To Sell or Not to Sell Industrial Assets as a Portfolio

To sell or not to sell as a portfolio—that is the question. Well, the question is, when do you get a better deal? You will likely get a better price per square foot if you sell an asset individually, but it can take more work to split the portfolio and that takes time. Sellers looking to do an exchange or are otherwise motivated to sell quickly might prefer to sell as a full portfolio. That was the case with a recent nine-property portfolio sold by a local private investor. Still, the transaction was challenging.

The seller owned the nine assets, which totaled 145,000 square feet in Central Los Angeles, for 60 years, and wanted to trade into less management intensive properties. “It took us a year to sell the whole thing. We put all nine buildings on the market in August 2017. We decided to sell one of the properties separately, because it was more valuable,” James Vu, an associate at Daum Commercial Real Estate Services, tells GlobeSt.com. “We ended up selling the remainder of the portfolio to two local buyers, but it was a process.” Vu represented the seller in the deal along with vice chairman Michael Collins and associate Ben Spinner.

While the sale was challenging—including falling out of escrow twice—it got a lot of interest from potential buyers, as a result of the tight market and high demand for investment product. “We had large institutional buyers looked at the deal, but the property really made sense for a local L.A. buyer, and that is why we decided to piece it out,” says Vu. “The guys that purchased the properties had deep pockets, but the concentrate on L.A. These properties worked for someone with that profile.” In the end, it sold to three separate buyers, one who purchased a single asset and the remaining eight assets were purchased by two separate buyers.

Even with the lengthy timeline, the owner took a hit on the price per square foot as a result of marketing eight of the nine assets as a portfolio. In fact, one of the sellers flipped one of the properties for a huge profit. “I could have gotten a bigger price per square foot if I had sold the properties separately,” says Vu. “One of the buyers has already flipped one of the assets for $135 per square foot and they sold it for $240 a foot.”

In terms of guiding clients to sell as a portfolio or not, Vu says that it all depends on the client’s needs, but in most situations, you will get a better price per square foot if the properties are sold individually. “It all depends on the seller,” says Vu. “My seller wanted to get the property sold quickly. We ended up trading at a lower price per square foot. There is a property 10 blocks north, and they are selling the properties separately at a higher price per square foot, and they have more time. If someone has time, you should split up the property and get higher pricing.”

Still, Vu has seen an increase in the number of portfolio deals, although he only has single assets marketed at the moment. He says, “I have more one-off deals right now, but I am seeing more guys come to the market.”