Apartment buyers are increasingly turning to off-market transactions to find opportunities and curb competition. According to Thomas Foley, co-founder and CEO of Archer, two out of three private multifamily transactions are off-market, while about half of sub-institutional transactions and one-third of institutional transactions are off-market.
“The biggest surprise for us was how common off-marketplace trades were, regardless of size,” Foley told GlobeSt.com. “We also saw off-marketplace trades increase again once trades exceeded $100 million, primarily due to the rapid decline in the number of mega-buyers who can suppress these trades.”
While off-market trades occur across the price spectrum, they are more common in smaller trades. “I think there are several reasons why the off-market tends to occur more frequently with smaller trades on the scale,” Foley explains. “The smaller the transaction, the higher the relative costs of selling (smaller transactions often have a higher fee percentage), there are more transactions than brokers available, and private investors often have unique key decision makers , which makes it easier to make layout decisions.”
Small deals also benefit from a limited or no marketing process at all, which can be a lot of work for a small deal. “Marketing processes can often take a lot of a landlord’s time and resources, while getting an unsolicited offer at the right price with an expedited closing process can be very appealing, especially when these properties are no longer the focus. principal of some owners who have larger portfolios,” says Foley.
Limiting competition is one of the main reasons why investors seek off-marketplace transactions, but often institutional buyers are able to compete, one of the reasons why off-marketplace transactions are less popular among investors. big investors. “Mega-funds have an unfair advantage over their competitors when it comes to winning marketed deals. As the big brokerages have consolidated, they are focusing more on what is called the maintaining a warm ‘trade balance’ with the biggest buyers and sellers of real estate,” Foley explains. that the buyer sells his next asset with this broker. Small companies don’t have the same leverage with their limited portfolio layouts (compared to mega-funds) to get the same respect and are often deprioritized.
However, Foley is quick to point out that mega-funds still engage in off-marketplace trading on a regular basis, even at a high level. “Mega-funds are also extremely active in pursuing off-market deals, including a number of deals that would be impossible or at least unfeasible for normal businesses — taking a public REIT private or acquiring entire portfolios,” Foley says. “This ability to approach an owner to buy a portfolio at scale is unique to mega-funds and can often unlock deals that otherwise would never come to market given the size and complexity of the deal. “