Commercial Real Estate Blog

My name is Martin Syrovatka, and I’m the founder of BuildingsByOwner.com, a new marketplace where you can buy, sell and lease commercial real estate privately. I got the idea for this website back in 2009, here’s my story…

I got involved in the commercial real estate business with my step-father, Ed, in 2008. My second year in the business, Ed bought two apartment buildings totaling over $10million. Around the same time he also listed two of his smaller apartment buildings for sale. During all of this, I quickly found out three things about commercial real estate agents:

1. They earn a fortune on their listings.

2. They put in a minimal amount of time and work for their listings.

3. They put their best interest before the seller's or buyer's.

Commercial Real Estate Agents Earn a Fortune on Their Listings

In less than one year, we used the same agent and brokerage to buy two apartment buildings for over $10million. We also listed two more for sale totaling more than $5million. The agent wasn’t successful at selling our two buildings, but he did earn a huge commission on the two buildings he sold us. Of course, he doubled ended both transactions (which I will explain more about later), earning the whole 3% commission to himself—over $300,000. In most other cities the commission would have been even higher—$600,000 or even more. (The average commission is 6%!)

Selling Commercial Real Estate Requires Little Work

So how much work did it take the commercial real estate agent to sell us the two buildings and earn over $300,000? Not much! When we got notice of the buildings being available, we met the listing agent and building manager on-site. We walked around the outside of the building and down the hallways, checked the electrical room, checked the boiler room, checked the roof and inspected one suite (we weren’t allowed to inspect all units until we had an accepted offer. This is common practice). The entire process took us less than one hour. Almost all our questions were answered by the building manager, because, understandably, he knew the building better than the agent. Soon after our visit, we wrote an offer that was accepted. We went to view the building a second time, inspecting all 42 units, which took us about another two hours. Again, the building manager was very helpful answering our questions and supplying all the information, but the agent, more or less just followed us around. Everything looked good. Over the next 30 days we did our due diligence, and shortly after we closed the deal.

What I learned

What I learned from all of this was that most of the time commercial real estate transactions pay way more than residential ones, even though they usually require less work. This is because the commercial real estate market is much smaller than the residential real estate market, so there is much less activity involved with the listings. For example, these two buildings only had one other interested party. A typical residential property that is listed for sale may require 20+ showings and multiple open houses before being sold, whereas, a commercial property will usually require no more than a few. It’s also not uncommon for a commercial property to get an accepted offer site-unseen.

Commercial Real Estate Agents Put Their Interests Before the Seller or Buyer’s Interests

The two apartment buildings we bought were never advertised online or in print, and neither were the two buildings that we listed for sale. They weren't even listed on the brokerage company's website! The agent advertised by contacting his list of local owners and investors and told them about the apartment buildings for sale. This is the typical way commercial real estate agents will advertise their properties. There is a myth created by real estate agents that commercial properties for sale should be kept “quiet”, because it might scare off the current tenants. This is just ridiculous! First off, the tenants in the buildings we bought would never have realized the building was for sale, even if it was well advertised. Average apartment tenants are not the type of people to be browsing commercial real estate listings. Even if tenants did know the apartment building was for sale, why would a potential change in ownership scare them away? The fact is commercial real estate agents keep their listings quiet because they don’t want another agent to get involved by representing the buyer, because they would lose half of their huge commission! By contacting their list of investors directly, they eliminate the probability of a buyer’s agent becoming involved, and they then keep the entire commission to themselves. Commercial real estate agents will only advertise a property as a last resort, only if their personal list of investors doesn’t produce a sale. Don’t you think it would be in the seller’s best interest to advertise the property aggressively from the beginning, stirring up competition and potentially increasing the sale price? Obviously! But this would mean the agents would risk losing half of their huge commission…

There Has To Be a Better Way

After realizing that commercial real estate agents are often no more than overpaid tour guides, I thought about how much sense it would make for commercial real estate transactions to be handled privately, by the owners themselves. After all, regular home owners sell privately all the time and often know little about the business side of real estate transactions. On the other hand, commercial real estate investors are usually business savvy and much more capable of undertaking a private sales transaction than the average home owner. Plus, there’s a lot more money to be saved! I did some research online and found a handful of commercial real estate listings on some of the popular for-sale-by-owner sites, but not many. The problem is that residential real estate and commercial real estate don’t mix; they belong to completely different markets. I realized that to effectively buy, sell and lease commercial properties privately, they would have to be listed on a website dedicated only to this. And that’s when I got the idea!

And that is how BuildingsByOwner.com was born.

Would you lease or sell your commercial property privately?