Two-thirds of multifamily transactions are done "off-market
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Buyers are increasingly turning to off-market transactions to find opportunities and reduce competition. According to Thomas Foley, founder and CEO of Archer, two out of every three transactions are done off-market in the private market and nearly half of the transactions in the institutional market.
"The biggest surprise for us is that off-market is common across all asset sizes," Foley told the trade media GlobeSt this week. "Additionally, we have seen an increase in off-market transactions on assets in excess of $100 million, certainly because the number of potential buyers is narrowing and they are often identified in advance.
While off-market transactions are practiced at all price levels, they are most commonly used for smaller transactions. This is because the smaller the transaction, the higher the transaction costs (as a proportion) and there are far more properties being traded than there are real estate agents to manage them. In addition, private investors often seek to speak to decision makers directly, which simplifies the negotiation process.
Smaller assets ($10 million or less) for sale benefit from limited marketing and can also be time consuming for real estate agents. The marketing process can often be costly in terms of time and resources for owners, while they can potentially get surprise offers at consistent prices and with the possibility of shorter lead times. This is even more prevalent among owners of a large number of assets who do not have the time to focus on sales of smaller ones.
Eliminating some of the competition is also an important reason for investors to chase off-market transactions, even though institutional buyers are often favored by some real estate agents for the recurrence of acquisitions they make in the market. For this reason, off-market transactions are less prevalent for larger assets, with players looking to solidify regular relationships for their next deals.
Nevertheless, Foley points out that even the largest real estate investment funds regularly participate in off-market transactions, including at the highest level. "Mega investment funds are extremely active in pursuing off-market transactions , including a number of deals that would not be feasible for traditional companies such as buying entire portfolios or entering the public market of a REIT (Real Estate Investment Trust). "
"The ability to approach an owner to buy their entire portfolio at scale is unique to mega funds and sometimes unlocks deals that would never have happened because of the volume and complexity of the setup."
Source: GlobeSt, Archer
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