In March, I was honored to serve as a professional expert on the sale of privately held companies and family owned businesses for the Washington State CCIM Chapter, an organization composed of the most knowledgeable, experienced, highest performing commercial real estate brokers in the Evergreen state. The robust discussion driven by member questions covered topics ranging from business valuation to market conditions underpinning transaction completion during the last six months. As the oldest business brokerage firm in the Pacific Northwest, IBA has long had a strong collaborative relationship with the residential and commercial real estate industries where knowledge & experience are shared in both directions in the best interest of clients.
IBA is uniquely qualified to fill this collaborative, resource role in the real estate community as a firm with licensed real estate professionals spread throughout the region and physical offices in Bellevue, Spokane, and Portland, but no desire to represent real estate for sale independent of a comprehensive package involving both a business and real estate. This limitation on project reach by the firm, despite having our corporate headquarters recognized as the 18th largest Commercial Real Estate Firm in the Puget Sound Area by the Puget Sound Business Journal (Commercial Real Estate Brokerages – Puget Sound Business Journal (bizjournals.com)), has created an environment where clients both of IBA and other real estate firms can be served in a manner where the best financial outcomes can be achieved on the sale of real estate and business assets.
The following are six examples of projects recently addressed by IBA involving real estate:
- Commercial Real Estate Sale without a Business
A wealth advisor recently referred to IBA a business owner with a client interested in selling their business and real estate to facilitate retirement. IBA determined the estimated market value of the business and real estate. It was determined that the value of the real estate was approximately four times greater than the value of the business. A sale of the real estate along with the business was problematic because the business model could not support debt service for a property acquisition. A sale of the business without the real estate in the package would require maintenance of a favorable, below market value lease for a decade or more to achieve the maximum possible value and facilitate the buyer obtaining a SBA loan in the marketplace. On a positive front, a sale of the real estate along with a planned closing of the business would allow for the seller to take advantage of current long term capital gains tax rates (Anticipated to increase in 2022 or earlier) and convert a significantly appreciated real estate into an asset class with increased liquidity that could be passively managed. The decision was made to refer the property to a commercial real estate professional with the CCIM accreditation and a sale was completed in a competitive marketplace for a premium seven figure value. IBA did not represent this property for sale, but achieved the best possible outcome for the client and its referral partner, a highly respected Seattle wealth advisor. How many firms in the region are able to properly assess values of both business & real estate assets and put together a strategic plan to facilitate the best possible financial outcome for ownership? How many commercial real estate firms would refer a six figure commission to another firm? Only one that is focused on serving a specific niche in the real estate community (Business + Real Estate Sales) with plenty of other projects on its plate.
- Commercial Real Estate Sale with Business
IBA recently completed the sale of a 5 ½ acre parcel of real estate that was home to a multiple decade old dog & cat boarding business. This project required proper valuation of both a business that was generating approximately a half million a year of income for ownership and real estate in close proximity to a quickly growing area with both a Costco & Home Depot located within a mile. The sale was facilitated in a competitive marketplace for a strong seven figure value.
- Commercial Real Estate Separated from the Business
IBA recently evaluated a business with real estate and determined that the property included land that was superfluous to what was needed to continue successful operation of the business and possessed higher value if sold extraneous to a business & real estate sale including the property needed for company operations. The property is currently in the process of being subdivided prior to taking the business and relevant real estate to market. A strategic buyer has already been identified for the soon to be adjacent, newly established acreage of undeveloped land.
- Residential Property
IBA is a commercial real estate firm. We do not represent residential property unless it is part of the operational footprint of the business (e.g., an ownership residence on the same property that is home to a winery and vineyards). However, we periodically have the opportunity to refer residential real estate representation projects to trusted, experienced, collaborative partners, often with the CRS designation. These referrals have included home sales for clients relocating out of state or downsizing; home purchases for parties relocating to the Pacific Northwest to acquire a business; and clients seeking passive, rental property income after a business sale with the proceeds of a transaction.
- 1031 Exchanges
A common conversation for IBA with clients who own the real estate occupied by their business is whether they should rent the real estate after the sale for passive income or sell it and employ the value in another type of investment. Current discussion on this subject includes analysis of present and potential future long term gain capital gains tax rates at the federal and state levels and the benefit of mitigating risk by owning a property with multiple tenants versus one with a single tenant. In addition to experienced, knowledgeable real estate professionals, IBA has the ability to refer equally qualified 1031 exchange facilitators. For the unfamiliar, a 1031 exchange is an excellent tool for keeping real estate value working for you as an investment without losing value to taxes through the transition from one property to another.
- Commercial Real Estate Leases
Another valued service provided by commercial real estate brokers is the location and negotiation of space for lease. This is another real estate service traditionally not provided by IBA, but referred to collaborative partners who lease property as their primary focus. It is not uncommon for buyers who bought businesses through IBA to return to us as a resource when it is time to negotiate a new lease or find an alternative property as a leased or owned home for a company.
One element found in IBA’s relationship with the real estate community not found in our referral relationships with other professionals (e.g., law, accounting, banking, wealth advisory, etc.) is the ability to share commissions. IBA has a long tradition of happily sharing commission from its transactions with referral partners possessing real estate licenses who refer business sales. Additional information about this program can be found on our website at https://ibainc.com/real-estate-broker-referral-program/.
The sale of a business requires knowledge, experience, and strong professional skill set to execute for a premium market value employing “best practices”. The same is true for real estate. IBA is unique in the Pacific Northwest in that we are recognized as a market leading firm in both the business brokerage and real estate professions. If a sale of a business with real estate is desired in 2021, we would welcome the opportunity to provide an overview of our services and develop a roadmap forward that facilitates the highest value possible for the combined asset. If a referral to a commercial or residential real estate broker is desired, we would welcome the opportunity to introduce you to one of the “best of the best” in the region
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, accounting, legal, wealth advisory, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.