Getting To CLOSED, Even In A Tough Market - Lee and Associates

Getting to CLOSED , Even In A Tough Market

January 30, 2024

The Backdrop

On behalf of ownership, Lee & Associates agents Milton Thomas, Jon-Michael Brock, and Thomas Fawcett were tasked with selling two Build-To-Rent (BTR) assets located near Spartanburg, SC. These properties comprised 94 newly built residential units located in a high-growth, easily accessible corner of the Upstate. After having successfully completed a similar transaction in 2022 for the same client, we were excited about the prospect of doing the same in 2023.

However, times were a little different. The well-publicized effects of macro-economic conditions on commercial real estate was apparent, and left us navigating through the turbulent seas of rising interest rates and tightening debt financing.

Despite this, BTR and single-family home rentals were still flourishing as investment vehicles. Especially in the Upstate area, where continued population surge and job growth painted a picture of opportunity, and these 94 units were a valuable piece to Spartanburg’s residential puzzle.

So we did what we do best: employed our expertise not only in selling properties but in understanding the macroeconomic environment’s intricate tapestry – a crucial factor in preparing our client for the realities of a market grappling with financial uncertainties. This scenario set the stage for a transaction that was less about the immediate outcome and more about skillfully steering through the complexities of an ever-evolving real estate market.

The Solution

We faced two major obstacles during this assignment: selling two smaller-scale properties as one-off transactions, and rising interest rates/difficulty securing debt for potential buyers. They were formidable hurdles, but here is how we overcame them:

Grouped The Assets Into a "Portfolio" Acquisition Opportunity

After initially marketing the properties as separate opportunities, we noticed a slowdown in activity based on the relatively small-scale of the assets. We responded by offering the properties as a portfolio sale, while bringing the price to a more reasonable level based on market conditions.

Sold the "Build-To-Rent" Product Type

We knew we had a hot product type on our hands. BTR and single-family home rentals have exploded over the past few years thanks to the rising population of the Southeast and accompanying job creation. In addition, the ability to diversify portfolios with credit stemming from residential income provides attractive returns to numerous investors as other real estate sectors remain sporadic. We communicated these inherent advantages to every prospect we talked to.

Leveraged Our Relevant Experience

Our team sold a BTR portfolio for this same client in 2022, so the familiarity with the product type, location, and client was apparent.

We used this experience to truly prepare the client for any scenario, which included setting the right expectations from a pricing perspective.

Creative Deal Structuring Near The Finish Line

After we'd brought a buyer to the table, there came a point where seller would not sell below a certain level and the buyer would not buy above a certain level. We adapted by structuring a deal with $200,000 in hard money down in lieu of due diligence, which was agreeable to both parties and paved the way to closing at $18,000,000.

The Result

Our hard work paid off (for all parties involved). We ended up coming to terms on both sides, and ultimately closing on a $18,000,000 transaction for the 94-Unit portfolio.

Ownership was thrilled with the manner in which we not only overcame obstacles, but did so in a way that ensured their trust in us remained intact throughout the entire process.