In an uncertain market, no homeowner wants to be exposed if they can’t get the asking price for a property for sale. For this reason, the market for large real estate transactions tends towards what is known as off-market sales, sales without an open and public process to any buyer, favoring, on the contrary, bilateral transmission that is outside the domain of public knowledge. In this way, it is about minimizing the impact of not achieving a conversion at a difficult time to close operations.
The context of why this move took place outside the market has a clear driver. Since the end of last year, the increase in interest rates has paralyzed real estate operations, and now it remains to be seen how they will affect the uncertainties that emerged in the financial sector after the fall of the SVB. The main problem is that access to finance is now more expensive and complicated, so buyers are looking for higher income or income, which immediately leads to a decrease in property value. But how much less is each property worth? This is where sellers (who don’t want to lower prices) and buyers (who don’t want to be the first to buy a building if valuations continue to drop) differ. For this reason, there have been 25 major redundancies in recent months worth 3,000 million euros, reported this newspaper at the end of January.
“Many of these businesses are moving towards an off-market format, which, due to its lower visibility, allows the parties greater ability to adjust prices”, highlights Sergio Fernandez, director of investments at JLL consultancy. Open trades, he adds, are “generally longer trades, and the cost of financing and price expectations of sellers and buyers change from week to week.”
Ignacio Martínez Avial, Managing Director of BNP Paribas Real Estate, agrees that there is a greater presence of off-market operations, “because owners, especially those who do not need to sell, prefer not to disclose their assets, whereas if they have an interesting offer of a really interested investor, he can negotiate better.”
“During bull cycles, the usual thing for investors who want to sell is to organize open positions because prices are maximized by generating competition”, says Gonzalo Ladrón de Guevara, executive director of capital markets at Savills. “In market situations like the current one, when this benchmark is still unclear, potential sellers prefer to test pricing through a limited process with only the most active investors,” he adds.
Mikkel Echavarin, president and CEO of Colliers, also points out that open operations make sense when there is a lot of competition and a real offer can be made. “Since institutional investors are asking prices that do not meet the expectations of sellers, it is about structuring binary trades, with other types of buyers, who are basically very long-term investors who invest without funding.”
In the process of selling, senior landlords often seek advice from well-known brokers and consultants such as JLL, CBRE, Savills, Cushman & Wakefield, BNP Paribas Real Estate, Knight Frank, Colliers, Catella, EY, PwC, KPMG or Deloitte, between others. . In an off-market situation, real estate agents also consult the contact list of these companies.
In this off-market, the asset is not placed on the market in an open sale to all potential buyers, but is channeled bilaterally to a single interested party or to a small group of selected investors, as explained by Ladron de Guevara. “Our role is to refine this selection, and this is only possible with a broad knowledge of the market that allows us to identify two or three investors who are most interested in this asset and who will maximize the sale price”, he describes. “For this, it is essential that you have a strong relationship with the potential seller and also have a pulse of investors willing to reach the owner’s target price”, he adds.