A French multinational manufacturer of floor and wall coverings owned a 375,000-square-foot manufacturing facility in Truro, a tertiary market outside of Halifax, Nova Scotia, Canada. Sitting on 16.62 acres and 60 miles away from the nearest comparable market, the company set out to divest the outdated and functionally obsolete facility—as quickly as possible. However, the manufacturer knew this sale would be an uphill battle.
The company owned the former carpet plant, which was a challenging property to sell for several reasons.
The property was a big fish in a small pond. At more than 375,000 square feet, it was unique to the area. The nearest market with comparable properties was Halifax, Nova Scotia—60 miles away. Truro is a tertiary market with limited industry. There was little demand from the traditional manufacturing or distribution sector particularly for a building of this size. Truro’s status as a tertiary market required patience to close a sale due to extremely low demand.
The building was functionally obsolete, and lacked many modern-day features including outdated heating system, low ceiling heights, etc. Repurposing the building for other non-manufacturing uses, such as distribution, would be costly for any buyer.
Local brokers gave widely varying valuations for the facility because of a lack of comparable properties in the area. This made it difficult for the owner to have realistic expectations when setting a sale price.
The property disposition would have been a challenge to sell in a normal market. The COVID-19 pandemic amplified these challenges and created new ones. The owner, for example, wanted to attract potential buyers from outside the area, including investors that were interested in re-positioning the building. However, federal government restrictions on travel made it particularly difficult for prospective buyers to tour the property.
The building had no long-term tenant(s). It was not generating meaningful income and was costly to maintain as the company continued to pay operating expenses and property taxes.
To sell this challenging commercial property for the best price and with the most favorable terms, the company turned to Allegro Real Estate Brokers & Advisors to manage the transaction. Allegro broke the project into six stages.
The first stage was strategy. Allegro identified the client’s objectives and timeline. Next, in the market research stage, Allegro conducted a market survey to identify any properties in the area that could help establish pricing trends.
Next came the broker selection and valuation stage. Allegro solicited proposals and valuations from local brokers, conducted broker interviews, and selected a local licensed broker that best fit the property owner’s needs from a local market knowledge perspective. The market research that Allegro performed in the second stage, as well as the valuations provided by local listing brokers in the third stage, informed the asking price.
During stage four, the off-market negotiations and listing stage, Allegro engaged with several parties that showed interest in the property before it was put on the market. Allegro continued negotiations with these parties after the property was listed. To overcome the challenge of COVID-19 travel restrictions, Allegro used aerial photos and videos to host virtual tours with interested buyers.
The fifth stage was leveraged negotiations. Allegro worked through business and legal terms with multiple potential buyers to maintain leverage, and ultimately ended up with a final recommendation of terms and negotiated letter of intent.
Finally, in the closing and documentation stage, Allegro worked alongside the client’s in-house and outside legal counsel to review the final transaction documentation.
Allegro’s hard work paid off with an offer from a local logistics company. But the offer brought a few complications.
The buyer required bank financing that would be difficult to obtain for a property of its size and age. The buyer was required to obtain the financing within a specific period of time. If they missed that deadline, the company could walk away.
Allegro got creative with the transaction by creating a license agreement, negotiating non-refundable payments with the buyer throughout the process, and formally listing the property on the market as leverage.
Another complication was the building’s aging heating system. Replacing it would come at a significant cost. The winter season was approaching and the company knew that they would not be able to operate in the building through the winter without replacing the heating system. The company did not want to invest significant capital into a building that would potentially be sold. So, Allegro worked with the parties to reach a satisfactory compromise that reduced the risk to the company. The buyer would install a new heating system, and the company would contribute 50% of the cost for the work, up to a specified cap if the parties consummated the sale.
The company was delighted when the transaction closed sooner than anticipated (less than 12 months) and for CAD $5 million, which was a desirable price for the asset.
Allegro exceeded the client’s expectations by disposing of a facility that no longer served their needs, and did so swiftly for a price that was more than acceptable to the company.
Need help divesting a location with unique challenges like this client? Contact us to discuss your unique needs.
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