One of KJF Partners’ Core Values is:
“We are driven by our personal commitment to create value for our investors, tenants, teammates and brokers.”
To serve our broker partners, we send occasional emails that focus on things that I have learned through my brokerage history or that I notice from my current role on the principal side of the business.
Brokerage is a very challenging business and counseling clients to sell their property in a declining market is a key element to success in today’s real estate environment. Although it’s wonderful to sell when prices are at their peak, most money in real estate is made by buying right.
I’ve seen numerous studies recently that have shown that the number of properties coming on the market for sale is significantly outpacing the number of properties that are closing escrow. The simple economics theory of “supply and demand” indicates, if that trend continues, the downward trajectory of pricing will also persist. If your client is considering an exchange, the market shift creates opportunities to improve their position as there will be many more acquisition prospects than existed in the recent past. In addition, the competition that they will experience on those deals should also be significantly less. A steadily declining market should be presented as an advantage to the potential sell/exchange client. Although the cap rate they sell for today may not be as aggressive as it was months ago, they should be able to exchange into superior property/properties at the most attractive prices in several years.
Clearly, there are factors that, for some sellers, can complicate the above dynamics. The debt market is one such factor for clients that must finance their exchange property. The market will continue to adjust for the changing cost of debt on those transactions and, selling their property today, when cap rates are still aggressive and, exchanging into a market with reduced pricing may still be a winning strategy.
As a broker, fully understanding all of the aspects of the prevailing market conditions and outlining a big picture strategy that your client may not have considered, will help your client determine that a sale may be an overall solid decision. This environment reveals opportunities to buy that your clients haven’t experienced for quite a while. It may be best for them to sell now, while cap rates are still strong and set themselves up for better pricing for their exchange.
KJF Partners, Inc.
Cell Phone: 949-275-5038
PS: If you have subjects that you’d like to see become future topics for This Principal’s Perspective, hit reply and let me know what your thoughts are.