How to Sell a Commercial Property Occupied by Tenants

When a commercial property is already occupied by tenants, it will most likely appeal to the investors locally with its cash flow and tenant mix.  In other words the property can be sold as an investment.  That being said, there may be some issues to fix involving the lease and rental profiles of occupants, however an occupied property with a reasonable tenant mix will usually create interest from local property investor buyers.

What to Look For?

So what things should you look at when it comes to marketing and selling this property type?  Here are some ideas:

  • Lease documentation – In any one property the leases are likely to be very different. That means the leases will need to be reviewed for individually for terms and conditions that could impact property performance.  Some leases will be attractive to investors whilst other leases may have issues to fix.  The only way to understand these things is to review all documents completely and thoroughly prior to any marketing campaign.
  • Tenant profiles – Some tenants will be better than others. Big corporate brands will generally strengthen the tenant mix.  Determine just who the better tenants are in the property and check that all occupancy issues are working well for the tenant.
  • Lease expires – When you assess a tenant mix, any upcoming lease expire dates should be considered for the impact that they may have on the property under promotion. There is nothing wrong with rental upgrades and lease negotiations early to help a property sell faster or at a better price.
  • Vacancy factors and risk – A vacancy in an investment property can be a difficult problem to resolve. Review the impact of any vacancy and assess the ways that the vacancy can be filled.  The income created from property cash flow will support and strengthen the asking prices.
  • Expansion factors – Highest and best use will set the targets for property expansion and marketing. Any investment property with a potential for expansion will offer income improvement.  That is a factor of attraction in any sale.  Review the development potential with your property so income and growth opportunities can be identified.
  • Net income – Are you optimizing the net income for the property? The expenditure to run the property will be a drain on property performance, so look at the expenditure to see how it compares to other properties in the same general location.  Are there any savings to be made there?
  • Outgoings for the property – Do outgoings assessments and look at the history of outgoings paid in operating the property over the last few years. Remove any capital works from the calculation.  From that point, compare your property to others in the same location and of a similar type.  The rates and taxes for an investment property will be worth understanding for the impact they create on the overall net income.  The level of rates and taxes will have an impact on property performance.
  • Prevailing market rental – It always pays to keep a watch on market rentals in the location and across property types. In that way you will know if you are achieving the best rents for today.  Investors like to understand where they are positioned in rental income and market rents.  Split your rental analysis between net and gross rents.

To sell and investment property efficiently and directly, get to know what’s happening in the asset and the location.  Cover off on all the factors that could impact the tenant mix and the income.

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