This question is not for owners that are out of money, have negative cash flow, can’t pay the bank, are facing foreclosure, have vacancy that is out of control, have terrible management in place, or have loans coming due and can’t pay down the debt to reset the loan to value ratio to today’s market standards. (If this is the case, you need to get out.)
This question is for you if the building you’re thinking of selling was worth more yesterday than today. You’re wondering whether you should hold on or sell the building and go somewhere else with your money.
Thus, when is the right time to sell in a down market?
If Sam Zell’s correct, then, “Everyday you’re not selling, you’re buying” Here’s what this means to you:
- The value of your asset is determined by how much you’re willing to accept and what someone is willing to pay. It’s the intersection of these two opinions that is called a ‘meeting of the minds’ and that determines the value of your property at that point in time. This is also known as fair market value.
- Everyday that you choose to own your property, you are agreeing to own it for its fair market value.
- The value of your asset fluctuates from day to day. Each day that you choose to own it, you agree that its value that day makes it worth owning and that you would buy it back for that price right now, whether it be higher or lower than the day before.
- Once you decide that you would no longer pay the current price, you become a seller.
Zell’s statement boils down to your asking whether your capital works harder in your current investment or somewhere else. If it’s better invested in your commercial real estate, keep your property. Don’t sell it. It will come back.
But, if you see other opportunities that provide you with a better return, i.e. look at Apple stock in February, 2009 at $68/Share, now trading for $214/share, or other acquisition opportunities where you increase your capital’s velocity above its current performance, you may want to reconsider holding on. If Zell’s right, and I think his statement applies to both up and down markets, even flat ones, then everyday you hold that property in a down market means that you’re buying higher today and selling for less tomorrow.
Consequently, the right time to sell in a down market is when you know that your capital will work harder in an alternative investment and that you would not invest in your asset today. Your opportunity cost is too high to hold on and you’re better served moving to another investment.
Do you think you are a seller today? If so, email me at Jeremy@Mansardcre.com with the words “Sell my building in today’s market” in the subject line. Include your name, when you would like to be called, and the best number to reach you. I will contact you to schedule a time for you to invite me to your building for a free consultation. If there’s a fit, you may retain us to sell your property. If there isn’t a fit, we’ll tell you we cannot help and will refer you to another firm that may be a better match.
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About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com.
{ 3 comments… read them below or add one }
This is the second entry I read tonight. And I am on my third. Got to think which one is next. Thank you.
I read your article and found it right on. It is a great way to approach owners of commercial real estate that have good equity from long term ownership. The Zell story makes it more fun/interesting too.
Thanks for posting it!
Mike
As always very good info. I wanted to buy a few years back but the price just didn’t make sense. I am thankful to know a lot more about commercial real estate now and someday when the price is right I’ll be a buyer.