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From listing to closing: 5 tips for selling a multifamily property

By Lauren Zumbach from Story by J.P. Morgan

Selling a multifamily property can be an exciting opportunity to maximize your investment.

To attract and secure the best buyer, it’s important to partner with an experienced broker, prioritize impactful repairs, leverage your property’s strengths and vet offers carefully.

These five tips can help you successfully manage the sales process from start to closing.

1. Hire a proven sales broker

First, it’s a good idea to hire a sales broker who has experience selling multifamily properties. If you’ve never worked with a broker before, consider looking for one who has recently bought or sold properties comparable to yours in your market.

“Don’t wait until you're ready to sell to start developing those broker relationships,” says Jim Tenret, Managing Director, Senior Regional Sales Manager for Commercial Term Lending at JPMorgan Chase, where he is responsible for executing multifamily lending strategy in New York and Washington, D.C. Before joining JPMorgan Chase, Tenret spent 15 years as a real estate investor, during which he bought, managed and sold over $2 billion in commercial real estate.

“Particularly during slow times, brokers are more than willing to do free work for you, and give you [their] opinions of value,” Tenret says. “So leverage the brokers long before you're ready to sell, and then they'll know your property, be more informed and give you better advice.”

Tenret recommends contacting several brokers to start. Each one can offer unique insights and opinions about your property’s value based on their experience and knowledge.

Prior to listing, the brokers should develop:

  • An expected sales price
  • Recent comps
  • Market intel
  • A marketing strategy plan and collateral materials

“Generally, they will present a range of values including maximum, minimum and expected,” Tenret says. “Of course, don’t simply choose the broker with the highest value estimate. A tight range with a high degree of confidence is ideal. Look for the one with a track record of selling similar properties at attractive prices.”

In addition, make sure the brokers you’re vetting are prepared to handle key steps once the property is listed, including:

  • Scheduling and leading property tours
  • Collecting letters of intent (LOIs)
  • Coordinating buyer interviews
  • Facilitating due diligence
  • Helping resolve disputes with buyers
  • Managing the process to a timely close

2. Address essential repairs

Selling 'the dream' to the next owner is often more profitable

Once you’ve found a broker, you can prioritize repairs that will have the greatest impact on your selling price.

Tenret recommends focusing on base building items — such as facades, mechanicals, roofs and parking — where heavy deferred maintenance might cause buyers to discount the property for poor general condition.

“Plus, your overall building will show better with those things addressed,” Tenret adds.

“Other capital items — such as upgrading lobbies, amenities, landscaping and in-unit renovations — may be best left to the next owner. Leaving some ‘meat on the bone’ allows buyers to underwrite a value-add strategy to invest capital and increase net operating income,” he says. “Selling ‘the dream’ to the next owner is often more profitable than executing every last improvement.”

If your apartments are in dire need of an upgrade, Tenret suggests renovating just one of them to serve as a “dream” unit. For example, you might spend $6,000 on new floors and countertops for one apartment, which is expected to generate an additional $200 in rent per month. This upgraded unit can help the buyer envision potential upgrades for the whole building, and give them a better sense of the upgrades’ estimated costs and anticipated income.

3. Tell a strategic sales story

“I would not suggest including an offering price in the listing,” Tenret says. “Brokers may suggest to buyers a ‘whisper price’ of where they expect the property to trade, but the goal is always to create a competitive bidding situation that will push the price higher.”

The goal is always to create a competitive bidding situation

“A good offering memorandum is critical,” Tenret adds. “It should provide a market overview, property highlights, financial information, lease and sale comps, guidance on underwriting assumptions, and tell the story of why an investor should want to own this property. Attractive, professional-quality pictures are also important.”

4. Leverage good tenants as an asset

Good tenants who have a consistent track record of paying rent and renewing leases can be a selling point for investors.

“In most cases, you're better off being fully leased, or at least leased to the market occupancy,” Tenret says. “The only time people really want vacancies is if they're planning to do a complete gut rehab and reposition the building.”

According to Tenret, your most recent leases will be your property’s best rent comps. So, ideally those numbers should be on the high end or slightly above market. If your units are currently leasing on the low side, you can consider offering concessions to your tenants, such as a free month’s rent or an improvement allowance, to help offset a monthly rent increase, which in turn could give you a more attractive lease rate.

To minimize the impact of a sale on your existing tenants, Tenret recommends specifying in your contract that the owner retains the right to make decisions for the property up until the closing date.

“It’s important that potential buyers are not talking to your tenants without you,” Tenret says. “[Your broker] should coordinate any property tours, tenant interviews or lease estoppel requests. This allows you to hear directly from the tenants and provide context for any concerning feedback.”

5. Choose the most credible buyer

“There's a good chance that the highest bidder isn't the most qualified bidder,” Tenret says. “You want to give weight to the credibility of the buyer, because it's worth real money.”

To find the most credible buyer, Tenret recommends asking strategic questions throughout the sales process. After the first round of bids, property owners and brokers can then interview a short list of the strongest buyers, along with their equity partners and key decision makers.

Questions to ask after the first round of bids
  • Is this buyer an experienced owner in this market?
  • Does this buyer have a reputation for closing at the price they bid?
  • Have all decision makers toured the property?
  • Is the buyer requesting a lengthy due diligence period or other contingencies?
  • How quickly will they post a non-refundable (hard money) deposit and in what amount?
Follow-up questions
  • Does the buyer have their debt and equity capital lined up?
  • Has this buyer worked with this lender in the past?
  • Are there any new or existing joint venture partners?
  • What approvals remain and when will these occur?
  • What are the key assumptions for debt financing, lease rates, capex and value add that derived their purchase price?

If there are multiple qualified buyers still in the running after your interviews, you can ask for a “best and final” round of bids to help you make your decision.

“Pick the most credible buyer but keep the backup buyers warm so in the event of ‘retrade’ or fallout, you can quickly switch horses to a backup buyer,” Tenret says. “Even if there is only one qualified buyer, they must think there are backup buyers waiting to jump if they drop the ball.”

Once you’ve accepted a bid, the deal still isn’t quite done. The due diligence and closing process can take 60 days or more, and a good broker can help you avoid a fallout in the final stages.

“There is a saying that time kills all deals, and brokers play a valuable role keeping buyers and sellers focused and moving efficiently from LOI to contract to close,” Tenret adds.

Selling a multifamily property is a complex transaction. You can streamline the process by choosing the right broker, making strategic repairs, marketing your building’s most appealing assets, and asking smart questions to secure the best offer from the strongest buyer.

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