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Sourcing Off Market Commercial Real Estate Acquisition Targets

By James French Mayo-Smith

Thesis Advisor: John Kennedy, Lecturer, MIT Center for Real Estate

 

Sole sourcing, or acquiring grocery anchored properties that are marketed to only a few prospective buyers, is favorable to general partners, who will oversee and run the property, because it increases their chances of acquiring the target. Furthermore, this is beneficial to their limited partners who have provided meaningful sources of capital in order to acquire the property.

The hypothesis is that by tracking outstanding commercial mortgage backed securities (CMBS) loans coming due in the next several years, collecting data on current owners/borrowers, attempting to understand their wants and needs at asset and portfolio levels, and providing solutions to their circumstances while effectively marketing to engage existing owners of grocery anchored retail real estate assets in US metro markets with favorable demographics, one can increase the likelihood of closing off market transactions with prospective sellers while not using brokers through a system that is replicable across various real estate property types.

The conclusion is that evaluating CMBS loan maturity and other data-driven advances to sole source deals are currently underutilized in the market. Currently, firms must first define an investment thesis internally. Next, the team should gather property and owner names of target markets and submarkets that fit the established investment criteria. Analyzing owners’ portfolios, fund lives, and tenant expirations builds understanding behind events that trigger property sales. Furthermore examining CMBS loan maturities and outstanding property-level debt should be analyzed when targeting properties, but this strategy has not been as widely adopted as it will be in the future. Building and establishing relationships in the market will remain critical and marketing directly to brokers and owners is essential. This is believed to be a replicable strategy across markets to source off market deals of grocery anchored retail centers today.

In the future, data-driven acquisition targeting is expected to increase. Firms that adopt these strategies, in conjunction with proven methods utilized today, will be better positioned to source and close off market acquisition.

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