Most of the value in a real asset investment is created during the hold and lost or protected at the exit. An asset that has been managed well and sold badly returns less than an asset managed adequately and sold well, and the difference is almost entirely preparation. Selling is a process that begins twelve months before the first buyer is approached, not on the day the agent is appointed.
Share deal or asset deal
The first structural question is whether the buyer acquires the property itself or the shares in the company that owns it. The answer moves real money, principally through transfer taxes, and the analysis differs by country. In the Netherlands the interaction between real estate transfer tax and share transactions is specific and has been tightened, as we set out in our note on Dutch real estate transfer tax and the share deal question. In Spain, anti-avoidance rules target share transfers whose substance is a transfer of real estate.
The point for a seller is that the structure has to be capable of a share sale before the sale starts. A company with a clean history, no legacy liabilities and a single asset is saleable by shares; a company that has traded for fifteen years is not, and turning it into one takes time.
Preparing the file a buyer will actually diligence
Buyers diligence the same things every time: title and registry position, leases and their compliance, the technical condition of the building, licences and planning, litigation, tax history, and the corporate chain. A seller who assembles all of that before going to market controls the process. A seller who assembles it in response to buyer requests gives the buyer twelve opportunities to reprice.
Every unanswered question in a data room is an invitation to reduce the price. The cheapest work in a sale is the work done before anyone is looking.
Fixing what is fixable, first
Twelve months out, the value-protecting tasks are usually known: an unregistered extension, a lease with an unexercised break, a tenant in arrears, a licence never formalised, a charge repaid but never cancelled. Each of these will be found and each will cost more in a price chip than in a fee to resolve. This is where the pre-sale year is genuinely spent.
Choosing the buyer universe
Who buys this asset determines how it should be presented. An institutional core buyer wants durable income, long leases and strong covenants, and will pay for certainty. A value-add buyer wants the gap and will pay for the possibility. A local private buyer may pay more than either for reasons that are not purely financial. Running a process aimed at the wrong universe wastes the market’s attention, and a marketed asset that fails to sell is materially harder to sell six months later.
Timing against the plan, not the mood
The business plan should have said when the asset would be sold and why. Selling materially earlier usually means abandoning value that was the reason for buying; selling materially later usually means the plan failed and the sale is now driven by a facility maturity rather than by the asset. Where financing is involved, the maturity has to allow for the real length of a sale process, which is the discipline set out in our note on exit and refinance.
What the seller keeps
Sales are agreed on price and completed on warranties. What the seller warrants, for how long, subject to what caps and what disclosure, is where the last of the value is decided. A seller who has prepared properly discloses fully and warrants narrowly, because everything material is already in the data room. A seller who has not, warrants broadly to compensate for what the buyer could not verify, and carries that exposure for years after the money has been distributed.
Montclare manages and structures European real assets for institutional and private investors, from acquisition through to exit. Our services are set out on our services page.
This article is informational and does not constitute investment, tax or legal advice. Asset management and investment advice are regulated activities and the treatment of any transaction depends on its facts. Each engagement is subject to scope and applicable regulation.