If you’re waiting for clear skies in the CRE world, you may as well wait for a unicorn to appear. It’s the STP principles that should guide your decisions:

Seller Circumstances can present timely opportunities for a buyer to purchase at below FMV:

• Look for quick deals where the seller has less time to market the property.
• Look for sellers who wish to avoid the limelight, are politically sensitive, and seek to sell their assets discreetly.
• Probe the seller’s motivation and seek those with few alternatives.
• Recognize passive, nonprofessional real estate investors, investors without a broker, or brokers out of touch with the market.
• Identify sellers who express fatigue with the asset.
• Find deals where the sellers have owned it for a short time with a high basis.

Here’s a fresh scent, courtesy of Cardinal, for you to pick up. We see deals that are available at below FMV in a few distinct property types in the Carolinas: (i) small bay flex buildings, (ii) small, partially vacant, infill retail, (iii) large single-family residential in rural areas, (iv) off-market land offerings from religious and fraternal organizations, (v) distressed class B suburban office space.

Transaction Structures often reduce the amount of competition and provide comparative advantages to well-positioned buyers:

• If you can underwrite and execute portfolios with one or more assets, ideally in different markets, you will be above the fray.
• “All-cash buyers” are rare in CRE, but you can structure offers that are equivalent to cash or borrow with low LTV short-term debt if you have dry powder.
• Time is money, and more valuable than ever – entrepreneurial buyers who can complete due diligence quickly will have particular advantages.

At Cardinal, we execute deals with many encumbrances, such as leases, contamination, mortgages, and easements. In times like these, we move quickly and structure deals on complex assets. Our clients are savvy—they know to ignore prognostications about “V-shaped recoveries” and buy solid assets you can hold long-term with a plan to create hands-on value.

Property Characteristics are the real “devil” in the details, and it’s where hands-on buyers get the most upside:

• This may sound sophomoric to the pros reading this article, but look for functional class B and C buildings with vacancies that can be relet at higher rates.
• Buildings in non-prime locations are typically harder to keep fully occupied. For buyers on the pulse of a submarket considered Tier 3, it’s possible to achieve superior terms with fewer competitors.
• Specialize in a unique property type, such as truck terminals and data centers. Fewer investors deeply understand these types of specialty properties and, as such, they have limited marketability and few competing buyers.
• Typically, a management-intensive property is viewed as less attractive to buyers. Savvy buyers can succeed here but only in one way: excellent management capability.
• Properties with deferred maintenance find few buyers. This is particularly true when the problems are environmental. However, the best investors can successfully quantify actual risk and cost, manage obstacles, and effectively remediate even the biggest messes.

Don’t let the fog of uncertainty squelch your ambition. Cardinal Partners invites you to harness the nuanced opportunities of the CRE market with our STP Scorecard™. Sharpen your investment acumen and unlock potential in a landscape rich with both possibility and peril. Sidestep clarity for action and reach out to us — let’s chart a course for enduring value and strategic success in commercial real estate.

We offer our thanks to Gary T. McDermott of McDermott Law, LLC, for spurring this valuable dialogue. Your insights and participation fuel our collective triumph, and we sincerely encourage your active engagement. So, if you have any suggestions, please let us know!