Selling High: The Right Time to Sell

Foreign.

Welcome everyone. We are here for the Sell High series. This is the first episode of a couple series that we are doing in conjunction with our podcast. And with me here is Anneliese Callez who is founder of Brandora. She's a brand ambassador and has done a lot of work with James Nelson.com and helping get the word out there. So Annelies, so great to have this conversation with you.

Hi James, thank you so much for having me today. It's really a pleasure and I'm so happy to be here back for our first episode of Selling High today. So I'm also very excited about the topic. But just to take a step back, just to remind you, our audience in our last podcast we did a deep dive and talked about James personal life and how he became one of the top brokers in New York City and what it took to get there, including having the right mindset, being a forever optimist and continually learning. He also shared how important it is to have a great team behind you and that it's everything. James also shared his story and how he got into real estate and the incredible mentors that led him to where he is today and especially helped him earlier on in his career. So if you didn't hear that episode, please check it out. Or you can also learn and you can also learn about how awesome James is. So in this new series on Selling High, geared towards landlords to help them with the process of selling their buildings and getting the highest price for their properties, I'm super excited because the topic is really important and it's a crucial component of the sale timing when is the right time to sell. So last year was one of the worst years in real estate and people didn't really sell their buildings. We're going to speak about when it is the right time to sell and what's your take on it, because I'm sure there's pros and cons to both whether to sell in a down market or upturn. My first question is what are good market conditions to sell?

Well, first of all, Anneliese, that was an awesome setup. Thank you so much. And I'm really excited for this series because it is really the last and arguably the most important step in the insider's edge to real estate investing. So this book will teach you. If you haven't read it yet, you definitely should. This tells you how to find great opportunities, how to reposition them. But again, when it's time to capitalize and there's many of you out there who hold properties for the long term, and that's a great way. I've seen a lot of families build up tremendous wealth from doing this. So that. That is one lane. But if the decision is. And a lot of it. We'll talk about this later in the show. Depending on what kind of capital, your investment strategy, if the sale is the ultimate outcome where you're going to capitalize and realize that value, it's really important that you get it right. What we're going through right now, and we're recording this in May of 2024, but as with all of our material, we want this to be evergreen. We want someone list watching this two, three years from now to get value. So. But what I can tell you just for context, is right now we're at a time where there's uncertainty, right? So going back to mid 22, interest rates start going up, and then what happens? Buyers and sellers both go to the sidelines. Because when there's uncertainty, it can be very challenging to transact, right? Sellers say, well, I don't know if I want to sell into this market because I don't know if I can get the highest value. And buyers are thinking, well, maybe there's an opportunity to wait, right? And so at the time when rates started going up at an unprecedented level, a lot of buyers were saying, well, hey, if I wait, maybe there'll be better opportunities, maybe there'll be more distress. So market timing, right? And we always say we don't have a crystal ball, you know, at this point in time, we're hoping maybe we'll get a rate cut or two before the election, but we're not certain. So the question is really. Or the answer, rather is different depending on your circumstance, right? So we're going to talk about, like, when is the right time? I think overall, what I would say is when you can be a patient seller, right? And you're not forced to do something that usually allows you to really maximize value and get the highest price. Whereas if you are in a situation where there's pressure, and I know we're going to get to this later, also talking about maybe you have a loan coming due where suddenly you have to make a decision and transact, you know, then sometimes it's not possible to get the best outcome. But we're here to talk about how do you go about and get all, you know, especially if the circumstances are challenging, how do you overcome that and still get the best sale in any market?

Going back to what you're saying, can you actually time the market? Can you Share a personal story where you timed the market really well?

Well, I would answer that as far as timing and look, I mean, I think about 2007, 2008 and deal making so easy. This was right before the great financial crisis. I remember selling a vacant building and vacant office building down in Soho where the buyer was able to get 90% financing. Okay, now I've only been doing this now for 25 years, so maybe I didn't realize that. I mean, I don't think we'll ever see something like that again. But money was very cheap and it was plentiful.

Right.

And so it allowed a lot of these transactions to happen at unbelievable sales prices. And look, I think those who were fortunate enough to kind of buy in and transact before there was a major drop off in values, the great financial crisis in 2008, 2009, did exceptionally well. You know, is that skill, is that luck? I mean, how many investors out there were sensing, okay, this really seems too good to be true? I will say, and it's interesting that a lot of my clients who are, you know, long term family investors, many of them have always said, look, I'm, you know, I'm okay with debt, but it's got to be at a very conservative level. So even when that type of financing was available out there, they said, you know what, I'm not going to buy into this. And when investors are using other people's money, whether it's equity or debt, you can see that suddenly the prices go up and up and up. And there was a lot of patient long term investors who said, I'm not going to buy into this.

