All vendors at some time in their career decide to sell their management rights. When is the right time? Are there buyers looking? Are the financiers active? What is the market going to do?
We are asked all these questions and plenty more. Regardless of whether it’s a buoyant market or a depressed economy, there is always some form of prospective purchaser looking for what they imagine is their perfect match.
Vendors need to be aware that if deciding to sell, there is not likely to be a second chance in what looks to be a tough 2019 in commercial sales. They will not achieve the desired result unless they professionally prepare for sale and this outcome can only be achieved by blending the near perfect match between the vendor and their choice of a competent professional industry broker.
Current statistics show that contracts of sale for management rights and the associated real estate are most often terminated because of the failure to meet contract conditions and these are normally in the following order: the verified net profit is incorrect, the due diligence of agreements has legal issues, the manager’s real estate fails to value up and the financier’s valuation falls short of the contract price, and unfortunately, in some cases, the broker handling the sale has sat on their hands throughout the process, failing to give the vendor the service being paid for.
Do not let the management rights sale be handled by a broker trying to buy your listing. The listing becomes just that - a listing.
None of these contract breakers will occur if vendors prepare for sale with the same positive professional attitude that they adopted when they purchased.
All vendors need to adopt the following to provide the best opportunity for a successful sale:
- Check their caretaking and letting agreements and deeds of variation to ensure they have as many years as possible to run. The banks and buyers are keen to see 10 years on standard module and 20 years on accommodation module agreements when the buyers are looking.
- In the past few weeks we have had five contracts in trouble because managers had neglected to top agreements up, and because of personal issues with their committees they could not meet contract requirements. Had they been topped up along the way these issues would not have arisen. It is of vital importance to have committees get used to managers saying “I would like to put a motion to the AGM with committee support to top my agreements up”
- Check your Form 6’s and make sure they are up to date so managers are not chasing unit owners to get them done at the last minute. The annexure of charges should also reflect the actual charges to unit owners.
- Have a current profit and loss (P&L) statement prepared by an industry-recognised accountant, and if you have cleaners and a receptionist in your business have those expenses included on the P&L. It is easy for a verifying accountant to pick things up and identify when someone is increasing the bottom line by removing some expenses.
Manager’s residences are always a contentious issue with buyers who don’t understand the commercial value of the manager’s residence and office.
Everyone knows someone that has access to RP Data and therefore the sale price of units in the building. Although generally this is not a true reflection, it does create doubt in a buyer’s mind of the real estate value. An independent valuation eliminates the argument straight away.
With lending criteria very strict and committees and their lawyers wanting more and more from both managers and buyers, it is paramount that everything lines up to make the sale process easy for buyers, not difficult. All of the above and pricing the business to market expectations, can be achieved by working closely with an experienced broker. It is not about testing the market, it is about achieving a sale of the business.
If the correct attitude is not adhered to regarding the sale, it will become just another listing.
Vendors are entitled to achieve the best possible result, however, they owe it to themselves to approach an impending sale with the same dedication they had when buying the management rights. The Vendor’s ability to achieve the desired conclusion to a contract of sale is 100% dependent upon correct and factual information being collated by them and their professional management rights broker.
As mentioned previously, MR Sales predict that 2019 will be a tough calendar year as far as management rights are concerned. There is no doubt management rights will continue to sell and settle but only if all listings and pre-sale preparation is handled in a professional attitude that will result in a harmonious conclusion - the settled sale. Remember the following and all vendors should continue to be content.
Select a broker carefully, a full time professional with a proven track record. Present the facts backed up by prepared documentation. Market the management rights at “today’s marketable and achievable price”. Have patience and sell to a qualified purchaser with the dedication to go to contract and settle, be totally diligent and the partnership between the vendor and the chosen broker should result in a successful contract of sale.
