Miszkowicz: “Off-market transactions are difficult to source and can come with unrealistic pricing expectations from sellers.”
TUSTIN, CA—For every off-market transaction Harbor Associates has closed, there are 20 to 30 on which it has swung and missed, principal Paul Miszkowicz tells GlobeSt.com. As we recently reported, the firm has acquired Tustin Commons, a 210,875-square-foot, three building, office and flex portfolio, in a joint venture with Stockbridge Capital Group. Harbor sourced the asset in an off-market transaction by capitalizing on its local knowledge that the previous tenant was vacating the entire campus in Q2 and was able to secure a 20,000-square-foot, multi-billion-dollar tenant in tow during escrow.
We spoke exclusively with Miszkowicz and fellow principals Joon Choi and Justin Loiacono about the difficulty of sourcing off-market transactions and the ins and outs of those deals.
GlobeSt.com: How easy or difficult it is to source off-market transactions in today's market?
Miszkowicz: The principals at Harbor have acquired a number of transactions through off-market avenues in our combined 30 years of experience in Southern California, and we have a pipeline of off-market deals in addition to our recent Create Tustin acquisition. For every off-market transaction we have closed, there are 20 to 30 where we have swung on and missed, so it is certainly labor intensive and challenging, but in many instances can provide compelling buying opportunities. Off-market transactions are difficult to source and can come with unrealistic pricing expectations from sellers. On the other hand, it has gotten more difficult for brokers to transact listed deals since the capital markets pulled back at the beginning of this year.
Loiacono: “Walking sellers through our process and having capital in place to close the deal gives sellers the transparency and comfort level they are looking for to get comfortable in our ability to perform.”
GlobeSt.com: How have you been able to convince sellers to transact off-market?
Loiacono: When we identify an off-market opportunity we like, we expend considerable resources upfront to vet the property and our business plan, and sellers appreciate this level of homework. Walking sellers through our process and having capital in place to close the deal gives sellers the transparency and comfort level they are looking for to get comfortable in our ability to perform. Ultimately, our track record on closing similar off-markets deals efficiently is the most convincing argument.
GlobeSt.com: What are the advantages to the seller in off-market transactions?
Miszkowicz: Off-market transactions can often accelerate the closing timeframe. A typical managed-bid process can take four to six months, between assembling broker opinions of value, selecting a broker, launching the marketing materials, conducting property tours, bidding multiple rounds, interviewing buyers and allowing for standard due-diligence and closing timeframes. We have been able to close off-market deals quicker than the average managed-bid process. In certain circumstances, owners may also benefit from a discrete process where they are not broadcasting their interest in selling an asset to the broader market.
Choi: “Local knowledge on the tenants in the market was critical to executing this deal, since we knew that the project was going to be completely vacated in April 2016 but were able to backfill and stabilize one of the three buildings with a tenant-in-tow during escrow.”
GlobeSt.com: What else should our readers know about this recent deal?
Choi: This deal marks Harbor's fifth value-add acquisition in the last 14 months in Southern California, and through our extensive relationships with brokers and sellers, we have been able to access unique investment opportunities like Create Tustin. Local knowledge on the tenants in the market was critical to executing this deal, since we knew that the project was going to be completely vacated in April 2016 but were able to backfill and stabilize one of the three buildings with a tenant-in-tow during escrow. We intend on building on our momentum to source similar opportunities throughout Southern California.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
