#1) Is there a “right” time to sell?
While there are arguably optimal times to sell your GSA or Federally Leased Building, much of decision around timing truly comes down to your personal / business needs. That said, let’s explore what an optimal time to sell your GSA or Federally Leased Building could look like.
- Recent lease renewal – If you were fortunate to recently receive a newly executed long term lease with the GSA, then now could be your best opportunity to maximize value. Buyers in this space place a premium on “Firm Term”, and the Firm Term will be maximized at lease renewal.
- Greater market uncertainty – During the early days of the COVID pandemic, there was a massive influx of capital into the GSA leased space. This was due to two factors. One, there was a great deal of uncertainty in the market as to which tenants would continue to pay rent. Even large, strong credit tenants were missing rental payments. Second, investors recognized that the Government, specifically GSA, would continue to pay rent, on time, throughout the pandemic and beyond. The certainty of receiving rent from GSA tenants drove a premium for these assets.
The stability of GSA rental payments driving a premium compared to similar assets is not Pandemic specific. You will notice similar trends whenever there is disruption in the market.
#2) Firm Term vs Soft Term
In the previous section, I mentioned the term “Firm Term”. The Firm Term in a GSA lease is the portion of the overall term where GSA cannot terminate the lease for convenience. They can still terminate in the event of default by the lessor, but they cannot terminate without cause.
That said, the agency can move out of the building, but the lease will remain in effect unless the GSA buys out of the lease or the Firm Term portion expires.
The Soft Term portion of the lease is still counted in the overall term of the lease, but the primary difference is that this portion of the term will be accompanied by termination rights. One mistake that I commonly hear is referring to the Soft Term as an “option period”. If the Soft Term has 90 day termination rights, for example, then a better way to think of this portion of the term is a 90 day rolling lease.
It is important to understand the difference between Firm and Soft Term when selling a federally leased building in order to better understand why a potential buyer will place a much higher premium on remaining Firm Term as opposed to remaining Soft Term.
#3) Can I use a local broker?
This is another common mistake that I frequently see in this space. Investors that own maybe one or just a few GSA or Federally Leased assets may believe it is OK to use a local broker that perhaps they already have a relationship with. However, when it comes to selling a GSA/federally leased building, expertise and specialization is key.
It is highly advisable that owners of GSA and Federally Leased assets use a broker that specializes in this product type. A broker that specializes in this asset type will be well acquainted with appropriate comps, ensure that the asset is priced properly, and will already have a database of qualified buyers of GSA Leased properties. I will explain the importance of qualified buyers in the next section.
#4) Why is it important to focus on “qualified” buyers opposed to advertising as widely as possible?
As a seller it may be tempting to think that the best strategy for maximizing net proceeds when selling your federally leased building would be to hire a broker and put your building in front of many potential buyers as possible. And logically this seems to make sense. However, as I stated earlier, the key to success in this space is focusing on expertise and experience. This is true of potential buyers as well.
The problem with the shotgun approach to marketing these buildings is that you will likely get the attention of many potential buyers who are intrigued by idea of having a Federal tenant, but truly have no clue about what comes along with it. Once these “non-qualified” buyers enter due diligence and begin reviewing the lease, most will quickly realize that they didn’t fully appreciate the complexity of the GSA Lease and terminate the contract to purchase.
By focusing on “qualified” buyers, you are provided a much higher certainty to close. This route provides your best opportunity of receiving a fair price without the headache of stopping and starting the process with multiple potential buyers who just can’t get comfortable with the lease. Equally as important, qualified buyers also have financial backers that are already comfortable with the nuances of Government leases. This helps to ensure that financing won’t become yet another hurdle that must be overcome.
#5) How can Arco help you?
Arco Real Estate Solutions focuses 100% on GSA / Federal Government Leasing. Since we don’t compete with brokers that provide buy / sell representation, Arco has established trusting relationships with many of the top brokers who can assist you. In addition, we have experience with many of these brokers through seeing them in action.
It is for these reasons; Arco is well-positioned to discuss your desired goals and to assist you with identifying a qualified broker that would make a great fit for you and selling your Federally leased asset.