Written by | Ryan Rilee
Asking prices for investment properties in Richmond are at a historic high. Our city has become popular with investors all around the country, creating a voracious demand for opportunity that simply isn’t matched by the scarce amount of on-market product. One South Commercial fields dozens of calls each week from primary market investors and developers kicking tires, but there are remarkably few Richmond property owners willing to sell in today’s market. Richmonders take heed! We’re in a super strong seller’s market that has become long in the tooth, and we think now is a great time to take profits on your real estate investments.
Properties in the City of Richmond are going under contract and closing quickly, often on an “as-is” basis, particularly when there is a clear way for buyers to tap into unrealized upside. For example, your property could be on the bus rapid transit line or near a high-speed rail station. Are you in an area that’s going to be rezoned for higher density or near a massive commercial development that’s still in the planning phase? Is your property eligible for historic tax credits or municipal grants that incentivize revitalization? Here at One South Commercial, we can answer those questions for you within minutes and advise you on how best to capitalize on any unrealized opportunity.
We hear all kinds of reasons not to sell, from capital gains and recapture of depreciation to administrative or emotional burden to the fear of portraying financial necessity – not to mention the prevailing notion that VCU will eventually fork over more money for any property in its orbit than an individual ever could. Reasons vary and are certainly valid from situation to situation, but those concerns can be dispelled and you can still capitalize on that red-hot market.
Let’s say you own a property from which you operate a business and you are thinking about retirement. We can market your property based on its future use potential, get you top dollar, and arrange a leaseback while you unwind your business. If you’re especially worried about a tax hit, we stay apprised and connected to the most current vehicles for tax deferment. We have a referral relationship with a 1031 exchange specialist who, at a moment’s notice, can help you place your capital gains tax-free into a corporate guaranteed leased property. If you don’t want to manage a physical asset, we can help you invest your pre-tax capital gains directly in institutional grade real estate assets across the U.S. Or if you’d like to reinvest right here in Richmond, we can help you coordinate with an asset manager that pools pre-tax capital gains and puts them to work in the Richmond economy. In addition, a lot of buyers are willing to enter a joint venture in which a seller’s interest isn’t paid out in cash at closing, but rather transferred to a new entity. There are countless ways to structure a joint venture, but the upshot is that you may be able to retain an income stream in perpetuity, capture a portion of the property’s future upside, or get bought out at some predetermined time.
While we’re all rooting for stronger Richmond and U.S. economies, the reality is that a stronger economy will likely lead us back to interest rates in the 6-8% range and, consequently, drive sale prices down. Property owners who keep an eye on economic indicators and capital markets will notice that slippery slope as soon as it starts, but by then it will probably be too late to price assets at today’s capitalization rates and expect them to move. We suspect there will be a “herd” reaction as prices slip and people rush to sell. As this happens, asking prices will decrease and competition among buyers for lower-priced assets will intensify. Construction costs for new development and renovations will rise, putting additional downward pressure on sellers.
Long story short: if you are thinking of selling, the time is now.
Over the years, Richmond may have rightfully earned its reputation as a “buy and die” town in which owners hold on tight to the bird in hand. At One South Commercial we’re not asking you to throw away your income stream or your family heirloom in hopes of capturing ‘two in the bush.’ We’d like to collaborate with you to help you make more money than you would have otherwise.
We’re not just a brokerage, we are planners, developers, and managers who are always on the lookout for creative ways to create opportunities in the Richmond commercial real estate market.