How the world has changed. Chasing deals now requires more stealth and strategy than ever before. For trophy assets, a typical deal will have more than 25 bidders, and virtually all of them will be all-cash, big earnest money, quick-close type offers.

If you are the typical real estate investor who doesn’t have a $500 million deep pocket and who needs to raise equity and debt to close, you don’t have much of a chance. For other assets, it’s a difficult game and not much easier to win.

Typical sellers are 1) special servicers, who take time to move the asset through the selling process; 2) banks, with little motivation to actually sell at market, as they can’t afford to take the hit to their capital position (other than big banks, who have earned their way out of their adverse capital positions); or 3) auctions, where it has become a game of “hide the ball.” (Is that really another bidder, or is that the auctioneer bidding against me? Is there really “no reserve price” or will the auctioneer just keep “bidding” until the bidding gets over the undisclosed reserve price — and if the auctioneer wins, he will just hold it only to be re-offered a month or two down the line?)

So what’s a buyer to do?

  1. Trophy Deals —  In most cases, forget about them, as you are wasting precious time and money unless you truly do have unique perspective on that asset — some special market knowledge, a new tenant in your pocket or a deep pocket investor willing to fund your pursuit costs.
  2. All Else — Here are some thoughts and ideas that might help you get a deal under contract and then across the goal line:
  • Propose a portfolio option, rather than a one-off offer; this will require that you purchase some cats and dogs that you really have no interest in, but by taking a larger portfolio you might be able to truly solve a seller’s problem and distinguish yourself from the crowd.
  • Line up your capital ahead of time. If you do get successful, in most cases the days of long, extensive due diligence are over. You still need to distinguish yourself from your competitors.
  • Short due diligence period. Use it for due diligence, not for lining up debt and equity capital. If you do need time to deal with financing issues, bifurcate the due diligence period. For example, x days to do due diligence, and an additional y days where the right to terminate is tied to financing only.
  • Make unsolicited offers. The values are down and the sellers know it; but if they still have time left on their loans, there is no pressure to sell now, and they will wait until they have to put it on the market. The unsolicited offer can be especially effective on new construction projects where full recourse construction loans are still in place. (Note: There may not be many of these left now that its 2011.)