Case Study:
How Our Strategic Marketing Plan Achieved a Record Sales Price for Our Clients’ 32-Unit Apartment Complex
The Assignment
Some months ago, we received a referral for a family exploring their options about selling the largest apartment asset in their portfolio. Naturally, this can be a daunting process, and while we were aware of the family’s explicit goal of selling the property, we also wanted to better understand what their overall investment plans were, and how we could best assist them in achieving their financial goals. Having sat down and met with these folks, we came to understand the property was held in a trust, and due to the trust’s structure, they were not exposed to any capital gains penalties, meaning they wouldn’t need to engage in a 1031 tax deferred exchange. We also learned their main goal, as it relates to the brokerage process, was simply to get the highest possible sales price. We had the solution to their needs: a systematic, technologically advanced, highly targeted listing marketing system.
Pre-Marketing
After signing a listing agreement, we moved forward with our exploratory phase of identifying the current buyer market activity, local apartment market trends and which buyer demographic(s) we would target. Our analysis showed their was limited supply of available apartment complexes listed on the market for sale, and that average days on market (DOM) for similar apartment complexes was 34 days. The property had a fair amount of deferred maintenance and low rents, which meant the buyer would either need to stomach the low income on the property, pay all cash or use a sizable down payment to service the debt, or undertake a serious renovation project to improve net operating income. Considering the appetite of local apartment buyers and the financial and physical downside, this is what we determined to be the most likely buyer pool:
Apartment Buyer Pool Diagram
To target value-add and exchange buyers, we needed to position the property on the open market in a very strategic way - as a “value-add” opportunity. The idea is to emphasize the rental upside buyers can capture after investing in capital improvements and renovations.
Executing the Marketing Plan
The goal of our extensive marketing plan is to essentially “create a market” for the property, or in other words, create demand for the multifamily product. The next step is to maximize exposure of the listing to as many potential buyers within the targeted buyer pool as possible. Once we create demand for the listing, we engage all the interested parties with the intent of soliciting multiple offers. The magic happens when multiple, qualified buyers submit offers, and a competitive bidding process ensues. The result tends to yield the highest price, with the strongest terms in the contract and the most qualified buyer who will perform according to the contract.
This all sounds good in theory. However, putting the marketing plan into practice takes meticulous action. To make a long story short, here is a quick snapshot of the marketing plan and timeline (we’re happy to provide a custom tailored marketing plan for your property anytime, click here if you’d like to get in touch):
We hit the pavement running, implementing every single aspect of the plan. Sure enough, the blanketed exposure of the listing created tremendous buyer demand. Within the first week of marketing, we showed the property to 23 investment groups and received 9 offers. Our marketing plan worked perfectly for this offering. We presented the 9 offers to our clients. Based on their feedback, they decided to counter the strongest offers. And this is where the weeks-long negotiation started...
Marketing Timeline
The Negotiation Process
Given the high level of interest in the listing, we decided to counter price AND terms. The bidding war was fierce and intense among the buyers. We worked in our client’s best interest to ensure the buyers were all qualified, well capitalized and experienced investors. THIS IS ONE OF THE MOST IMPORTANT STEPS IN THE LISTING AND SALE PROCESS. I cannot stress enough how important it is to screen buyers. Apartment buyers can play all sorts of games in escrow, tying up properties with hidden ulterior motives. It is paramount you know who you’re doing business with. Hence, the thorough buyer screening process.
In this case, the buyer my clients decided to enter into a contract with was a qualified exchange buyer. We requested the buyer’s real property credentials and proof-of-funds in addition to evidence that they were actually in a 1031 exchange and closed on the relinquished property. Furthermore, we had a qualifying conference call with the buyer, the buyer’s agent, and the buyer’s lender. Everything checked out, so we moved forward with opening escrow.
Setting Up for a Successful Escrow
The escrow started out just fine. Everything seemed to be moving along... until the buyer’s physical property inspection. There was some deferred maintenance items on the subject property - specifically the deck. During the first few weeks of escrow, the city happened to flag the deck for its dilapidated condition. However, this is something we anticipated, which is why we provided a full property inspection report prior to entering into contract. Since the property condition was disclosed up front, and because we negotiated an AS-IS sale, the buyer had no leverage. After multiple concessions were requested by the buyer (and some less than enjoyable conversations), we ended up moving forward with the final contingency removal and on to the close of escrow.
Closed Deal!
With no further obstacles, we closed escrow and my clients received the proceeds from the sale. It was a successful transaction for a number of reasons, but almost completely by design. Our methodical approach to marketing did just what it was supposed to do for our clients: we generated lots of interest in the listing, created a bidding war among buyers, and closed escrow $200,000 above the listing price!
