Getting your property ready for sale can be a nerve-wracking experience, with all the many things you need to do. So what are the things you need to keep in mind when it’s time to put up that sign? Sam Wilson answers these questions for you with help from his guest, commercial real estate broker and Vice President at Benchmark Commercial, Jaimee Keene. Jaimee talks about the things you need to keep in mind when you are about to sell your asset and she discusses what to expect in the commercial market today. Tune in to learn more about commercial real estate sales.
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Preparing Your Property For Sale With Jaimee Keene
Jaimee Keene is a licensed commercial real estate broker. She specializes in office and industrial in the Denver markets. She also has spent many years as a commercial appraiser and holds the MIAA designation from the Appraisal Institute. Jaimee, welcome to the show.
Thanks for having me, Sam. I appreciate it.
The pleasure is mine. It would be a blast to talk about what’s going on in the office and industrial spaces there in your market in Denver. There are three questions we ask every guest who comes on the show. Can you quickly tell us where did you start, where are you now, and how did you get there?
I started in commercial banking years ago. I quickly understood and realized that banking was not for me, so I quickly jumped out of that and then to commercial real estate appraising. I’ve got my real estate career launched as an appraiser and then decided that brokerage would be a good fit for me. I leveraged my appraisal background and banking background, stepped over into the brokerage side, and focused on office and industrial assets.
How long was the time that you were an appraiser and then decided to become a broker?
I was an appraiser for eighteen years before I’ve got my broker’s license and still maintained both, so I had my broker’s and appraiser licenses at the same time. I learned quickly that I wanted to focus on the broker side, so I let that appraisal business slip away.
How has the appraisal business changed?
There’s a big difference from when I started. Originally, it was a relationship-based business. I was able to work directly with real estate attorneys and lenders on valuation and appraisal projects. With Dodd-Frank, everything shifted. There was a new wall put in place. They didn’t want undue influence from the lenders on the appraisers and tried to remove a lot of that. We had these third-party management companies come into the field.
It became who could do it the fastest and cheapest. It didn’t matter how many years of experience you had. If you weren’t the lowest, the better. Your experience went out the window. It was a shame, and that triggered me to get out. Fees were getting beat up and your experience no longer mattered. The quality of what you are producing doesn’t matter anymore if you can’t be cheap and fast. It changed.
How does a seller or a buyer protect themselves with that changing environment? It seems like if it was the lowest, cheapest price, fastest bidder on the project, then quality seems to go out the window in that environment. How do we, on the buy or sell side, protect ourselves?
Beware of fastest and cheapest because those of us who have been in the industry a long time know our worth, so that we will bet accordingly. We might be able to meet the turn-time requirement but the fee might be a little higher. If you value somebody who knows what they are doing, you’ve got to be willing to pay for that. There’s an adage, you get what you pay for. You should be careful.
Jaimee, let’s transition and talk about office and industrial properties. One of the things that you focus on is preparing for sale. Can we talk a little bit about that? Tell us what things you see that sellers should be thinking about.
If you value somebody who really knows what they’re doing, you need to be willing to pay for that.
There are some things that you need to consider before you use your property. You’ve got to do a little bit of homework. The number one thing is assembling your A-team, understanding that you’ve got a property accountant or maybe you do your property accounting, whatever it might be. Bring your accountant onboard because we are going to need them. The buyer will be asking a lot of questions about property accounting. Make sure that’s all cleaned up.
Get your real estate attorney onboard. They are going to be critical in this as well as we go through agreements. If a buyer presents a contract that’s not in a state-mandated form or any form that you are not familiar with, you will need your real estate attorney onboard to review that and look for any pitfalls on your behalf.
Another often overlooked is to start talking to lenders. Even though you might be the seller, understand what challenges might arise for financing your property because if issues are underlying that potential buyers might have with their lender, you want to understand that going in. Are you prepared to offer any seller financing? If you don’t have any loans on the property, you own it outright but are willing to carry a note for a potential buyer, you don’t understand what current market rates look like and how you might be able to structure something for buyers coming in.
Having a competent real estate broker on your A-team is critical as well because they are going to help you with a competitive market analysis and understanding the position of your property within the market. You want to know the lease rates, the current comps, and what current properties are listed for. If you are going to be competing against those properties for buyers, you want to make sure you are priced appropriately for that. Assembling your A-team is number one.
The next step is getting organized. I talked about your property accountant but getting organized is critical. You’ve got to get your current rent roll in place. You’ve got to get all of your leases, any amendments. Get all of that stuff prepared. You probably had a survey or an environmental Phase 1, Phase 2 possibly on the property when you purchased it. Get all those documents gathered. Let’s get all of this upfront so that when a buyer comes to the table, you can quickly and easily give that information to them. If you have any building plans in your files, let’s dig those out.
Anything that you have on the property that a potential buyer will ask for, get organized. Have that stuff available and ready so that you can move quickly when buyers start asking these questions. It’s a real pain when buyers start asking for this stuff. If you are not organized, you are going to be running around. Do the homework upfront and make your life a little easier so that when you are in the transaction, you’ve already got this all teed up and ready to go.
