When Is The Best Time To Sell My CRE Portfolio?
by Arnab Dey Real Estate 05 May 2023
When selling a commercial real estate (CRE) portfolio, timing is crucial. The best time to sell can vary depending on several factors, including market conditions, the current state of the economy, and the specific properties included in the portfolio.
One of the most important factors to consider is the current state of the CRE market. It may be an excellent time to sell if the market is strong, with high demand and rising prices. On the other hand, if the market is weak, with low demand and falling prices, it may be best to hold onto the properties for a while longer. Additionally, an eye on the broader economy is essential, as a recession or economic downturn can significantly impact the CRE market.
Factors To Consider While Selling The CRE Portfolio
An essential factor to consider is the specific properties included in the portfolio. If the properties are well-maintained and in desirable locations, they may be easier to sell at a higher price. However, if the properties need repairs or are located in less desirable areas, they may be harder to sell and not fetch as high a price.
It is also essential to consider your personal and financial situation. If you are nearing retirement or have other financial goals that require liquidating assets, it may be best to sell your portfolio sooner rather than later.
When deciding when to sell your CRE portfolio, consider the current interest rate environment. If interest rates are low, it can make borrowing for commercial real estate purchases more attractive, which can drive demand for properties and lead to higher prices.
Conversely, if interest rates are high, it can make borrowing more expensive and reduce demand for properties, leading to lower prices. So, it’s essential to keep an eye on the interest rate environment and factor it into your decision on when to sell.
Additionally, a critical consideration is the current state of the leasing market. A strong leasing market can indicate a high demand for commercial properties and lead to higher prices when you decide to sell. However, if the leasing market is weak, it can lead to a lack of demand and lower prices. So, it’s essential to keep an eye on the leasing market and factor it into your decision on when to sell.
How To Determine The Best Time To Sell Commercial Real Estate?
First things first, you might need to embrace the potential for returns in the future. The potential of any asset is determined by the buyer’s value and his willingness to pay for it in terms of the present market. An important step to identifying the right time is to comprehend the value of future returns. There is absolutely no need to pay attention to the asset’s actual purchase price. However, you are always welcome to compare it to the held amount in a sale. When you compare future cash flows to such fair market value, you are more likely to get accurate information on the opportunity cost.
Some professionals also tend to compare the returns on new market value in relation to the cost of buying a new asset altogether. In certain circumstances, today’s lower return can be an enhanced version of the risk-adjusted return for maximum investors. Additionally, it is a big responsibility to identify the apt time for selling and the price which the market bears. For instance, if somebody plans to sell their property to a large real estate buyer having access to a reduced cost of capital, there are chances of them offering a higher price as compared to a regional buyer.
In contradiction, assets still having the opportunity to combine value might end up attracting the deepest buyers pool, letting you enjoy the most competitive range of prices. However, certain assets might never interest a real estate investor, mainly owing to their size or location.
Why You Should Have A Well-Thought Strategy In Place?
It’s also important to remember that selling a CRE portfolio is not a one-time event but rather a process, so it is essential to have a well-thought-out plan in place. This includes identifying potential buyers and reaching out to them, preparing marketing materials and financial statements, and working with your real estate professionals to ensure the transaction goes as smoothly as possible.
If there are many properties for sale, it can lead to increased competition and lower prices for your properties. On the other hand, fewer properties for sale can lead to less competition and higher prices for your properties. So, it’s essential to keep an eye on the level of competition in the market and factor it into your decision on when to sell.
It’s also important to consider the current level of development in the market. If there are a lot of new products, it can lead to an oversupply of properties and lower prices. On the other hand, if there is more development, it can lead to a supply of properties and higher prices. So, it’s essential to keep an eye on the market’s growth level and factor it into your decision on when to sell.
Finally, it’s essential to consider any upcoming regulations or laws changes that may affect your property’s value. For example, changes in zoning laws or building codes can affect the value of your properties and should be considered when deciding when to sell.
In conclusion, timing is crucial when deciding when to sell your CRE portfolio, such as office space. It’s essential to consider the market’s current state, the specific properties included in the portfolio, your personal and financial situation, the interest rate environment, the leasing market, the level of competition, the level of development, and any upcoming changes in regulations or laws.
Additionally, it’s essential to have a well-thought-out plan in place to ensure a smooth transaction. It’s always a good idea to consult a financial advisor or real estate professional for guidance on the best time to sell your portfolio.