Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
We’re often asked to sell a property that for one reason or another is not financeable. Anyone who is knowledgeable about commercial real estate lending realizes that lenders are risk averse. They are not in business to take on any more risk than is absolutely necessary. So if you want to sell your property here are two things you can do to make your property more “lender friendly.”
Avoid having more vacancy than the market average (Rent Guarantee)
When selling a property that has vacancy it’s fairly common to guarantee rent on a certain vacant space for a certain period of time. The goal is to make the buyer and their lender comfortable that the property will cash flow sufficiently to cover the expenses and debt service.
Be careful here. Many lenders consider a proposed Rent Guarantee to be a red flag that something is wrong with the property. A better solution is to offer as much free rent as needed to get the vacant space occupied. Offer the free rent at the beginning of the lease. It’s much better to have your property at stabilized occupancy with free rent than to have a property with a high vacancy rate.
Avoid Month-to-Month Leases
This is not a concern for apartment renters. However, month-to-month tenancy for most other property types…or even tenants having a year or two remaining before their lease expires…is problematic for many lenders.
Simply put, lenders will not accept rollover risk. One way to mitigate risk is to identify when each tenant originally moved in. If they’ve been a tenant at the property for several years then it’s much less likely they plan to move once the lease expires.
But the best thing to do before you sell (or refinance your property) is to get as many tenants re-leased for as long as possible. Once you’ve minimized the rollover risk then seek financing or a sale.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com