Jose Carlos Alemán
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Industrial Off-Market Deals Are Gaining Popularity

By José Carlos Alemán | Mon, 06/06/2022 - 11:00

In Mexico, due to the industrial market dynamic, off-market transactions are gaining popularity among family offices and qualified buyers. Even though there is no brokerage house that systematizes property information regarding these kinds of deals, it is suggested that at least a quarter of commercial real estate transactions are off-market. There is a huge opportunity for technological platforms, such as Buzz Street, that help standardize data regarding off-market real estate and give access to institutional buyers to better deals.

Mexico’s industrial market has been performing very well thanks to the increasing demand for new spaces in the manufacturing and logistics sectors. Markets like Tijuana, Juarez, and Monterrey have seen historical low vacancy rates of 0.37 percent, 0.38 percent and 2.12 percent, respectively[1]. Capitalization rate compression for these markets have attracted a tremendous number of investors and developers that want a bigger piece of the pie.

This well-performing activity in the market has pushed investors and developers to be more strategic in their acquisitions and to try to get rid of competitors as best they can. On the other side, sellers start to understand the potential of their properties, either a piece of land or a stabilized asset, and want to maximize the value of the estates.

These reasons have made buyers and sellers explore off-market transactions through which they could gain a greater benefit and get better deals.

Typically, in the US or Canada, commercial properties are listed in Multiple Listing Services (MLS)  guidelines of how they want to collaborate with each other. In Mexico, such a practice does not exist. There are regional companies that work only as listing platforms; however, they do not regulate the activity among commercial real estate brokers.

Off-market deals on the other hand, are properties or investment projects that are not publicly advertised for sale. As an investor, it is very unlikely to find these types of opportunities in a listing site or MLS database. Buyers who want to get an advantage over their competitors should look for these opportunities directly with the owners or agents who focus on these kinds of transactions.

There are a variety of reasons to start exploring off-market real estate, specifically for the industrial sector.

Competitive Advantage

There is fierce competition given the returns and market fundamentals of the asset type, thus there is a limited number of properties on the market for a big pool of institutional buyers with dry powder to allocate. When a property has not yet hit the market, as a qualified buyer, you have a better position to negotiate better terms.

Greater Access to Unique Opportunities

Off-market properties have, in general, better attributes, such as location, size, contract periods, and contract denomination. Therefore, they are more attractive to institutional buyers who sometimes are willing to pay a bonus for the asset.

Anonymity/Privacy

One of the most important reasons to get into an off-market deal is because of buyer and seller anonymity. A substantial number of off-market transactions are stabilized assets and sometimes sellers do not want to reveal the transaction to their tenants because of the risk they might move to another property; therefore, an off-market deal is the best way to proceed.

Where can you get off-market deals?

Presently there are just a couple of reliable sources in the market. One is Buzz Street, which is a tech-enabled marketplace that focuses on off-market deals in Mexico. Another alternative is independent commercial real estate agents that have the flexibility to sell these types of investment opportunities in a more strategic approach.

Cold Calling

Even though it is considered outdated for generating real estate transactions, cold calling can still be effective depending on the scope and volume of transactions that you are looking for. There are sellers who have the will to sell but they do not know where to start or how to proceed, for instance, when needing to have their property valued. As an investor, or commercial broker, it is easier to communicate added value in a brief call rather than mailing or using a social media campaign.

Marketing Management

There are detractors who claim that if you start a marketing campaign for these kinds of properties or deals, they automatically become on-market transactions. I genuinely believe that you can keep it off-market if you strategically manage the communication through social media, or a specialized marketplace that gathers properties with off-market characteristics and has the features to show this real estate to a closed group of investors.

With a very dynamic industrial – logistics and manufacturing – sector, investors are increasingly considering deploying initiatives to capture off-market deals to yield the highest possible returns and the best potential terms for the original owner.

 

[1] “Q1-2022 Market Analysis Absorption Report”. Tijuana, Juarez, Monterrey.

Photo by:   Jose Carlos Alemán