Buyer here, looking for broker advice on bid/ask spread
Hi all

  We focus on commercial multifamily and mixed-use of \~10M to 15M acquisition.  Lately our team is running pretty hard into OMs where the broker/seller set the price on a value-add deal based off of 1st or 2nd year pro forma numbers. Brokers know we can close at the offer price 100% of the time, but sellers won't consider our offers when some buyers are underwriting off of yr1 pro formas then coming back and re-trading during due diligence.  It has always been our policy to avoid re trading at all costs and try to be fair in our underwriting and offering price.

  Our last acquisition was for 4.9M for a very heavy reno/value-add property that had been on the market originally for around 8.5M.  Our first offer of 4.8M got rejected, of course, but eight months and three brokerages later the seller came to his senses on what the property was really worth.  8.5M or so is what it will be worth after about 2 years and 1.5M in renovations, lease-up, etc etc etc.  

  Do you have any advice on how to compete with these other buyers who we think are getting into these deals for much higher than they are reasonably worth?
[{"id": "ha5wwzn", "text": "You can't.   \n\n\nIf you're not willing to overpay you can't compete with someone who is. \n\nI think what you said here is good and would work where the seller loses patience, takes a long time to sell, or they have gotten into contracts which went tits up.   \n\n\n\"Look at our track record. We will close but at this price.\"   \n\n\nI keep seeing multi-unit deals where the seller is trying to sell based on cap rates/gross revenue that do not support it. And as for value add, if it was that easy, why didn't the seller do it in the 10 years they owned the building?", "replies": [{"id": "ha6lyr3", "text": "Exactly.  As a buyer I'm seeing deals close at prices that just make me shake my head, knowing that with a slight correction they'll be treading water.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ha5x0aa", "text": "Establish long-term relationships with good brokers that appropriately underwrite deals.   Once a seller has a BOV from an unexperienced broker, they are relying on their expertise and fixate on a price.  Inexperienced/bad brokers will give unreasonable expectations to their clients that you have to overcome (which is difficult).  Either the broker has to admit they were wrong on the pricing which makes the client lack trust in their adviser, or the broker advises their client to wait for the big offer and they dont end up closing deals. (Although maybe they can find a sucker.)\n\nThe best deals I get come from a select few brokers that know we close deals and dont retrade, and they wont even bring me a bad deal because they know I wont submit an LOI if the economics dont work.", "replies": [{"id": "ha6nzm6", "text": "Every broker I've spoken with lately appreciate has dealt with this issue lately.  Thanks for the advice", "replies": [{"id": "ha96320", "text": "A lot of new money and new Brokers making it difficult for the rest of us.  Usually a sign of an overinflated and saturated Market . At this point I don't even know though, i've been hearing prepare for a downturn since 2017.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ha63uwk", "text": "You\u2019re competing with buyers who are A) less sophisticated or B) have a lower cost of capital than you. Tough to overcome this issue although having a reputation of not re-trading and closing on deals you offer on goes a long way. One thing to consider is that you\u2019re buying in a price category where less sophisticated buyers can complete. If you get over the $10mm threshold you may see that issue less since it prices out some of those folks. It\u2019s a hot market with lots of capital chasing deals right now, which is driving cap rate compression\u2026", "replies": [{"id": "ha6nm66", "text": "So how does one reasonably compete?  This brings up the whole separate issue of reducing one's cost of capital, which most likely gets lower as acquisition price goes up.  Are you seeing splits or expected returns compress as well as cap rates?", "replies": [{"id": "ha6opn9", "text": "Cap rates where I am at are getting highly compressed. Part of it is the historical rent growth and very cheap cost of capital. Right now there is just so much money and so many groups competing that the numbers are no longer driving the deal.", "replies": [], "depth": 3}, {"id": "ha6p138", "text": "I would say avoid competing if possible. Do you have a mandate to acquire a certain type of asset in a certain price range and market, or can you pivot to a less competitive space? Along the same vein, could you deploy capital into a more stabilized asset class with a lower expected return in the near term while if your belief is that a correction is nearing? Depends on what your shop needs to do in terms of deal flow and capital allocation. \nYou may be an expert when it comes to executing on value add deals, but you don\u2019t need to chase the stupid money pouring into those deals right now due to the market conditions.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ha63uy6", "text": "&gt; Do you have any advice on how to compete with these other buyers who we think are getting into these deals for much higher than they are reasonably worth?\n\nYou don't.  You can outbid unsophisticated and stupid money or sit back and watch and wait.  Thats basically it.", "replies": [], "depth": 1}]