The third thing is working with your title officer or maybe your broker has a relationship with some title companies. Run a preliminary title search. If you go under contract, you don’t want anything surprising to pop up that might interfere with the sale of your building. Maybe there are some liens on your property you may know about. Maybe there’s some hidden stuff that’s there that you don’t know about. Let’s get that out of the way and be prepared to address it. If you do need to get any liens released, that requires some time so let’s go ahead and start clearing those out. Anything that’s impacting the title, it’s good to know upfront.
Probably the third thing is getting your building or your asset ready for sale, too. I always encourage my sellers like, “Maybe we don’t need a full-blown building inspection like a buyer might do but let’s identify the things that would come up for an inspector. How’s your HVAC system? How’s your roof? Are there issues with siding, gutters or parking lot?” Any of those maintenance items that have been overlooked over the years or maybe you have had a property for 10 or 15 years, and you have let a few things slide, let’s address those.
If you need any bids for anything, maybe you don’t want to get the work done right away. Let’s be prepared for what a buyer is going to do out, start lifting the hood and say, “It’s going to cost me $20,000 to repair this parking lot. This roof is a little old. We might need a budget for a new roof in the coming years.” Let’s understand those costs going into it so that when you are negotiating with a buyer, you are prepared for these things. There may be things that you are not aware of.
You do want to have a property inspector come in and look over everything to bring you up to speed with the condition of your property, particularly if you are an out-of-state owner. You’ve got a building in another market that you maybe don’t see on a day-to-day basis, and maybe your property manager isn’t giving you all the feedback that you need. Let’s go ahead and evaluate those things upfront.
Let’s talk about this specifically inside of the two sectors you focus on, which are office and industrial. Let’s talk high-level office if we can. What’s the office doing in the Denver market? I hear a lot of negative press in the office space but you found a way to focus on it. I figured I would ask why you are on the show.
I focus on it because when I was appraising in all those years before becoming a broker, I used to cherry-pick assignments toward the end of my appraisal career, and I was always gravitating towards the office and industrial-type assets. I have done very large portfolios, up to $650 million portfolios, down to the little mom-and-pop office buildings, and everything in between. It depends on the segment of the office.
Having a competent real estate broker on your team is critical because they’re going to help you with the competitive market analysis and understanding the position of your property within the market.
The investment office market is a little challenged, with companies debating on the return to work, hybrid work models. A lot of tenants are nervous to commit to longer-term leases. There are headwinds in the office market for investment properties. However, owner-user properties are different animals. Those groups that want to buy and occupy their office buildings are a little bit more gung-ho to make those commitments for purchases.
There are not a lot of products available for sale in the market. That’s keeping pricing pretty propped up compared to investment properties, which have those headwinds because of tenants not willing to make longer-term commitments like they had in the past. You’ve got different segments of the office market. It depends on the type of asset that you have. It’s more office-user-oriented versus investment-oriented.
Can you define the difference there for us?
Say, I’m Joe Smith Mortgage Company, and I want to own my building because I have 25 mortgage officers in my company. Those owner-users are less motivated by what cap rates and rent rates are. They want to own and occupy their own space. They want to control their operating expenses. They don’t want to have lease rates going up every year and uncontrolled expenses. By owning their facility, they can better control that operating overhead. Investment property is going to be investor-owned so that it will be full of tenants or maybe one tenant. It can be a range.
We have different types of investors. You can have value-add investors who are looking for partially-leased buildings or maybe older buildings that require some capital. Those value-add investors like to buy at pretty low prices and leave a little meat on the bone where they can re-tenant the building, put some capital into upgrades, maybe elevator lobbies, and finish out some turnkey spaces. In the future, probably 3, 5 years, look at selling that building for a nice premium on top of what they have put into it.
You then have your stabilized office investors who want to stabilize cashflow. They don’t want to put a lot of money into a building. They don’t want to rehab or fix and flip as the value-add investors will. Those guys tend to be a little bit longer-term horizon owners and are looking for stability and rent roll stability, stable tenants, something that they can maintain over the years.
You are saying that the investors and getting the investment side of the office are facing some headwinds but with the owner-occupants, it’s keeping prices still propped up.
It’s supply and demand. It comes down to it. Limited supply on the market and high demand for groups that want to own their real estate is keeping it up there.
Is there a certain threshold and size that seems to hold true or is it across all the office space as a whole?
What I’m seeing in my market, in particular, is owner-users probably under the 50,000 square foot mark. Anything larger than us, either corporate real estate, a different class of real estate, more institutional-like larger companies and corporations that might own that. An interesting segue on that is we are starting to see some sale-leaseback activity. Corporations and entities that have owned their real estate for a very long time are realizing they can unlock that capital in other real estates.
