ALBUQUERQUE, N.M., Nov. 1, 2018 – At the “Intersections” commercial real estate event held on October 25, at Sandia Golf Club in Albuquerque, the NAI Maestas & Ward Industrial Team (Keith Meyer, Jim Wible & Riley McKee) were presented with an award for “The Deal of the Year” (under $1M). Following is the story of the transaction and the benefits of working with experienced commercial real estate brokers.
The problem-solving ability of a commercial real estate broker is often underappreciated. Those outside the industry have a tendency to wrongly assume the profession involves little more than posting a sign and waiting for a buyer. The reality is different. There are many hurdles standing between a property’s entry to the market and a successful closing that require effort, expertise, and patient resolve to overcome. The sale of 4950 Jefferson provides an excellent example.
As a 19-year old executor of her father’s estate, the seller faced many challenges in disposing of the primary asset—a 6,000 square foot warehouse on 1.5 acres that her father, who died unexpectedly, had used to operate his automotive repair business. She had no experience in commercial real estate transactions, a $450,000 mortgage balance, and a tenant that could no longer pay rent. Without other assets to draw from, the property had to be sold quickly to prevent default.
M&W’s industrial team (Keith Meyer, Jim Wible, & Riley McKee) faced a unique dilemma. The property had to be priced in a manner that would generate a quick sale, but the mortgage balance and all closing costs had to be covered by the sale proceeds. After completing a thorough market analysis, a value was determined that would require strong efforts, but likely result in securing a buyer within 90 days.
This strategic positioning combined with targeted marketing efforts resulted in six offers being received within two weeks. Their similarities prompted a “best and final offer” request to all interested parties each of whom followed up by substantially raising the purchase price. But the eventual buyer’s offer was clearly superior. An unrivaled set of terms was assembled which—most importantly—included a quick cash closing that would extinguish the mortgage before unpaid monthly payments accumulated.
The seller was thrilled but her excitement was quickly doused by a surprise—a $175,000 surprise. The estate’s attorney discovered that the deceased party had an extensive unpaid tax balance which the IRS was aggressively seeking.
At the agreed upon sale price there was enough to cover the mortgage balance and closing costs but nowhere near enough to satisfy the IRS lien. After scrambling for a solution, the brokers were connected to a tax attorney that specializes in IRS settlements. She was optimistic a resolution could be secured but provided no guarantees and indicated that the IRS might assume all sale proceeds. To move forward with the settlement process, a 45-day extension to the purchase agreement was agreed upon.
During this period uncertainty abounded. The seller, set to satisfy her father’s debts and net a sizeable, sum, now faced the prospect of a blocked sale. The buyer, after a lengthy search in a tight market, faced losing the property that best met his needs. And the brokers, after employing their collective expertise, ingenuity, and effort to get to this stage faced the prospect of an indifferent third party shuttering it all.
A little over a month later, positive news started rolling in. The IRS agreed to allow the sale to go through on condition that all net sale proceeds be applied to the lien. The seller would be relieved from the mortgage obligation, any future IRS Liens, and ultimately received a share of sale proceeds for her and her minor siblings. Only one item was excluded from the settlement—NM Gross Receipts Tax on services rendered by the brokers. A small price to pay to ensure completion of the transaction, the commission was reduced to cover this cost. A successful closing followed soon afterward.
Multiple hurdles stood in the way of completing the sale—so many that, without the guidance and expertise of competent brokers, it’s unlikely the sale would have finalized. This transaction provides an excellent case study on the value of a real estate broker whose ability to influence sale proceedings extend far beyond putting a sign up at a property. Beyond merely brokers, we are advisors and consultants helping our clients navigate any challenge they may face related to real estate.
Jim Wible, NAI Maestas & Ward Director, on the transaction–
Q: Does this deal reflect any current trends or challenges in Industrial real estate?
A: “Yes the strength of the market and the speed and demand demonstrated that we have a current shortage of this type of real estate today — Industrial properties of 5,000 to 10,000 SF with yard space. This is the type that a small business owner can purchase with an SBA loan and occupy comfortably. We are needing to now find a way to construct this type of product.”