ACQUISITIONS

GROWTH of a real estate portfolio requires an understanding of markets and the target asset, skills in negotiation and documentation, access to capital and approval of the owner or board, all within the context of the rules of government.

BE IN THE STREAM OF COMMERCE. A traded real estate investment trust had not closed on an acquisition in over a year. When proposals were received, unless there was an interest, no response was sent. There were no written acquisition criteria, so unless you happened to talk with someone at the firm, you could only guess what they would buy.  When something was closed, unless you saw an article in the newspaper (this was before the dominance of the web), you did not know they had money to close on a property.  How then did this firm grow in size 10 fold in 10 years? They started responding to EVERY submittal, so that brokers understood what works and what doesn’t.  On a twice a quarter basis a newsletter was distributed broadly to brokers, attorneys, lenders, owners, property managers and government authorities focused on real estate. A written acquisition criteria was posted on their website and updated every quarter, with reference to successful acquisitions. All press releases were summarized in the newsletter. Key real estate brokers were invited to attend group discussions at the REIT office. REIT officers attended local real estate events and sought out opportunities to speak. Once fully in the stream of commerce, the company grew quickly, as they became well known by those operating in their market.

NEGOTIATE THROUGH THEIR EYES. Your capital is no greener than that of other prospective buyers, therefore you have value only to the extent the sellers believes you will close on time with limited hassles. What can you do to help them believe in you? It helps if someone they trust can regale the seller with first hand stories of how your firm has performed as promised in past transactions.  You will want to allow the dance to drag out a little, by making use of a letter intent which is vague but not off putting on certain issues, where you can show good faith by resolving the point in their favor. Does this sound a little bit like dating? It should, because if real estate negotiations are done right by both sides, the result is a “win – win” situation. The more you can view the process through the eyes of the other side, and not as you would like them to see, the more likely the negotiations will be successful.

CRAZY CLOSINGS. A closing resembles thanksgiving dinner, where food is being brought by a long list of friends and family, and everything has to be heated and on the table at the same time…generally on a day with unusually heavy traffic and at least one complete melt down of an attendee.  Be prepared that someone on your team will come up short on some minor item and the other side will use this fact to beat on you for a price reduction.  Equally be prepared that the seller has been misleading your team throughout the process on some key issue, and in some cases they don’t even know they have been wrong.  Yet when it is all over, everyone shakes hands and moves on.  John McCann taught me to always leave a little something on the table; you want the seller to always tell the world what a great experience they had because they feel how smart they were to gain a little something at the last minute.

If you have questions about adjusting your real estate acquisition program, please contact us (rick@chesslawfirm.com) and we will find a time for a free 20 minute consultation.  You may also want to consider reading the article below.

No is better than “Maybe”