We realize that everyone is ‘looking for a deal’ in today’s marketplace.  For an example, we have access to a list of investors, developers and JV’s that are searching for opportunities in the market.  This list has been updated quarterly and has changed only slightly over a 5 year period.  So, some qualified investors have remained on the sidelines for 5 years; some longer.  While a few purchase opportunities have presented themselves, to which our clients have been rewarded, as you might imagine most deals have not materialized because of a multitude of regulatory issues.

Over the stretch of 2011, the majority of property transactions that have been sold through our Houston office have been issued directly from the bank.  The secondary source for transactions have been generated via listings/contracts kept off the open market, otherwise known as pocket listings.

Pocket listings happen to be one of the most highly scrutinized, yet secretive avenues for obtaining deals in the commercial real estate industry.  In order to understand pocket listings and how they allow commercial real estate professionals, and their clients, to have the upper hand in the industry, it is important to know what a pocket listing is when compared to a marketed listing.

First, let’s review marketed listings and the internet marketplace.   Dot.coms, such as Loopnet and Costar, offer huge databases of all of the properties that are for sale, as well as information regarding these properties.  Once the property has been made available for sale, it most often is made public on these various internet channels, available for all commercial real estate professionals to participate in and view information.  Once the property has been sold, or disposed, the listing is removed from these networks.

Pocket listings differ in that the commercial real estate broker holds a signed contract or a listing with narrow price negotiation range off of the market.  Most of the time, these agreements limit the amount of advertising that can be done on the listing or the type of access that others are given to the listing.  This listing type is often utilized by the large brokerage investment firms that control their certain investor market, essentially creating their own in-house auction for the strongest, most qualified buyers to bid.

On the flip side, marketed listings are such that the commercial real estate broker makes the listing available to any and all prospective buyers, per the agreement that they signed with the seller in the first place.  Any commercial real estate professional that is interested in showing or buying the property is able to so and is therefore entitled to any commissions that are made off of the final sale of the property.

How did we enter this closed market?

Being in command of our sector type is the best way to get in, as far as pocket listings go.  For example, our group will attend networking, trade, bank and large conventions to access individuals who control information.  Not only does this allow us to build solid, positive relationships with medical and business professionals, it also put us allows us to be in the know of such opportunities.  Prior to the property coming to market, we offer to eliminate the marketing process, whereby providing a ‘qualified buyer’ directly.  In addition, we have determined that physician functions, economic planning committees or zoning and planning committees are a great way to obtain information for land / medical development, selling, planning and other things related.  By attending these meetings, we put ourselves at the forefront of any marketing process.

Pocket listings have their naysayers, though.  Many listing brokers and brokerage houses have labeled them as detrimental to an efficient marketplace.  Their reason, as legitimate as it sounds, has serious holes.  Their rebuttal is that if every investor was given the opportunity to bid on a property listing, the highest bidder wins.  This is far from realistic.  For one, they are assuming that their personal marketing campaign will provide the most optimal coverage possible for the property.  The response from the pocket listing broker tends to always be that the strongest bidder wins.

Unfortunately, brokers and investors became accustomed to internet solicitations as their main source for information, especially during the mid 2000′s when anyone could qualify for a commercial real estate loan.  During this time, investors became more apathetic, never setting foot on the the real estate that they ultimately purchased.  Brokers sat idly by their computers for a property, price or deal to flash onto their screen or sought listings to place them on the these vehicles.  Those days are long gone and so is the internet marketplace as a source of trustworthy information.

For those that utilize pockets listings, we encourage direct communication with the owner, as this strategy must be disclosed properly.  If the owner wants to risk taking his/her property to market in order to obtain multiple offers, qualified or unqualified, or advertise a listing on several marketing channels, then they might want to consider slipping into an exclusive, marketed broker listing format.  In essence, it is not the best practice for commercial real estate practitioners to request that listings be pocketed to them.

It takes experience, know-how and above all, HARD WORK!