Strange Deals Proliferate in Strange Economic Times

Over the past year, local commercial real estate brokers have experienced their fair share of strange transactions. Many of these out-of-the-ordinary deals can be attributed to the down economy. But others aren’t so easily explained. Regardless, here are a few of their stories: A Golden Opportunity Ron Kassan and Trevor Gale of Beitler Commercial Realty Services were caught off-guard recently when one of their clients wanted to cash in $750,000 worth of gold for a down payment. “This was not going to be our normal trip to escrow,” said Gale, still chuckling about the proposed transaction. “It speaks loudly of how people are thinking outside of the box to get a better deal.” The client, whom Gale prefers to keep anonymous, deals in gold for a living. The price of gold has skyrocketed and, once the stash is cashed in, the client would have made a hefty return on his investment. Dealers often cash-in bullion at local shops that do not report the financial gain to the IRS. Gale said the client was looking for a way to have cash for escrow at the lowest cost possible. He wanted Gale and Kassan to help transport the gold to a dealer and bring the money to escrow. The brokers scratched their heads to figure out whether they should hire an armed security guard, rent an armored vehicle, or go out and get a concealed weapon permit. But in the end, Gale and Kassan informed the client that all money brought to escrow is reported to the IRS. The client scrapped the gold plan, obtained another source of financing, and the deal closed. How Low Can You Go? Michael Schiff of NAI Capital hasn’t had any clients cash-in gold for escrow. In fact, that probably would have been a welcome gesture, compared to what he’s been experiencing. He’s constantly dumbfounded by the less-than-low-ball offers people are making for commercial real estate in the Valley. “Many tenants think the landlords are so desperate that they could get the space for free,” said Schiff. And a couple weeks ago, a prospective tenant sent him a doozie of an offer. The tenant asked for improvements and free rent up front that were equal to asking for 19 months of free rent. This was in addition to the fact that they offered to pay rent that was less than half of the asking price. “There is a huge difference between a motivated landlord and a desperate landlord,” said Schiff. “Tenants do not seem to understand this difference.” Even a desperate landlord can’t afford to accept these crazy low offers, he added. Landlords too have mortgage payments to make and are certainly not going to be able to make them with deals like the one mentioned above. Sellers Paying at Escrow George Stavaris of Grubb & Ellis said it’s been strange to watch rents and sales freefall in the past year. But what has really thrown him for a loop lately is a number of cases where sellers are plunking down large chunks of change at escrow. “In the past 11 years, I’ve never seen that before,” said Stavaris, “to see a seller walk into escrow and hand them a check to get rid of the property.” It’s supposed to be the other way around, he added. In one case the seller paid $850,000 at escrow, money which he obtained by taking out a second or third mortgage on his home. Others have paid between $7,000 and $9,000. What’s happening is they’re paying off the difference between the sales price and what they owe on the property. But the last minute maneuver can freak out prospective buyers, said Stavaris. Buyers show interest in the property, negotiate a price, and find out about the financial gap only after a preliminary title report is done. “There’s a little trepidation there on the part of buyers,” said Stavaris. It’s all about trust from that point forward, if the buyer is still interested. In the best case scenario, the seller is working hard to get released from the debt and bring the difference to escrow. In the worst scenario, the property is at risk of going into a short sale. Fortunately, all of the sellers to date have settled their debts and the deals have closed, said Stavaris. When Money Doesn’t Matter Rich Johns of KW Commercial took a trip into the Twilight Zone recently, when he sold a 12-unit apartment complex. The only one living in the building was the owner, who hadn’t rented the other units for decades. “The building was stuck in time in the 1960s,” said Johns, adding each unit still had furniture, with about an inch of dust on it, from the last tenants. The owner’s health was failing. He didn’t want to manage tenants, was not concerned about money, and was only willing to sell it to “the right” buyer. His family had owned the apartment complex for 40 or 50 years, said Johns. Johns got the listing by cold calling the owner, who was initially difficult to approach. But Johns persisted by comforting the man that the building would only go to a good buyer. The man eventually agreed. The apartment complex, which needed extensive renovations, sold quickly to a buyer who owns a number of other properties in the area. The fact that the building sat nearly vacant also meant the new owner could charge full market value for the units. The seller was happy with the buyers and how the deal went down. Johns said, despite the previous owner’s initial defensiveness, he turned out to be a kind and wonderful person. Johns also drove the seller to his new home outside of Los Angeles. “The human element can’t be overlooked,” said Johns, adding the owner donated sales proceeds to charity.