Considering Your Options for Representation in the Sale of Veterinary Real Estate
In almost every sale of veterinary real estate, it makes sense for the seller to obtain legal representation with respect to negotiating the legally binding purchase and sale agreement with the prospective buyer. Ideally, the attorney would have significant experience in representing sellers in real estate transactions within the state — and county — where the property is located. Recently, many regional and national commercial real estate brokerage companies have initiated efforts to reach out to veterinary property owners in an effort to persuade the property owner to list the property with the broker on an exclusive basis. Is this the right move for you? What questions should you be asking? What red flags should you look out for? Here is a quick tutorial on what to consider when deciding whether to engage representation for your veterinary real estate sale.
Is Listing My Property the Right Move?
While a number of direct institutional veterinary real estate buyers exist, sometimes it might make sense for you to list your veterinary real estate with a commercial real estate broker and pay the 4% to 6% commission associated with engaging a broker.
Daniel Eisenstadt, CEO of Terravet Real Estate, an institutional owner and operator of veterinary real estate, believes that brokers with industry knowledge can provide certain veterinary sellers with a valuable service. “Certain properties that may be too small or quirky for institutional buyers may be ideal to list with good intermediaries with relevant veterinary industry experience,“ he said.
Additionally, while the retail marketplace generally does not value veterinary tenants as highly as it should, the retail market usually places a premium on long-term, absolute triple-net leases with corporate guarantees. What does this mean? If you have a lease in place that is for 15 years or more, and it has zero landlord responsibilities (no roof replacement or structural maintenance, for example), then you might be able to fetch a premium in the retail market.
Further, the retail market generally pays a premium for properties in the most exclusive markets, such as metropolitan Los Angeles, San Francisco and New York City. In these cases, you might be able to overcome the brokerage commission you are paying and secure a higher net purchase price after commissions than in a direct sale to an institutional buyer.
What Questions Should I Ask, and What Should I Look for Before I List My Property?
While a couple of national brokerage groups have taken the time to understand and learn the veterinary real estate landscape, a large number of brokers with little veterinary experience try to piggyback on the growing popularity of the veterinary sector. It should always be a red flag if a real estate broker starts providing property values for your veterinary real estate before fully reviewing the entirety of your lease. There are too many considerations in a veterinary lease (see our August/September 2019 article in Today’s Veterinary Business) to ascribe a value based on the location and lease term alone.
You should check out any commercial broker looking to list your property and make sure you understand what exclusive listing engagements entail. Always ask brokers to provide you with a list of veterinary properties — not just medical-use properties — that they have sold and confirm that they successfully sold veterinary real estate at the capitalization rates and prices per foot for which they are telling you they can sell your property. Ask for reference numbers, and make reference calls to other veterinarians who have sold their real estate through the specific broker you are speaking with. Make sure the list provided represents their personal closings and not the track record of their firm, which might include sales by other agents who will not be involved in the sale of your property.
If you have spoken directly to actual buyers before listing the property, inquire about excluding any groups from the listing engagement that you have already directly contacted or spoken to yourself.
Lastly, make sure you fully understand the legally binding listing agreement you are signing. Often, brokerage engagements include long “tail periods,” which allow brokers to receive a commission from you for a long period after your engagement ends if you sell the property to any group they introduce you to. Make sure that you reduce this tail engagement to something reasonable, such as a six-month period for any group that submitted an actual offer.
In the end, listing your property with a broker might make sense, but it’s critical to first do your homework and make sure you really need an intermediary and that you have found the best intermediary for you and your practice real estate.