They will stay there. They are willing to commit to being tenants in their building. They are willing to sell that building to an investor who will maintain them as a tenant but they no longer need their equity tied up in that building. They can redeploy it in their business somehow and make a better return on it than they can have it tied up in the real estate. With cap rates where they are, investors are hungry for stable assets. It’s a good time. Especially if you’ve got a tenant that’s committed to that building, you don’t face those headwinds of trying to lease up a property. We’ve got a tenant already in place there, so I’m starting to see some sale-leaseback activity.
I’m sure that would drive the cap rate down on that sale-leaseback as well for the seller. That’s tremendous. You have given us a lot of things to think about in the office space that we don’t hear quite such crystal-clear insight on that market. You are specific there to Denver but in general, that’s probably something that across the nation holds true. That’s fascinating. Give us a quick breakdown of the industrial sector. That’s crazy. There are lots of segments within industrial. Tell us what you focus on, and then give us a snapshot of that market.
We are not seeing the headwinds that we are seeing in the office market. Industrial has been a segment of the market with high demand, particularly with eCommerce, retail-type users needing warehousing and storage space for their supply chain issues. Industrial remains robust. Particularly, here in the Denver market, for several years, marijuana has been legalized here. The demand searched for marijuana grow operations took a good bite out of our supply.
We have had quite a bit come back online, so we’ve got newer products available but it’s driven up rental rates for industrial space. For the smaller users, the plumbing companies, the smaller entities that have typically been users of industrial space, they have seen their rental rates more than double since marijuana has come into our market here and taken off a good chunk of our supply.
It has been an interesting dynamic here in our Denver market. We are seeing a limited supply. We are seeing a lot of new development come online, and that probably will become our headwind. Anytime you have an imbalance in supply and demand, you will start to see some struggles with growing rent rates. Although we have seen rent rates grow, if you are underwriting a new industrial deal here in the Denver market, you need to be cautious about the growth rates that you are projecting going forward. Just because we have seen it in the past doesn’t mean that will hold true with all the new supply coming online. Be cautious.
That’s a common question in the multifamily sector as well. We have seen rent growth but can it continue? At Pittsburgh, there are different reasons. That’s interesting. What are you seeing people underwrite that you feel is a safe rent growth assumption in industrial?
It depends on the location within the market. We have segments of our market in Denver that are more robust than others. There’s a corridor between the Northern Metro Denver area. In the North of Denver, we are seeing a huge surge of new products coming online up in that market. Between Denver and Fort Collins, it’s about an hour drive time difference. Larger employment centers and a lot of new products are coming online. I would be cautious of assuming rent growth of over 2% or 3% in that segment of the market.
It’s the same down South. Moving down towards Colorado Springs, it’s the same challenge happening there. New product coming online. A lot of it, I would be cautious. There are other pockets of the market, land-constrained markets like Boulder, for example. Those are markets where it’s difficult to get new development done. We can continue to see stronger rent growth in the Boulder County market of the Northwest corridor. Less inventory is coming online but be cautious overall on your underwriting.
Jaimee, I enjoyed this. Thank you for taking the time to come on, giving us a breakdown of industrial and office space, and how to prepare our listings for sale. That’s something that you gave us a ton of actionable information there, and I certainly do appreciate it. Let’s jump here into the final four questions. What is one tool or resource you find you can’t live without?
I hate to say it but CoStar. If you are working with a competent broker, they will probably have CoStar at their fingertips. If you don’t have it yourself as an investor, choose a broker who has access to it because it’s market data. You are going to need that to understand comparable sales, rents, and your property within the market.
If you avoid one mistake in real estate, what would it be, and how would you avoid it?
Being overly aggressive in your underwriting to win the deal. Sometimes, some of these property types are competitive. I will see folks get a little bit aggressive on their assumptions like we talked about with rent growth. Especially if you are syndicating a deal, if you have other investors coming in, you are forecasting these rent growth projections that maybe aren’t feasible. I have seen those bite investors in the past.
When it comes to investing in the world, what’s one thing you are doing to make the world a better place?
Giving back and giving my time to others, so helping mentor other young women in commercial real estate and helping them get their careers off the ground.
Jaimee, for those who want to get in touch with you or learn more about you, what is the best way to do that?
Probably email, Jaimee@CREBenchmark.com. You can also find me on LinkedIn, Facebook, social media channels. It’s pretty simple to google me.
Jaimee, thank you for your time. I do appreciate it.
Thanks, Sam.
Important Links:
- Jaimee Keene
- CoStar
- Jaimee@CREBenchmark.com
- LinkedIn – Jaimee Keene
- Facebook – Benchmark Commercial
About Jaimee Keene
Jaimee Keene is a commercial broker focused on the sale of office, medical office, industrial and mixed-use properties throughout Colorado. Jaimee’s 20 years of experience in the industry includes brokerage, banking, commercial real estate valuation and appraisals, and new business development.
Jaimee’s background as a commercial real estate appraiser and broker brings insightful dialogue to share with investors and owners. She is uniquely qualified to aid buyers and sellers in evaluating market transactions in current conditions, in the development of marketing plans for assets, and act as a skilled negotiator on behalf of her clients.