Right.

And so, and those who are unable to sell at the peak and were left with loans, and we're seeing that happen now that we have a lot of borrowers who bought over the last five years and now loans are coming due and they're trying to refinance. It could be very challenging. So yeah, I would say, you know, the sale at the top market, you know that those 2008 sales, 2007 sales, when that type of financing was available. Yes. Did lead to some pretty exceptional pricing.

Mm, super interesting. And so would you say that the sales market is seasonal? And if so, would you give me an example?

You hear that a lot on the residential side. We found that we are pretty busy round the clock. Part of it used to be, okay, well, you don't want to bring things to a head during the holidays, summer, you know, people think it's a quiet time of year. What's amazing Today is that we find that people are looking for opportunities all the time. So even if you're, we find a lot of our clients are investors, I think they frankly get bored when they're hanging out at the beach and they're still scrolling and they're looking on their phone and calling in saying, you know, tell me about this deal. And so I don't know if there's a specific seasonality where, you know, it is a good time to bring a property market or not. We seem to get interest year round. I think you want to be a little careful not to bring things to a head. You don't want things to get lost sometimes in the year end shuffle where everybody's trying to close their books for the year. So like launching a property, obviously going into the holidays, like a mid December launch is probably not, you know, the best idea. But I think also, and maybe speaking about how long is the sales process, these aren't, you know, these assets, these multimillion dollar assets, they don't trade overnight. I mean we come in and we advise clients that, in fact we were talking about it this morning at our sales meeting that the real sales process from start to finish is six months. And that's really, you know, a week or two to get marketing materials together to get out to market, you know, at least four to six weeks to get offers from investors. But look, if it's a vacant property and we're trying to find an end user to buy it, it could be even longer.

Right.

And then the question is, even if you can get contracts out, you know, two, three months into the process, how long it closes is really dependent on is the buyer going to pay cash, are they going to go finance? And if they're going to go finance, it might take them three to four months to go find financing. These sales don't happen overnight. So you know, even if you started making some calls mid December, I might not call for bids, you know, like I said at the end of the year. But you know, a typical marketing process should, or the right marketing process should sidestep any concerns of missing the market.

So if I understand correctly, you're saying the process is at least like 1, 2 months to get your house in order, do the marketing and then probably once, once you put it on the market, like six more months, that's the time frame.

Six months is really an all in number from timeframe from start to finish.

Got it. And my next question is about loan and can a loan maturity drive a sale?

It absolutely can. And it's probably what is driving a lot of the sales right now. And going back to kind of the point in the cycle where we are, it's not just the rates have gone up, but loan proceeds are going down as a result with the debt service coverage ratios. The banks have a lot more scrutiny today, so they're getting more conservative. So we have clients who still have equity in their property, but they go and try to refinance with the bank and the bank says, okay, well we'll give you another loan. It's going to be, the rate's probably going to be close to double, but we're going to need you to pay down your mortgage. And so the question then becomes for the borrowers, do they want to cash and refinance?

Right.

Do they have a desire to do that? Do they have the ability to. And for those who do not, that is creating a lot of sale opportunities. And so Annalise, one of the things that we talk about in the book is seller's motivation. And when we wrote this in the middle of 2020, did not realize how relevant it would be today. But for those of you who are out there looking to buy and a broker offers you a property, and I've said this on this show before, if you're not first looking at what's the debt on the property, you're potentially be wasting a lot of time, right? Because when that broker shows you that listing for $10 million and that you see the debt on the property is 11, $12 million, again, I don't even know what that broker would be doing. Maybe the closer call would be that loan at nine and a half million dollars, right? Where how are you even going to clear this?

Right?

And then the question is, should I even be dealing with the property owner or should I be dealing with the lender? So loan maturities absolutely drive situations. And that's why also as you all are thinking about buying properties, it's so important to match the right debt with your business plan. And you have to rely for these, I mean, Covid and then these rates going up at an unprecedented event. I mean, certainly Covid black swan event. I mean, who would have ever guessed? But I mean, if you have a five year loan and you got stuck trying to refinance in the middle of 2020, you had real issues, right? You know, if it's a longer term business plan, even though, look, it might be another 50 basis points to get that 10 year loan as opposed to a 5 year loan, that peace of mind and to allow to have some Optionality. I mean, what I've found throughout my career is that things always seem to take a little bit longer than you think are going to happen. And so it's just good to have that extra breathing room.

