited about conquering the next one. The worst thing you can do is go radio silent and not follow up. It leaves bad feelings on both sides and chances are you won't be the one that gets the next deal that comes across the broker's desk.
In summary, the commercial real estate industry is not that large and word spreads quickly on your business acumen. Make sure you are sending the right messages and developing your business pipeline in a thoughtful and responsible manner. Stay in touch, communicate, and lastly make sure you treat everyone with respect and integrity. Combine those things with the lessons above, and you will be the recipient of the next great deal in 2021!
About the author:
Michael Hironimus, CCIM is the Certified Investment Advisor and Principal Broker for Duckridge Realty Advisors specializing in commercial real estate investment portfolios for high net worth clients and institutions, focusing on market, financial and risk analysis. He is also a faculty instructor for the CCIM Institute, teaching professionals globally in the CI-102 Market Analysis Core Course.
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