You just received a call from your tenant. The good news is that the tenant’s business is growing dramatically. The bad news is that your commercial real estate will no longer accommodate the tenant’s growing operation and you soon will be faced with a vacancy. Bummer!
An empty building can be costly. Zero rent during the vacancy period as well as mortgage service, operating costs of property taxes, building insurance, landscape maintenance, etc. can become a mountain of losses very quickly.
The longer your commercial real estate lays fallow, the more apt you are to lease or sell the building for less money, just to stop the bleeding. So, what steps should you employ to get your property leased or sold quickly and avoid a lengthy vacancy.
Talk to your tenant. Make sure that your tenant has in fact leased or purchased a new location and that the tenant is not simply planning to move. With only four of every one hundred industrial buildings vacant in Orange County, your tenant does not have many alternative locations to lease or purchase. If the move is a maybe, there generally are ways to persuade the tenant to stay in your building. If the deal for a new location is done, explain to your tenant that you will be making a concerted effort to find a new tenant or a buyer before the tenant vacates and ask for their cooperation in showing the building during the marketing process and the remainder of their tenancy.
Decide on a direction. Will you seek a new tenant or is now the time to sell the building? If you would consider either, a greater universe of potential occupants exists. If your decision is to sell, make sure you are aware of the tax impact and after tax proceeds the sale will create.
Don’t fly solo. Engage a competent commercial real estate professional to place your property on the market and expose the building to potential tenants, buyers and brokers who represent tenants or buyers. Rarely, do we see FSBO (For Sale or Lease by Owner) commercial properties on the market. I can only speculate that the complexity of commercial transactions dissuades an owner from pursuing this approach.
The occupied building. A real quandary exists here. Should you wait until the tenant vacates to market the property? Or, should you use the remainder of the tenancy (when you still have rental income) to find a new tenant? Unfortunately, there is no easy answer. You must weigh the benefit of a “move-in ready” building with the downside of no income while the building is vacant. In my experience, empty buildings lease or sell quicker than occupied buildings especially if you have the resources to refurbish the building prior to placing the building on the market. Occupied buildings are difficult to show and challenging for the future occupant to envision their operation squeezing into the building.
Create a digital footprint for the building. I have found that a virtual video tour is the best way to make sure that your building can be found in on-line searches. Additionally, some commercial multiple listing services, such as LoopNet, spend tons of money with search engine optimization. Make sure that your broker publishes the availability on LoopNet.
Be realistic in your expectations. Your goal is to lease or sell your building for the most money you can within the shortest period of time. Got it! If you ask too much for the building you will dissuade prospective occupants from leasing or buying your building. You will fall into the unrealistic owner category. The market may catch up to your inflated idea of your property’s worth, but when? A better approach would be to price your building in accordance with the most recent comps in the market plus a small percentage for negotiating room.
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