Kelly Morgan: Five Tactics to Keep a Complex Commercial Deal In Motion

June 29, 2020

During the height of California’s stay-at-home order, Kelly Morgan of the Kelly Morgan Commercial Group and Santa Monica market center closed a 96-unit multi-family property for over $19 million to a San Diego-based private investor. 

Kelly Morgan

It was a multi-layered transaction that – at many stages – could have slipped away. But with Morgan’s expertise, tenacity, and determination, he was able to move past obstacles and create wins for all parties involved. 

“I have done many trades before, both large and small,” Morgan shares. “This one forced me to dig deep, get incredibly creative, and persevere in the face of seemingly impossible odds.” 

The Deal

The transaction began in October of 2019 with a seller asking Morgan to find an off-market buyer. After entering escrow with a buyer and falling out of contract, the seller was only willing to entertain a noncontingent offer – challenging for a 96-unit building. 

After weeks of back-and-forth communication with the second buyer and seller, Morgan was able to get the property back under contract with a three-page addendum, which included the release of up to $820,000 with several extensions. Once the money was released from escrow to the seller, the stay-at-home order began and the buyer changed their mind, requesting their deposit back. 

This created a flurry of unexpected challenges. In the end, Morgan found a third buyer who was willing to replace the initial deposit from the second buyer and wire an additional $200,000 to be released from escrow for yet another extension, so the third buyer had time to secure a new loan. In the end, all parties involved were satisfied.

Tips for Bulletproofing the Commercial Transaction 

Complex deals are not uncommon. In fact, they’re universal, whether you’re just getting started or further along in your commercial real estate career. To see them through, you must remain calm, confident, and focused on serving your clients to the best of your ability. There are also several other tactics that you can put in play; Morgan outlines five that consistently work for him. 

1.  Be solution oriented. In our case, the multi-family building required a tremendous amount of seismic retrofit work because of its tuck-under parking. Before going to the buyer, we performed cost estimates and gathered the process of work from reputable companies so we could draft suggestions. The buyer recognized that the property was a valuable asset. All they wanted to know were the issues and how much they would cost. Doing ample research and work upfront helps ensure you don’t find yourself negotiating a credit you can’t secure and fall out of contract. 

2. Continue to look for backup buyers. After the first contract was generated, I continued to call prospects. My motto is “sell the building twice,” because from experience, I know that not all deals close; twice in this instance. Having another buyer on deck is key if you fall out of contract. 

3. Get creative in finding a win-win. At the height of the transaction’s complications, the second buyer who had already released $820,000 from escrow said he was going to cancel, feeling justified in the return of his deposit due to extraordinary circumstances. By this time, I had another buyer lined up and the seller had no obligation to return the prior buyer’s deposit. We got creative by assigning the existing contract to the new buyer and extending the escrow, which would require an additional large deposit to be released to the seller (which the new buyer initially refused to do). Undeterred, I sent an email to the new buyer apologizing that we couldn’t put it together due to the need for an additional $200,000 and asked him to think about it. It worked. The new buyer called me back – agreeing to wire a total of $1,020,000, noncontingent. 

The prior buyer got his deposit back. The seller was able to get an extension for his leg up, and we closed the transaction. All parties involved were ecstatic. If you find yourself in a challenging situation, remember, the answer will always be “no” until you ask. 

4. Keep outcomes front and center. Before any negotiations or requests with your clients, it’s important to understand what outcomes are needed from each conversation. With that in mind, you can prepare for any obstacle or objection and be fully prepared to approach difficult requests or terms

5. Place effort and discipline above your feelings. When the going gets tough, the news is negative, and buyers and sellers are waiting on the sidelines, it’s easy to doubt your ability to succeed. You may want to stop making calls and throw in the towel. However, these are the moments to make even more calls. To experience the breakthrough, table your emotions (they’re temporary) and do the activities. Nothing can replace effort, perseverance, and an undeterred belief that you will succeed.

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