Eric Szerlag first began working with the owner of the Hudson Building around 2012. The 21,000 square building is a former industrial building that the owner converted into multi-tenant retail and had some vacancy upcoming. We put together our marketing package on got to work on filling the spaces that were available at that time. From there, Eric became the “go-to” leasing agent for the building and developed a strong relationship with the building’s owner, so when it became time to sell the building the owner called looking for a marketing evaluation and recommending listing price, and shortly thereafter, we began marketing the building for sale.
During Eric’s time leasing the building, the asking rental rate was $15.50 per square foot, NNN, which was appropriate for the building’s location and mixture of office and retail uses. By the time he took on the sale listing, Lyon Township had matured from “the exits between Novi and Brighton” into becoming one of the fastest growing communities in the state of Michigan- boasting a population growth of 60% between 2010-2020. The residential growth had not yet been accompanied by a parallel amount of commercial development, so demand for retail and office space was high and the local vacancy rate was very low, especially near the Milford Road exit onto I-96 which was located right around the corner from the Hudson Building. Knowing the local market like we do, we were quite confident in our valuation and ability to quickly deliver on our responsibility to sell the building.
Unfortunately, our sales efforts took a turn as right after introducing the building to the market, we unexpectedly lost two tenants, and another planned to relocate within the building, creating a third vacancy. Eric had to put his “leasing agent” hat back on and take the spaces back to market.
During the short period of marketing the fully stabilized building for sale prior to the new vacancies, the strategy was to market the property slightly higher than what the market would be based upon the “in-place” income with the hopes that the market would see what we see- that this building is located in a community on the rise and there was significant value to be added. Although the new vacancies created an even larger gap between a market rate of return and where we expected a sale price would land, it also created an opportunity to prove that our concept was sound, that the excess demand for space was there, and that there was significant value to be added. Rather than simply recommending a price reduction to counteract the decrease in income, we kept our asking sales price the same and set out to prove our knowledge of the local leasing market.
We increased the asking lease rate to $17.00 per square foot, NNN and quickly filled the first retail vacancy at our full asking price. We also began touring multiple groups through the interior office vacancy and ultimately came to an agreement with a company that we were already working with to find space in the area. Seeing that everything was coming together, we increased the asking lease rate once again to $20.00 per square foot, NNN to fill the last vacancy, a former pizzeria. The infrastructure left in place by the previous operator would be valuable to the market and we generated multiple offers for the space, settling on a $18.50 per square foot lease rate with a bakery.
Our strategy of using local market expertise to patiently raise the net operating income of the property rather than making a quick sale on a reduced price paid off. We reached back out to a number of investors that had previously expressed interest and ultimately sold the Hudson Building for $3.2 million- 94% of our original asking price of $3,340,000.
Often times, building owners, especially those who have not tested the market in a while, don’t realize the positive impacts that the hyper-local market can have on their property’s value, and how much these values can change over time. Markets shift, and what once seemed like a fair price might now be too low. We strive to keep our “ears to the street” of these hyper-local markets to be aware of these changes, and best represent our clients when it comes time to maximize the value of their asset.
If you’re interested in obtaining a market valuation of your property, testing the waters on a sale, or would like to know more about this transaction, please reach out to Eric Szerlag at 248-476-3700 or eszerlag@thomasduke.com