We spoke about the fact that there is no specific timing on the market, but when is market favorable?

Yes. So we talked about you can't have the crystal ball. You don't know where things are going. But how do you know when you're in a market where you can really make sure that you maximize price?

Right.

And at the end of the day, this is a supply and demand business.

Right.

So we talked about how in 2022, sales volume was down considerably. In fact, in New York, sales volume was cut in half, dollar volume from 22 to 23.

Right.

And why was that? There was a lot of uncertainty.

Right.

So buyers, sellers, they wait.

Right.

So when you don't have that demand, when you don't have lots of buyers in the marketplace, it can be really challenging to drive up value. So I believe that there is a lot of herd mentality right, in the business. And right now at this point in time, everyone's kind of waiting for the floodgates to break open. There's a lot of dry powder on the sidelines waiting to jump in. So I'll pick a name that everybody knows. Blackstone.

Right.

Everybody's waiting to see when Blackstone comes in and makes a move.

Right.

They're really smart and traditionally made some really good bets. Okay, so Blackstone just bought air communities for $10 billion. Okay. So they bought this non traded REIT that had a very substantial portfolio of multifamily in Gateway cities. Okay. This is the vote of confidence where, okay, a lot of the institutions that have been sitting on the sidelines and let's think, okay, I'm trying to bring to my committee to buy a deal if no one else is buying. Okay. There's this herd mentality, this safety, right? Now I can say, well, Blackstone just laid out $10 billion to go invest in Gateway Cities. So my prediction is now you're going to see a lot more activity.

Right.

And once you see that kind of feeding frenzy, that's really what you want to play into as a seller. Because what I found is it's really difficult, you know, when you're only dealing with one or two outlier buyers and trying to get them to step up and buy and you don't have that leverage.

Right.

Because you need multiple buyers to drive up the price. So you want to kind of see when These buyers are coming off the sidelines and there's activity and then there's active trading. And that's why quarter over quarter at Avis and Young, we're really looking at sales volume. So right now I know we're only at a third of the ten year average for dollar sales.

Okay.

So even we get anywhere close to that 10 year average where things are starting to trade and move and there's velocity as a seller, that's what I want to trade into right now. If I don't have to sell, I probably don't want to sell unless I'm being opportunistic. And I'm saying, okay, look, I know I'm not going to get as much money as I would have sold five years ago, but my plan, I still have some equity left in my deal and I want a 1031 exchange and I want to buy something larger. Right, Because I'm not going to get full value when I sell now. But the reason why I'm trading is because I see even better opportunities.

Right.

So that's a really long way of answering your question. But this is, at the end of the day, a supply and demand business. And when that demand equation is kind of taken out and you don't see multiple bidders driving a price, that's probably not an environment that you want to sell into.

And James, if you have to share with our audience the three main takeaways from this episode, what would it be? What is the best time to sell?

Yeah, so I think the first thing that we talked about was you want to be a patient seller, right? You never want to be in a situation where you have to make a decision quickly. We talked a little bit today about loans coming due. And look, that could be a reason why you have to sell. But don't wait until 3, 4 months until your loan comes due to go. Try to rush a sales process, get out ahead of it. Okay, Part two of that is don't be a seller that relies on market cycles. So if your whole business plan is okay, I'm only going to be able to sell in an up market market, you know, if cap rates compress, that's really tough.

Right?

You want to be able to add value to the bottom line. You want to have that Runway matching up your debt so you can sell when the time is right. And then the last piece is you want to sell when the market is active. And that there's. Remember, this is a supply and demand business and you want to sell when there's a lot of competition out there that can help drive up the price.

Thank you James. So the three takeaways for you guys, the three golden nuggets of this episode is be a patient seller, don't rely on market cycle and sell when the market is active.

So thanks again everyone for listening and as always if you got benefit from this please share it with a friend who you think would find this of interest and go to jamesnelson.com that's where you can find the show notes for this episode but also a lot of helpful tools to help you gain the insider's edge to real estate investing so you can gain the advantage and outperform the market. And while you're there, sign up for our monthly newsletter which is where we culminate all the information from the podcast, the white papers that appear on Forbes.com there's a helpful video series. You can also find out how to connect with me @ James Nelson NYC. Thanks again.