How soon will commercial real estate see iBuyers? – Daily News

on Mar31
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I read with great interest Jeff Collins’ story on iBuyers invading the residential market. In case you missed it, allow me to provide an abridged version. Currently, there’s a trend in residential sales wherein online operators buy your house quickly saving you the hassle of the marketing steps — choosing an agent, pre-sale prep, repairs, staging, showing, negotiating and closing.

Akin to CarMax, you get an offer on your house – with fees, closing costs, and repair concessions baked in. If you say yes, the deal is done without you ever having to V-dent a sofa pillow. Easy. So what’s the catch? Just this. iBuyers rely on a motivation that eclipses most sellers. Simply, you MUST sell and can’t wait for the normal sales process to unfold.

Remember, the iBuyer isn’t planning on living in your house. They’ll buy it, fix it and flip it to someone who will. Therefore, you walk away with less than a conventional arrangement. How much less? It depends on the condition of your home.

So what does this have to do with commercial real estate? Let’s see …

Do commercial iBuyers exist?

The short answer is no. Buyers of commercial real estate typically fall into two broad categories — occupants and investors. The difference? Occupants buy to house their business. Investors rely on the rents paid by the tenants in the building. Residential iBuyers are investors with no desire to lease the house. Their play is to acquire it, prepare it for sale and sell the home to a resident.

Could such a strategy be employed commercially? Sure. Some value-add investors operate this way. But the price delta is enormous. Most commercial real estate sellers, when shown the amount a value-add investor will pay compared with an owner occupant, will opt for the latter.

Can commercial real estate be standardized?

While tracts of cookie-cutter domiciles dot our poppy-covered hills, no two commercial buildings are identical. So the challenge becomes just how to value a commercial offering. The challenge continues when you ponder the layers of special features such as upgraded offices, a fenced outdoor yard, or special power feed. Considered next would be the out sale price or expected lease rate less the cost to originate the lease — fees, concessions, downtime, etc. (It’s kinda complex.)

Will CRE see iBuyers?

Well, we’ve certainly encountered online selling platforms. What started as a way to liquidate distressed lender owned buildings under Auction.com has morphed into Ten-X. The broader concept relies on one of three ways to create buyer pools for commercial assets — traditional auction, managed bid or offer select. I’ve used Ten-X successfully and can say that with certain commercial offerings it works quite well. But the lack of lender owned portfolios of problem properties has slowed their volume. Another drawback? It’s quite expensive.

The iBuyer takeaway

Yes, we will see iBuyers. When? That’s harder to say. Our industry is too huge and spans more than 55 million commercial properties nationwide. That’s an awful lot of simoleons! Some well-heeled, tech-savvy group will figure it out and disrupt the commercial buying process. Just look at the way in which CoStar upended commercial real estate research and inventory. Stay tuned.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.



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