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Tips for Industrial Owner-Occupiers: When to Sell and How to Maximize Value

Posted by Anne on June 26, 2024
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Tips for Industrial Owner-Occupiers: When to Sell Your Property and How to Maximize Value
By Elizabeth Holmes

Many companies that own the building where their business operates consider it a tool to help their business run, not a valuable asset that can provide additional cash flow or generational wealth. However, it is vital for companies to understand the value of their property so that it can be used as a strategic asset in their growth, business sale, or retirement plan.

Please check out our case study on a recent sale we completed for a family business in Canton, MA. After selling their business, the family called R.W. Holmes to assist with their 100,000 SF industrial building sale. While the family still sold the property for a significant profit, there were several situations where the property sale price was negatively impacted due to the family not strategically planning for the sale in advance.

When to Sell Your Property
Typically, we see companies sell their property along with, or at the same time as, their business sale. This is certainly the most common, but not the only time that selling your property can be advantageous. Here are two other scenarios that could help your business strategically:

1. Sell to Increase Company Cash Flow
We have had several owner-occupants sell their building in order to gain an influx of cash. This can be due to the business outgrowing its facility and the need for additional capital to assist with the growth. This can also occur when a company is in need of more liquid assets. Selling your building but remaining as the tenant in a building is a very profitable way to sell your building (called a “sale-leaseback”) – investors love having a tenant in place and existing cash flow when they purchase a property, which can lead to a more favorable sale price.

2. Sell to Profit from the Market Conditions
We have had owner-occupants consider selling prior to retirement, business sale, or outgrowing their facility due to the unprecedented demand and pricing in today’s industrial market. Due to the limited investor interest in office buildings combined with limited supply for industrial properties in many Greater Boston cities, pricing has remained near peak sale values of 2022. In some cases, we have seen property owners who purchased as recently as 2019 be able to sell their property for double what they purchased it for only 5 years ago. For some owner-occupants, it is appealing to take advantage of current pricing and demand in fear of the market dropping in the future. Or, in some cases, we have seen owner occupants sell to have cash on hand for personal life events (college tuition of their kids, medical expenses, etc). It is certainly a seller’s market, despite interest rates being significantly higher than 2022, due to the pent up demand for industrial/flex product in Greater Boston.

In the current market, flex and industrial properties are still in extremely high demand. Investors and other owner-occupants are eager to find options to buy, which has kept sale prices close to their peak from 2022. With the number of buyers out in the market, this provides sellers maximum flexibility – whether they sell the property as a sale leaseback, sell the property vacant, or have other restrictions to the sale, we have seen eager buyers for all scenarios.

How To Maximize Value of Your Property
Our goal is to help advise and educate company owners far in advance of them selling their property to ensure they are receiving the maximum value for their asset. While we always recommend speaking to an advisor at R.W. Holmes Commercial Real Estate to have them advise you on your unique situation and your unique property, here are a few areas we see sellers make mistakes:

1. Not Educating Themselves on the Market and Just Selling to the First Interested Party
We have seen buildings sell to neighbors, existing tenants, or investors for extremely below market pricing solely because the seller was unaware of the value of their property. It is always helpful to get an update on your property value from a local real estate advisor to stay up to date on market pricing. This information will allow you to determine whether an unsolicited offer is attractive based on the current market, or if the prospect is trying to undercut the market. Our team is happy to provide you with market information and even connect you with active buyers so you can understand the value of your property before making a decision.

2. Not Starting the Process Early Enough
Once a buyer and seller agree to the purchase price and execute a Purchase & Sale Agremeent, the work is just beginning. During Due Diligence, the buyer has the ability to review all property information. For owner-occupants who have owned their building for years, or in some situations generations, there is important property information that may be difficult to find. Work with your real estate advisor to understand what documentation will be needed from prospective buyers ahead of a sale so you have ample time to find these necessary documents. Lack of information can cause buyers to renegotiate pricing during Due Diligence.
Starting early also provides you the opportunity to create a sale strategy with your advisor. Based on your personal goals with the building sale, combined with market conditions, your advisor can assist you in deciding which building infrastructure upgrades are necessary prior to sale, the terms of any leases in your building, or have you get started on environmental clean up with ample time to resolve the situation.

3. Having Restrictive Lease Language for Existing Tenants
This can happen for owner-occupants who have other tenants in their building or for companies selling their business but signing a lease for the buyer of the company to remain a tenant in the building. In either situation, there can be lease language that restricts the opportunities for a building. This could be below-market rents, which will impact what an investor can pay for a property. It could be restrictive language on what costs are billed to the tenant and what building responsibilities fall on the tenant. It can even be too long of lease term or too many renewal options. Work with your real estate advisor to ensure your lease and leasing strategy aligns with your sale timeline.

We are always happy to answer questions and advise building owners years prior to them deciding whether to sell. Please reach out to a member of our team to have them assist you with your property.

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