Off-Market Deals Are Part of the Institutional Playbook

Off-market transactions are hardly a new concept. Thomas Foley, Archer co-founder and CEO, tells GlobeSt.com, “Off-market transactions have always been a popular source of deal flow. Many firms talk about off-market deals like some elusive unicorn, but they are quite common.” But in recent years, they have soared in popularity. That is because both buyers and sellers are seeing the benefits of these deals, and institutional investors in particular are incorporating off-market deals into their playbook.

“Over the past decade, off-market went from being thought of as deals where smart buyers were taking advantage of uninformed sellers to now being a part of a typical institutional investment playbook with smart money on both sides of the deal.  For buyers, this feels like an advantage where competition is more limited and they are more likely to win deals,” Foley says. “For sellers, the certainty associated with a quick process, good price and guaranteed close are quite appealing,”

As a result of new interest in these transactions, off-market deals are starting to become a standard transaction, and many sellers are finding they are capturing no difference in pricing. “This isn’t new, but it is accelerating to a scale and velocity we haven’t before seen,” adds Foley.

While there has been an uptick in off-market deals across property types, they are most common in apartment deals. “Multifamily is experiencing this in a more pronounced way, largely due to the rebalancing of allocations towards sectors that investors feel safe in, like apartments, industrial, SFR, and other niches, which is creating a ton of dry powder sitting on the sidelines that feels pressure to be invested,” says Foley.

Investors are also leveraging an off-market strategy to scoop up opportunities in new markets, particularly those that have seen population growth during the pandemic. “In addition, a number of the previously most popular, largest, gateway markets have seen major out-migration to new, hot more affordable secondary and tertiary markets around the country,” says Foley. “The flock of people is making investors very excited about getting in to capitalize on the shifts.”

This is an effective of tremendous competition for deals and an ardent need to place capital.  “There are not close to enough deals coming to market in the most desirable markets, and these investors all have lots of money raised that they cannot get paid on unless they buy deals—so they are proactively approaching owners in these hot markets to buy their properties off-market,” says Foley.