More Anxious Investors
Make Pre-Emptive Bids

Frustrated by the amount of competition for well-leased properties with quality tenants, some investors are trying to get a leg up by finding properties to bid on before they actually go on sale.

The method is referred to as pre-emptive bidding and can be used to purchase anything from a downtown office building to a freestanding Applebee's restaurant.

"Investors are realizing that the probability of winning the object of desire is far greater," says Rick Putprush, vice president of the financial-services group in the Boston office of Grubb & Ellis Co., a Northbrook, Ill., real-estate services firm. "It's becoming more common since there's a lot of money chasing real estate and there's a greater demand than there is a supply to purchase."

Some brokers and financial planners encourage pre-emptive bidding. But it won't always work. For one thing, the owner of the building has to be sold on selling. Upon receiving an unsolicited offer, an owner may turn around and ask a broker to get him a better price, or reject the offer outright. Some owners of buildings have fiduciary responsibilities that require them to market the property widely, making pre-emptive bidding unfeasible.

What's more, for properties that are well-leased, there's the risk of offering too much for the property, or at least more than the owner had ever considered selling it for.

"At the end of the day, you may end up spending as much as in a competition with other buyers," says Mr. Putprush, "but you're willing to do that because you're assured of getting the property."

Investors probably have more of a chance with pre-emptive bidding on properties that need a little fixing up -- and need more tenants, says Gary W. Eldred, a market and investment-analysis consultant, based in Gainesville, Fla. These kinds of assets are known as value-added properties, where an investor can take the property, rehabilitate it and lease it for higher rents, thus adding value. These often are assets that likely would have been on the market if not for low interest rates making it easier for the owners to refinance the properties rather than sell them.

Mr. Eldred adds that in his experience, some owners of value-added properties don't know how much their property is worth or how much it has appreciated. "If they haven't talked to brokers, they may base the value of their property on what they paid for the property," he says. "So if you're giving them a hefty profit margin [over the purchase price], you are more likely to get a favorable offer accepted."

But brokers say that even owners of well-leased properties who weren't necessarily thinking of selling could be motivated to do so if the investor making the unsolicited bid can make a good offer and then assure the building owner that he has the financial wherewithal to complete the deal, and quickly.

Relationships can help sweeten a bid's chances of success. It helps, for instance, if you're familiar with the owner's real-estate agent or representative, either professionally, personally or both. "The best way to do this is to have some sort of relationship with the owner's agent so they know who you are and what you are about and the nuances of what your buying behavior is," says Whitney Peyton, a senior managing director in the Minneapolis office of CB Richard Ellis, a Los Angeles-based real-estate services firm.

And reputation counts. "If I had a good relationship with the owner and a buyer came to me and said, 'Would you call the owner and tell him I'd like to make an offer for his building?' I'd only do that if they were a qualified buyer" with a solid financial record and a history of successfully executing deals, says Brian Driscoll, a senior vice president in the San Diego office of Boston-based Colliers International.

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